Making the most of Macro

Joe Rouncefield

Joe Rouncefield

Investment Director, Trium Epynt Macro

Joe Rouncefield

Joe Rouncefield

Investment Director, Trium Epynt Macro
Joe joined Trium in 2021 as an investment specialist having previously been responsible for investor relations at Spinnaker Capital Group between 2018 and 2020. Prior to that, Joe worked at Eclectica Asset Management, where he had wide-ranging role within the business team between 2008 and 2017. Joe graduated with an LLB in Law from Kingston University.
Trium Epynt Macro

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Trium Epynt Macro

Until recently, things had generally been going ok for global investors. As a result, macro has been out of fashion due to its reputation as a more defensive strategy.

Given the generosity of the mandate to invest across asset classes and geographies, there are always opportunities to make money in macro. But some environments are better than others.

Volatility is good for macro. Outsized moves expand trading ranges, forcing the hand of investors and leading to bigger moves still. In such an uncertain environment, it is hard for market participants to price the path ahead. ‘Fat tails’ lurk on both the inflationary and recessionary sides, and with Trump back at the helm unleashing an intentionally disruptive policy brainstorm, further volatility is good as guaranteed.

Chart: Policy uncertainty – at its highest since Covid

US Economic Policy Uncertainty Index
Source: Bloomberg and Trium Capital LLP

Macro as an equity hedge

Macro is more than a simple equity hedge, but the strategy has earned its reputation for outperformance during challenging periods for stocks. If markets continue their bad start to 2025, it is reasonable to expect the trend to continue.

This does not mean going against the bullish consensus at every turn. That is not ‘contrarian investing’, it is simply a formula to lose money. Instead, we seek to prepare for multiple alternative scenarios, among which there will always be a number of more adverse possibilities.

As macro investors, you don’t necessarily need to be bearishly positioned in advance of a ‘risk-off’ event to make money. The 2020 Covid sell-off provides a good example. To their credit, some managers nailed it (identifying the specific catalyst and positioning accordingly). ‘Perma bears’ who had been expecting the world to end for less clear reasons also caught a break. Others (like us) had been broadly more constructive on the economy before events began to unfold but used the flexibility of the mandate to rapidly reposition as the facts changed.

Although, as it happens, we are currently attaching more weight to a bearish outlook for the global economy, with the key factors that led to sustained US outperformance in recent years going into reverse, all at a time when liquidity is tightening.

Macro as a thought process

Your ability to monetise the current opportunity set will depend on how you define the strategy. For us, macro is a thought process rather than a predefined set of instruments. We look to make the most of the wide-ranging investment powers we are afforded, and regard this as a significant advantage over more narrowly focused strategies that are choosing to ‘play’ with an overly restrictive hand.

While we favour a multi-asset approach, we trade actively around our long-term thematic framework. The assumptions underpinning more rigid 60/40 or ‘permanent portfolio’ models simply cannot be relied on today given the lack of certainty around policy. Investors must go back to first principles to work out what happens, without an overreliance on history as a guide.

We currently see excellent opportunities within rates and FX (the ‘bread and butter’ of macro) amid the contrasting fortunes of the world’s economic powers and greater divergence in growth and inflation dynamics (and related to that, monetary policy).

Meanwhile, the frenzy around the drive for decarbonisation has breathed new life into commodity markets. Although the movement has become much more politically contentious, most notably in the US, opportunities remain abundant on both the long and short side.

Elsewhere, gold has found a new bid in a more fractured world as non-aligned powers seek to stash funds outside the US sphere of influence (something we have covered in depth previously).

Active trading will continue to be key in monetising opportunities in commodity markets, balancing highly compelling long-term narratives with shorter-term supply and demand dynamics.

Chart 2: Bloomberg Commodity Index – back to January 2022 levels

Bloomberg commodity index chart
Source: Bloomberg and Trium Capital LLP

Investors holding a long commodities position as an ‘inflation hedge’ since the start of 2022 will have made no money during an environment ripe with opportunity.

We also regard equities as a legitimate part of the macro toolkit. While not in the stock picking business, we may take a view on the broad direction of markets. Alternatively, a diversified basket of stocks will sometimes offer the most effective means of playing a more specific macro theme.

Another part of the role as we see it is to stay on top of opportunities in new and evolving asset classes such as carbon emissions and crypto.

You still need to get it right

Of course, higher volatility and a wide-ranging opportunity set do not guarantee strong macro fund performance.

We are paid to take a view. That view might not play out, or we might be too early, but we will look to structure our wagers so that we can afford to get it wrong (potentially more often than not).

Asymmetry is THE key consideration when distilling big-picture macro ideas into specific trades. Sometimes, the best thing to do is buy asymmetry directly via an options structure, although often it is in the price and you can keep it simple when it comes to trade construction (see example below).

Chart 3: Price asymmetry in UK interest rates

Price asymmetry in UK interest rates
Source: Bloomberg and Trium Capital LLP

In mid-January 2025, the market was pricing less than 30bp of cuts for 2025 amid heightened inflation worries vs the BoE’s most recent estimate of 100bp of cuts. A simple long SONIA (sterling overnight rate) futures position offered potential 10:1 asymmetry in positioning for further cuts, with at least one 25bp reduction a ‘given’.

This focus on asymmetry means that ‘difficult’ periods for macro have typically been best described as ‘underwhelming’ rather than catastrophic (in the way that a ‘difficult’ period for equities might wipe out half of your capital).

Is UCITS macro useless macro?

Many of the legends from hedge fund history have been macro managers and the strategy is a permanent feature within hedge fund portfolios. This is not the case when it comes to UCITS. Investors are right to be dubious, given the disappointment that has resulted from various failed attempts to crowbar the strategy into a more heavily regulated format. As a consequence, many investors have determined to ‘do their own macro’ through asset allocation.

The fact is that UCITS rules do not offer the same flexibility as a Cayman hedge fund structure. The format simply does not work for many macro managers, most notably fixed-income RV specialists dependent on large notional exposures to capitalise on small moves in related instruments. They might proffer that a regulatory cap on notional exposure is an odd way of seeking to control risk (e.g. it is perfectly possible to have 1000%+ NAV notional exposure to short-term rates, with only 0.5% of fund NAV at risk in option premium), but these are the rules.

For us, as a thematic multi-asset strategy without any dependency on a particular asset class, the format imposes much less of a constraint. This is a familiar framework within which we have operated for over a decade, and although the rules haven’t changed to any great extent over that period, the range of tradable instruments has grown massively. This enables us to run a ‘proper macro strategy’ with the potential to monetise what we see as the most exciting market environment since 2022.

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