The Case for Global Macro in Institutional Portfolios

Arjan Berkelaar

This article was first published as a chapter in Global Macro: Theory and Practice, by Risk Books.

Global macro strategies attempt to generate returns by investing globally in equity, interest rate, commodity and currency markets. These strategies often employ leverage and typically use futures and currency forward contracts, as well as options on futures contracts to implement bets. Global macro is typically classified as either discretionary (ie, managers use subjective judgement in assessing market conditions) or systematic (ie, managers use a quantitative or rule-based approach to investing). A subset of systematic global macro strategies are commodity trading advisors (CTAs), sometimes also called managed futures. CTAs tend to be trend-following or momentum traders and typically use very little discretion, instead relying on computer programmes to follow price trends. This chapter will analyse both discretionary global macro and managed futures strategies from the perspective of a long-term institutional investor, such as an endowment or a foundation.

Traditionally, such investors have allocated only a small portion of their overall portfolio or their hedge fund portfolio