Global macro versus managed futures for year - A difference in approaches


The global macro indices generally posted gains for February but have not done as well as managed futures. However, the discretionary thematic and commodity traders have gotten it wrong this year. Of course, this is a representative index and not how all managers have done. 

The graph is suggestive of the difference in risk-taking between different strategies. Plotting the return and risk of all the HFRI macro indices shows the good performance of systematic strategies. The Barclay BTOP50 and SocGen CTA indices have done even better than the systematic index by over 150 bps. The next best strategy, active trading, generated similar risk-adjusted returns and information ratio but had lower volatility. The adjusted returns are increased or decreased relative to the volatility of the systematic macro index volatility. If the volatility is 30% less than the systematic volatility, then returns are adjusted up 30%.

Generally, we find that the directional trading of managed futures will be more volatility than the average macro trading strategy. In good return environments this translates into higher absolute returns and good information ratios. In down environments or flat performance periods other macro styles may do better because of their lower volatility. Both provide unique diversification but managed futures, given the higher volatility, will provide more diversification per dollar of exposure or dollar paid in fees.