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CAIA Level II: Advanced Core Topics in Alternative Investments, 2nd Edition by CAIA Association

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35.1 INTRODUCTION TO THE MACRO STRATEGIES

Global macro hedge funds have the broadest mandate of any of the major fund strategies. Their mandate often has no limitations in terms of types of instruments, asset classes, markets, and geographies. They can dynamically allocate capital to the asset class, sector, or region in which they think the best opportunities currently lie, hence the term global. The second term, macro, reflects the fact that these managers apply macroeconomic views to global markets. Instead of analyzing microeconomic events affecting companies or assets, they view the world from a top-down perspective. Their goal is to anticipate global macroeconomic changes and themes, detect trends and inflection points, and profit by investing in financial instruments whose prices are likely to be impacted most directly. They can go long or short, be concentrated or diversified, with or without leverage. While some funds trade single stocks in anticipation of macro themes, most funds concentrate trading in forwards, futures, and swaps on macro markets, including commodities, currencies, equities, and interest rates.

There are probably as many approaches to the strategy as there are global macro hedge fund managers, but they share a common desire to identify and exploit markets in severe disequilibrium. It is only when prices are perceived as being more than one or two standard deviations away from fair value that macro traders deem that the market presents a compelling opportunity. ...

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