Macro hedge funds, which look at economic trends and take advantage of dislocations across asset classes, had a banner year in 2022. On average, they notched a 12.2% return versus -0.7% for the broader industry.
Q4 2022 hedge fund letters, conferences and more
It was all the more remarkable because nothing else worked. The classic 60/40 model — a portfolio with 60% in stocks and 40% in bonds — had its worst year since 2008. Meanwhile, the performance of crossover hedge funds, which had branched into the venture capital world to buy the hottest tech startups, was disastrous. Tiger Global Management, the most prominent in that category, lost 56%.
This report card was sorely needed, because macro managers had lost quite a bit of shine since the collapse of Lehman Brothers Holdings Inc. These funds profit from disruptions. When global markets were dominated and becalmed by central banks’ bond buying programs, they no longer offered much value-add.
With the world in disarray, macro funds are back in fashion. Looking at allocation plans for 2023 among all the trading strategies, investors favored macro the most, according to the latest Preqin survey.
Nonetheless, the big question remains whether macro funds can repeat their outperformance and reclaim the industry crown. Crossover funds, popular with investors, are down but not out. Despite big losses, they are still launching new offerings and drawing in billion-dollar checks.
Macro funds may well have another good year ahead, judging by the global landscape in 2023. They’ve certainly got a few interesting investment themes and selling points.
Consider how macro funds made money. Last year, they profited from challenging the authority of the biggest central banks. They made the correct call that policymakers were behind the curve on inflation, and that they would eventually turn hawkish and acknowledge that price increases were not transitory. For that, they gained from rising yields — such as rates on US two-year debt soaring from 0.78% to 4.43%. A surprise change by the Bank of Japan to its yield curve control policy in December handed another win to those bond bears.
Read the full article here by Shuli Ren, Advisor Perspectives.
