Macro hedge funds are finding it increasingly difficult to maintain diversified portfolios as escalating tensions in the Middle East drive correlations higher across global markets, according to a report by Financial News London.
The conflict – following US and Israeli strikes on Iran and a widening regional response – has created an environment in which traditional macro strategies are harder to execute, according to industry managers.
Unlike equity-focused funds, macro hedge funds typically seek opportunities across asset classes such as currencies, commodities, bonds and equity indices. However, geopolitical shocks often cause assets to move in tandem, undermining diversification.
The challenge stems from rising cross-asset correlations during periods of geopolitical stress, making it difficult for funds to build portfolios of uncorrelated positions – a core pillar of macro investing.
The war has already triggered sharp moves across global markets. Oil prices briefly surged above $85 a barrel earlier this week – their highest level since mid-2024 – before retreating as traders reassessed the potential duration of the conflict.
Energy markets remain a key focus for macro investors. A hedge fund chief investment officer said oil could quickly fall if a ceasefire emerges, but could spike above $100 a barrel if the conflict escalates further.
The volatility has also hit global equities. The S&P 500 Index dropped more than 2% in early March following the escalation, while Asian markets saw steeper losses, with South Korea’s main equity benchmark sliding nearly 10% and Japan’s Nikkei 225 falling more than 5%.
