Macro hedge funds have continued to profit from volatile markets, with the average fund gaining 4.5% in the first 11 months of 2023, according to data from Hedge Fund Research. This performance outstrips other hedge fund strategies, as macro funds capitalized on sharp moves in currencies, bonds, and commodities driven by shifting central bank policies and inflation concerns.
Macro strategy outperforms peers
The macro strategy, which bets on broad economic trends, has been a standout in 2023. By contrast, the overall hedge fund industry returned just 2.8% over the same period, while equity hedge funds gained 3.2%. The strong showing comes after macro funds struggled in 2022, when many were caught off guard by the pace of interest rate hikes.
"Macro managers have been able to navigate the volatile environment effectively," said Kenneth Heinz, president of Hedge Fund Research. "The ability to take both long and short positions across asset classes has been a key advantage."
Drivers of volatility
Volatility has been fueled by central bank actions, with the Federal Reserve, European Central Bank, and others raising rates to combat inflation. Geopolitical tensions, including the war in Ukraine and conflict in the Middle East, have also contributed to market swings. Macro funds have profited from these trends by betting on rising bond yields, a stronger US dollar, and commodity price fluctuations.
Some of the best-performing macro funds in 2023 include Brevan Howard's main fund, which gained about 10% through November, and Caxton Associates, which returned approximately 8%. These funds have benefited from trading in interest rate derivatives and currency markets.
Outlook for 2024
Looking ahead, macro fund managers expect continued volatility as central banks navigate the path of monetary policy. "We anticipate further dispersion in economic outcomes across regions, which should create opportunities for macro strategies," said a partner at a London-based macro fund. However, some caution that if central banks succeed in engineering a soft landing, volatility could decline, potentially dampening returns.
Investor interest in macro funds has remained strong, with inflows into the strategy totaling $15 billion in the first three quarters of 2023, according to HFR. This contrasts with outflows from equity hedge funds and other strategies.
