Major developments on the tariffs front, shifting monetary policies, geopolitical tensions, and divergent regional growth are leading to a complex and evolving macro landscape, characterized by market uncertainty and increased probability of tail risk events. We have moved out of a beta-driven, passive investing world and into a macro environment that requires greater active management.
In this context, discretionary macro offers a powerful and timely tool: the ability to dynamically allocate capital across global markets using top-down insights that are grounded in macroeconomic analysis. Indeed, with U.S. assets outperforming in the last 20 years, diversification would have led to lower absolute returns for investors, however the current market environment necessitates a shift towards more resilient portfolios, highlighting the value of uncorrelated strategies such as discretionary macro.
What is discretionary macro?
Discretionary macro is an active strategy where managers construct portfolios based on their top-down views of the world, offering a diversifying alpha source to portfolios. These are dynamic trading mandates focused on deep and liquid markets, allowing managers to flexibly and dynamically invest across asset classes, though there is often a bias towards fixed income and FX markets.
How are discretionary macro strategies positioned?
Macro managers often invest using flexible thematic expressions. For example, while most managers were positioned for U.S. outperformance at the start of 2025, they quickly shifted to a short USD exposure, due to a combination of political, economic, and market-driven factors including unpredictable economic policies and concerns over the U.S. fiscal debt. This was complemented by short rates positions to express the view that tariffs will be inflationary and increase the probability of the Fed being in a “wait and see” mode until there is evidence of a slowdown in the economy. This view can also be expressed as a yield curve steepening trade by managers given concerns over the long-term sustainability of U.S. fiscal policy. In addition, equity exposures are often optionalized, which allows managers to participate in the upside but seeks protection when equity markets draw down.
What can discretionary macro offer investors?
The main benefits that discretionary macro strategies can offer investors are absolute return potential and portfolio diversification. Discretionary macro funds are absolute return products, aiming to yield risk-adjusted returns above the risk-free rate. Over the trailing 3-year period ending April 30, 2025, the HFRX Macro Discretionary Thematic Index (Flagship Funds) yielded an annualized return of 5.0%, with a volatility of just 5.8%. For comparison, global equities experienced nearly 3x the volatility over this same period, as the MSCI ACWI experienced 15.5% volatility.
In addition to lower absolute volatility, discretionary macro strategies often provide outperformance during stress environments, offering downside management and liquidity for portfolios at times when it is most needed. This includes during regime shifts when traditional assets tend to struggle, as shown throughout 2022 when both equity and bond markets were down. Additionally, macro strategies tend to outperform in markets characterized by broad market volatility, as shown during Q1 2020 when stock markets across the world crashed due to uncertainty related to the COVID-19 pandemic. The following chart illustrates that many discretionary macro funds have historically offered downside mitigation and diversification during equity market drawdowns.[1]
Why now?
We are in a period when it is important to be able to be nimble and adjust positions quickly in response to rising macroeconomic and geopolitical uncertainty, global monetary policy fragmentation, and a breakdown of traditional diversification. These conditions can create opportunities for macro managers to exploit dislocations by using a broader toolbox than most managers by allowing for directional and relative value bets across currencies, interest rates, commodities and equities.
How is WTW differentiated?
While themes and outlook in global macro are often similar across managers, we believe what tends to differentiate high conviction from low conviction managers is their approach to risk management and trade expression, particularly during times of uncertainty. In practice, we have helped our clients access specialist discretionary strategies with strong risk management and trade implementation policies, which has added value relative to managers with less robust polices. For example, one of our high conviction macro managers was swift to react in April 2025, by closing their long volatility positions and taking profits. Another of our high conviction managers employs an active FX trading strategy which benefits from volatility, which proved beneficial relative to peers during the first half of the year.[2]
At WTW, we believe the best way to access discretionary macro is by employing specialist managers who aim to find compelling investment strategies across the entire opportunity set.
In addition to the market risks associated with any investment, hedge funds expose investors to specific risks including, but not limited to: liquidity risk, leverage/margin exposure, operational risks, and the potential for substantial losses (i.e. "left-tail risk"). Additionally, hedge funds often invest in derivative investments, which carry their own unique risks. It is important for an investor to consider these risks and the ways that they can mitigate them before investing in hedge funds.
Data source: Nasdaq eVestment as of April 30, 2025. Performance reflects monthly periodicity.
This document was prepared for general information purposes only and does not take into consideration individual circumstances. The information contained herein should not be considered a substitute for specific professional advice. In particular, its contents are not intended by Towers Watson Investment Services, Inc., and its parent, affiliates, and their respective directors, officers and employees (WTW) to be construed as the provision of investment, legal, accounting, tax or other professional advice or recommendations of any kind, or to form the basis of any decision to do or to refrain from doing anything. The information included in this presentation is not based on the particular investment situation or requirements of any specific trust, plan, fiduciary, plan participant or beneficiary, endowment, or any other fund; any examples or illustrations used in this presentation are hypothetical. As such, this document should not be relied upon for investment or other financial decisions and no such decisions should be taken on the basis of its contents without seeking specific advice. WTW does not intend for anything in this document to constitute “investment advice” within the meaning of 29 C.F.R.§ 2510.3-21 to any employee benefit plan subject to the Employee Retirement Income Security Act and/or section 4975 of the Internal Revenue Code.
This document is based on information available to WTW at the date of issue, and takes no account of subsequent developments. In addition, past performance is not indicative of future results. In producing this document WTW has relied upon the accuracy and completeness of certain data and information obtained from third parties. This document may not be reproduced or distributed to any other party, whether in whole or in part, without WTW’s prior written permission, except as may be required by law. Views expressed by other WTW consultants or affiliates may differ from the information presented herein. Actual recommendations, investments or investment decisions made by WTW, whether for its own account or on behalf of others, may differ from those expressed herein.
