Global Macro and Emerging Market Funds

Global Macro and Emerging Market Funds

Macro hedge funds trade securities based on global macroeconomic events. They generally trade fixed income, equity index futures, commodities, currencies as well as equities. Macro hedge funds use their macroeconomics specialist to identify changes in the global economy and forecast the ramifications of shifts in macroeconomic policy changes. If they have a view on equities, a top down approach is generally used where they would trade index futures to make directional bets. They mainly use macro economic data to make predictions on currency, fixed income and equity indices.

Macro hedge funds comprise of the smallest proportion of all the funds. Typical well known names include:- Soros, Brevan Howard and Zulauf Asset Management. One of the most famous macro trades was conducted by George Soros when he anticipated the British Pound devaluating in 1992. He was successful and earned his fund 2 billion USD from that trade. Zulauf Asset Management anticipated the 1987 stock market crash by looking at changes in monetary policy. Zulauf also predicted that Japanese equities will peak in 1990. David Gerstenhaber of Argonaut Fund looks at credit cycles and monetary trends. He has a macroeconomic arbitrage model where he identifies lags between the fundamental credit improvement of a country and the countries improvement in credit ratings. Macro traders also very often trade ADR’s versus common stock to take advantage of price discrepancies. Another common strategy is long short of equities and fixed income within the same class but different countries.

Emerging market funds are similar to macro funds in that they both analyze current events in determining asset values. Unlike macro funds which emphasize more on macro policy emerging markets funds tend to analyze the more qualitative aspects of events, like changes in political parties as well as wars and terrorism. Emerging market funds identify securities which are undervalued and expect macro economic catalysts to push the real value of assets. Many macro and emerging market funds have profited from the expected growth of the Asian Tigers and well as

identifying economic downturn during the Asian crisis.