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martes, 16 de febrero de 2016

Investment Strategies: Global Macro

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One of the most attractive investment strategies for professional managers in the financial markets is called Global Macro strategy.

This investment strategy is characterized by carrying out a comprehensive strategy, that is, an approach that takes into account assets and markets around the world with the aim to create an investment portfolio that allows the inverstor to beat the market average.

The selection criteria of assets and strategies are based on macroeconomic analysis and the consequent impact of the most important economic variables (interest rates, inflation, exchange rate ...) on the various financial markets.

The key to get huge profits in this type of strategy is to stay ahead with respect the event the manager expect might happen, which means incurring in higher risk levels because the analysis of what will happen may be wrong.

Thus, if a manager of a global macro hedge fund estimates that the exchange rate of the euro against the dollar will reach parity in the coming months, the hedge fund will take short positions in the EUR/USD today even though the current trend of this currency pair is the opposite. The aim will be to obtain the maximum benefit, so the reason to stay ahead of the expected trend is entering the market from the beginning of this new trend, even assuming temporary losses.

It is very common for analysts of mutual funds that perform a global macro strategy to make analysis based on quantitative models. Quantitative models used in managing investment portfolios mix statistical and economic concepts.

These models try to establish a numerical relationship between a particular variable and others that determine this variable, such as the GDP and its components (consumption, investment, government spending and trade balance), and try to get a certain numerical information (rate of change expected, for example). All this information is interpreted in a way that seeks to detect any major market trend in a more or less near future.

When consider this investment strategy the retail investor may wonder how you can implement this approach in an investment plan.

Implementation of the Global Macro for retail investor

The easiest way to access this type of strategy is through a mutual fund, specifically by acquiring shares in a hedge fund. The problem here is that not everyone can access this type of investment vehicle because the conditions of access to a hedge fund are quite restrictive.

First, to buy shares in a hedge fund, the manager has to consider us as "qualified investor", meaning that the person concerned must have a broad financial knowledge.

In addition, the entry into a hedge fund is not for everyone, as these investment funds usually have a minimum capital investment of around $50,000.

An individual investor can also try to overtake trends in certain markets through personal forecast about what will make a particular variable or an asset. For this the investor can take positions in leveraged products before the expected trend starts. Obviously this strategy is highly risky, so it is only advisable to do if you are expert in the relevant market, and still would be taking high risk.

There are many large investors who have carved his fortune through a global macro investment strategy. Perhaps the best known is George Soros, who in 1992 bet heavily on a depreciation of sterling. Gradually he had taken short positions in sterling against the Deutsche Mark through derivatives, and then sold all positions at once leading to the collapse of the British currency. Thanks to this strategy Soros made a fortune of more than 1,000 million dollars in a single day.





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