Many investors view global macro as the Wild West of strategies. Managers following this strategy can invest in any country, market or security. Macro is short for macroeconomics. By studying these statistics such as interest and foreign exchange rates, commodity demand and political conditions, managers identify price movements and invest to exploit them.
They can be split into two types: discretionary and systematic. Discretionary managers invest by forming a thesis and creating trades to profit from their thesis. They may understand the emotional intelligence of investors and identify irrational and/or inefficient market conditions. They can analyze data at the microeconomic level that has not percolated up to the macroeconomic level. Systematic managers use trading rules to follow trends as their thesis. Oftentimes, these trades are triggered by quantitative models monitored by computer software. This is sometimes be called the "black box" as the rules are proprietary to the manager. These rules may exploit differences in interest rates (carry and yield curve trades), currencies (purchasing power parity), stocks and volatility (option pricing models). Some funds use a combination of both types.
Global macro funds' flexibility allows them to invest in any category but may produce funds that do not have an investment specialty. Since many institutions invest using an asset allocation model, it is difficult to monitor them. They can invest in anything and may break the allocation rules of the investor.
The most famous manager using this strategy is probably George Soros and his most famous trade "broke the Bank of England" in 1992. A recent manager, who emerged from the housing crisis, is John Paulson. You can read more about him in Greg Zuckerman's The Greatest Trade Ever. For additional information about the crisis, Michael Lewis' The Big Short is great reading. For more information - including references to other books and white papers, please go to this article.
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