A Review of Global Macro Mutual Funds
Investable, but uninvestable.
September 2024. Reading Time: 10 Minutes. Author: Nicolas Rabener.
SUMMARY
- Global macro mutual funds have too much equity exposure
- High Sharpe ratios do not imply high diversification benefits
- Diversification benefits were low
INTRODUCTION
No investing role is more interesting than being a global macro fund manager. Anything can be traded, either long or short. There is no benchmark and portfolio construction is typically down to the fund manager. The only ask of investors is to make money and provide uncorrelated returns that offer diversification benefits. This can´t be too difficult given the flexibility of the mandate, can it?
We previously analyzed the track records of global macro fund managers using indices from HFR, Credit Suisse, and Eurekahedge, where we concluded that these funds provided diversification benefits (read Global Macro: Masters of the Universe?), but also often offered similar exposures to managed futures (read CTAs vs Global Macro Hedge Funds).
However, these indices aggregate the returns of global macro hedge funds that are usually domiciled offshore and not available to most investors. Some of these managers have launched their strategies in the mutual fund format to broaden their investor base.
In this research article, we will evaluate global macro mutual funds.
UNIVERSE OF GLOBAL MACRO MUTUAL FUNDS
We define our universe as all mutual funds in the U.S. that are classified as macro funds by our data providers, which are 43 funds managing $35 billion of assets. The median management fee is 1.13% per annum.
First, we run a returns-based factor exposure analysis to compute the betas to the S&P 500 and a U.S. Investment-Grade Bond index. We observe that some of these global macro funds are essentially equity and bond proxies, which implies no diversification benefits for a traditional 60/40 equities/bonds portfolio.
