28/07/2010 Author: Zaki Abushal

Global macro funds benefit from big volatility swings

Credit Suisse has unearthed an interesting, yet anecdotal, correlation between the monthly change in the Vix and the relative performance of global macro managers.

Without more rigorous testing not an awful lot should be assumed from the results, however, as a guide to which strategies actually perform well when volatility shifts dramatically, up or down, this certainly is a point of interest.

Volatility has often been considered a friend to hedge funds, but very few will enjoy working in wildly swinging markets. In terms of the reaction of global macro managers to volatility changes, they actually perform better the larger the swing:
A movement of less than -20% in the Vix Index results in a -0.29% average relative monthly performance.

At the other end of the scale, a swing of +45%, as occured in May this year, and the average relative monthly performance for global macro managers jumps to 2.14%.