What Is the Appeal of Global Macro Hedge Funds - Essay Example

Questions 1: What Is the Appeal of Global Macro Hedge Funds? A global macro hedge fund arises in the case whereby possible investing activities are made in order to produce enormous levels of positive returns by way of ensuring to adopt leveraged bets on possible price movements in equities or even currencies across a global platform. According to Chief Investment Officer (2015), the global macro hedge funds have continued to enjoy a significant level of trend especially with institutional-based investors. In fact, at least 40% of all investors had shown interest to include these hedge funds in terms of commodities, foreign exchanges, fixed income as well as macro and managed futures contracts. The appealing feature of these funds are directly connected to the current state of the global economy, which is indeed characterised by such aspects as falling oil prices, the strengthening of the US currency as well as Greece debt issues (Chief Investment Officer, 2015). All of these issues are deemed to be creating distinctive opportunities for managers of hedge funds given that they depend on imbalances of global markets to accrue substantial level of gains. Hedgework (2011) notes that the elevation of the market correlations as well as the paradigm movement of risk appetite for a substantial level of period has contributed a lot in the development of an investment-based environment for most, if not all, hedge funds. The article further notes that, as a result of the importance made on macro stipulations in order to allow for shifts in the global markets, strategies formulated upon the bottom-up techniques have continued to undergo imminent challenges at the expense of the rather directional as well as tactical forms of trading models, which have continued to postulate outperformance in regards to relative basis (Hedgework, 2011). In essence, it is noted that the rather strengthened performance levels of the macro in the course of the market downturns is a fundamental appealing feature for most hedge fund investors. The global macro managers have continued to portray distinctive abilities in relation to their respective flexibility styles, liquid portfolio holdings as well as the immediate adoption of a top-down technique as way of preserving capital structures in periods of imminent market dislocations hence allowing the existing and potential investors to enjoy a significant attractive standalone risks and returns attributes as well as a much more stronger portfolio effect due diversification tactics in the course of market stress. References Chief Investment Officer (March, 2015). “Investor Appetite for Global Macro Heats Up”. Retrieved on November 3, 2015 from http://www.ai-cio.com/channel/ASSET-ALLOCATION/Investor-Appetite-for-Global-Macro-Heats-Up/ HedgeWork.(2011). “Global Macro amid Uncertainty (ENG)”. Retrieved on November 3, 2015 from http://www.hedgework.de/global-macro-amid-uncertainty.html Question 2: Discuss the past and current role of quantitative easing in the US and Japan today Japan Japan is deemed to be the first global economy to adopt the technique attributed to Quantitative Easing in the period between 2001 and 2006 and later, re-embarked with the technique in 2012 after the immediate election of Shinzo Abe as the country’s PM. The Bank of Japan is , in fact, noted as being the founder of the technique at the beginning of the last decade and has continued to apply it ever since then (Stratfor Global Intelligence, 2015). The formulation and adoption of the technique was merely related to the rather deflationary pressures the economy that lasted for 25 years. The Japanese latest purchasing behaviour rather referred to as the “burst of bond buying” is a significant aspect of Abenomics; a strategic strategy that was introduced by the PM Abe in 2013 (Stratfor Global Intelligence, 2015). The strategy is focused on improving the economy’s inflation to a 2% target and thereafter, adopting fiscal stimulus programs as well as pertinent structural reforms to restructure the economy into a shape that would grow much faster. Thus, it can be noted that past role of the economy adopting a quantitave easing program rest with the fact that it needed to wrest the entire out of its rather overdue slump position (Stratfor Global Intelligence, 2015). Recently, quantitave easing is still being used for the purpose of ensuring the success of Abenomics that is attributed to improving inflation rates. In essence, the recent plunge in oil prices has resulted to a negative development of attaining a raised inflation rate limiting Japan’s ability to steer future economic growth due to the existing economic hitch associated with value-added tax hikes (Stratfor Global Intelligence, 2015). United States of America USA has, since 2008, been seen to have adopted quantitave easing model in a successful manner. For instance, the US Federal Reserve was able to improve its balance sheet from a figure of $2.825 trillion to about $4.482 trillion in the periods between 2008 and 2014 (Katie, 2015). These successful developments have, in fact, recognised the economy as attaining a sufficient level of economic stimulus in the world over. In the past as well as now, the US economy adopts a quantitative easing approach to improve on its economy. A perfect way, through which this is achieved, is when the Federal Reserve continues to auction large amounts of treasuries in order to strengthen its fiscal policies. The process also ensures to sustain an affordable consumer debt rate as well as placement of corporate bonds for business ventures to allow for expansion (Katie, 2015). References Katie, A.(2015). “Quantitave easing around the world: Lessons from Japan, UK and US”. Retrieved on November 3,2015 from http://www.theguardian.com/business/2015/jan/22/quantitative-easing-around-the-world-lessons-from-japan-uk-and-us Stratfor Global Intelligence (April, 2015). “How quantitative easing differs in Japan and Europe”. Retrieved on November 3, 2015 from https://www.stratfor.com/analysis/how-quantitative-easing-differs-japan-and-europe Question 3: Factors Behind Asset Allocation Change of Weighting Equities Announced by Japan’s Government Pension Investment Fund? The recent launch and structural changes witnessed with the Japan’s Government Pension Fund has allowed global macro managers a reason to be enthusiastic in future. The fund, which manages a total of about $1.3 trillion fund, is considered to be the largest in the world (Powell, 2014). The equity portfolio of the fund has been subjected to intensive overhaul in order to constitute an additional three benchmark indices for a relative investment that would include a JPX-Nikkei 400 that was recently launched by the Japan Exchange in order guarantee of higher return-on-equity as well as the level of profits. Subsequently, the GPIF changes has further unveiled more than 14 active and 10 passive investments managers for which they would be distributed to cater for smart-beta investment so they could set out a passive and active investments into the Japanese real estate investment trusts. The changes associated with asset allocation of weighting equities is also set to take a center stage in ensuring that alterations can be made and employed by the Japanese wider public and corporate pension fund sector (McConaghy, 2015). The changes are meant to rectify the current lower fees being allowed to pension funds management in comparison to the international standards, which as a result, has prevented the sector from attracting good and better-performing managers. Thus, the change is necessary since it is set to eliminate possible hindrances that curtail returns in the future (McConaghy, 2015). In essence, the changes will allow for the immediate selection and retention of good and performing managers while eliminating less confident ones due to their respective inability to perform (McConaghy, 2015). The selection process will, in turn, become much clearer and effective with these alterations within the GPIF (Powell, 2014). The current GPIF investment strategy, which is a result of the changes, is highly attributed to the adoption of a pension fund drop; Topix as a benchmarking tool since it depicts a much lower capital productivity, to include JPX-Nikkei 400, MSCI Japan as well as Russell Prime (Powell, 2014). References McConaghy, S. (2015). “Japan- GPIF Will Soon Start Selling Equities and Buying Yen”, Market Views, p. 4. Retrieved on November 3, 2015 from http://www.horsemancapital.com/marketviews/shannon-mcconaghy/2015/03/japan-%E2%80%93-gpif-will-soon-start-selling-equities-and-buying-yen Powell, L. (2014). “Reasons to get excited by changes at GPIF”. Asian Investors. Retrieved on November 3, 2015 from http://www.asianinvestor.net/News/383338,reasons-to-get-excited-by-changes-at-gpif.aspx Question 4: How is a stronger dollar impacting US Businesses? According to Evans (2014), the strength of the dollar has resulted to the improvements of the larger US Economy given that the Federal Reserve has contemplated raising the interest rates. The raise in the dollar value has resulted to significant improvement of the economy’s labour market as more job opportunities in most of the US-based firms can now employ skilled labour at affordable rates, which has in turn fostered the level of productions in these companies. In consequence, the level of employment within this market rose by a whopping 235,000 jobs. Notwithstanding, the Regal Fruit Cooperative, prior to purchasing its neighbours fruits and thereafter, packaging and shipping across the globe was evidently profitable in nature. However, with the recent strengthening of the dollar, the firm has cried foul especially due to significant decrease in the level of profitable income (Mailto & Goldman, 2015). The less profitability of the firm and the sector at large is highly attributed to an ever-increasing level of costs at the expense of a shrinking operational margins while still, competition from countries with cheaper currencies taking up a significant portion of the market share for such fruits as apples and other types of fruits. The company is set to close down operations very soonest. In part, the strengthened dollar has further resulted to more foreclosure by banks given the fact that now more people cannot access adequate financing (Mailto & Goldman, 2015). As opposed to the fact that a strengthened dollar currency indicates that global investor still have more faith of the US economy as well as its deflated financial markets, it still showcases a negative consequence on most of American-based businesses especially since they cannot fairly compete with commodities that are readily available to consumers at a much effective discounted exchange rate. Ziobro, Mitchell & Francis (2015) notes that the strengthened US dollar has resulted to a significant slicing of both sales and profits of most American firms compelling them to renew their push on cost-reduction strategies. It is argued that the companies’ sales in the overseas economies might be on the rise in local perspective however; they might look a little bit smaller whenever they have been converted back to stronger dollars (Ziobro, Mitchell & Francis, 2015). Subsequently, the strengthened dollar could also result to huge mismatches between the level of costs and revenues and thus, make it much challenging for export-oriented firms to complete transactions. References Evans, R. (2014). “Dollar rallies to 7-year high on Economic Outlook”. Bloomberg. Print Mailto, H & Goldman, C. (2015) “Strong dollar could hurt US Companies”. Retrieved on November 3, 2015 from http://abcnews.go.com/Business/story?id=87855&page=1 Ziobro, P Mitchell, J & Francis, T (2015). “Strong dollar squeezes US Firms”. Retrieved on November 3, 2015 fromhttp://www.wsj.com/articles/strong-dollar-hangs-over-more-companies-rattling-investors-1422386620 Question 5: How Is Falling Oil Prices Impacting The World Economy? The global oil prices have continued to fall sharply in the past couple of months, which has resulted to substantial decreases in revenue especially for the energy exporting nations while the potential consumers in the importing economies will likely have to pay much less in order to enjoy the utility offered (Silverstein, 2015). The decrease in the oil prices within the global market platform is attributed to a rather weaker demand in most of the countries that emanates from redundant economic growth as well as a surging US production capacity (Silverstein, 2015). In addition to this, the oil global cartel OPEC has refused to cut down on production in order to improve on prices. Due to the ever-surging oil prices as a result of substantial supplies in comparison to the demand, there has been an imminent fall in the commodity prices throughout the global economies (Bowler, 2015). Russia, being one of the world’s massive oil producers has suffered a high interest rate given that the economy fully functions from proceeds of oil sale. There is a significant chance that the economy’s loses would amount to $2B in revenues for each dollar fall of oil prices putting the economy in a much tighter spot (Bowler, 2015). The Russian government has indicated that it will not cut down on oil production citing a possibility of losing their markets by competing economies. The higher level of interest rates in the economy is set to make it even much challenging for business to grow due to limited borrowing and spending. In Venezuela, the falling oil price is the immediate result of intensive political tensions while the economy is set to shrink into a possible recession point. There has been intensive need for cutting down on government spending habits in vain (Bowler, 2015). However, for such already established economies like Saudi Arabia, the plunging of the oil price will only affect economic operations since it enjoys a massive reserve fund of at least $700B, which will ensure that it can survive through the current turbulent times (Bowler, 2015). The situation is also true for other Gulf-producing economies like the UAE and Kuwait, which enjoys enormous foreign currency reserves that can cushion them against the situation. In the United States of America, the plunge of the oil prices has led to deepening of the overall costs of production since it is also an exporter of the same. References Bowler, T. (2015). “Falling oil prices: Who are the winners and losers?” BBC News. Retrieved on November 3, 2015 from http://www.bbc.com/news/business-29643612 Silverstein, K. (2015). “How falling oil prices will impact economy and the keystone pipeline debate. Forbes Magazine, Retrieved on November 3, 2015 from http://www.forbes.com/sites/kensilverstein/2015/01/09/falling-oil-prices-impact-economy-and-the-keystone-pipeline/ Read More