CFA Level II Exam · Hedge Fund Strategies
Macro and Managed Futures Hedge Fund Strategies
Updated 7 October 2026 · Fact-checked
Global macro funds take directional positions across currencies, rates, equities and commodities based on views of economic and policy trends. Discretionary funds rely on manager judgment. Systematic funds use rules. Managed futures funds, run by CTAs, trade liquid futures mainly by following price trends. Match each vignette clue to the approach.
Understand Macro and Managed Futures Strategies
Macro strategies make directional bets on broad market moves instead of picking single securities. The manager forms a view on growth, inflation, interest rates, currencies or political events. The fund then expresses that view through futures, forwards, swaps, currencies, bonds and equity indexes. Leverage is common because the price moves being targeted can be small.
Macro funds come in two styles. Discretionary macro managers decide trades using judgment and top-down economic analysis. Systematic macro funds use quantitative models and fixed rules to select positions, often based on economic data, valuation or other signals. In both cases the bets are usually on the direction of whole markets, not on relative mispricing between close substitutes.
Managed futures funds are run by commodity trading advisors (CTAs). They trade futures and forwards in commodities, currencies, interest rates and equity indexes. Many CTAs are systematic and trend-following: they go long markets that are rising and short markets that are falling. Other CTAs are discretionary. Because they use liquid, exchange-traded contracts, positions can usually be changed quickly, and the funds can go long or short in any market.
The key contrast is the source of the view. Macro looks for a fundamental thesis, such as a central bank that will surprise the market, and may hold a position until the thesis plays out. Trend-following managed futures does not need a thesis. It reacts to price behavior. Trend followers tend to do well in sustained moves and poorly in choppy, range-bound markets where trends reverse often (whipsaws). Macro funds can lose when policy or economic events do not unfold as the manager expects.
Remember that both groups are not market neutral. Returns can have low correlation to traditional assets, and managed futures in particular has at times done well in prolonged equity downturns because it can short. That is a tendency, not a guarantee.
How to solve Macro and Managed Futures Strategies questions
There is no calculation for most questions here. Use this method to classify a fund and judge how it will behave.
- 1Read the vignette for how trades are chosen: manager judgment and economic thesis, or models and rules.
- 2Identify the instruments and markets: futures and forwards across commodities, currencies, rates and equity indexes point to CTA or macro.
- 3Find the signal: a view on policy, growth or inflation suggests macro; price trends or momentum suggest trend-following managed futures.
- 4Decide discretionary or systematic from who or what makes the final decision.
- 5Link the market environment given to the likely result: sustained trends help trend followers, whipsaws hurt them, and a wrong policy view hurts macro.
- 6Check leverage, liquidity and fee clues, then pick the option that fits the full description, not just one phrase.
Quickest way: Three-clue classification
When to use it: Use it when an item-set question asks which strategy a fund follows or how it will perform.
- Clue 1, decision maker: judgment means discretionary; rules or models mean systematic.
- Clue 2, signal: economic thesis means macro; price trend means managed futures.
- Clue 3, market backdrop: trending favors trend followers; choppy ranges hurt them.
- Eliminate options that call the strategy market neutral or stock-picking.
Common mistakes in Macro and Managed Futures Strategies
Treating macro and managed futures as the same strategy.
Both trade futures and forwards across asset classes.
Fix: Ask what drives the trade. Macro uses an economic or policy thesis; trend-following managed futures follows price movement.
Assuming all CTAs are systematic.
Trend-following models are the best-known CTA approach.
Fix: CTAs can be systematic or discretionary. Read the vignette for who makes the final trade decision.
Calling macro funds market neutral.
Hedge funds are often loosely described as hedged.
Fix: Macro funds take directional bets on markets, currencies and rates, so they carry real market risk.
Saying trend followers profit in any volatile market.
Volatility is confused with trend.
Fix: They need sustained moves. Sharp reversals and sideways markets cause whipsaw losses.
Assuming managed futures always gains when equities fall.
Past crisis performance is stated as a rule.
Fix: They can short, so they may benefit from sustained declines, but this depends on trends forming.
Worked examples
Example 1
Vignette: Kestrel Fund trades futures on bond, currency, commodity and equity index markets. A computer model compares each market's recent price against its own trailing average, and goes long or short with no manager input. Over the last quarter, markets moved sideways with frequent reversals. Q1: Which strategy fits best? Q2: What is the likely result last quarter?
Show the solution
- Q1: The fund trades liquid futures across several asset classes, and the model decides trades by price signals with no manager input.
- That points to a systematic trend-following managed futures fund run by a CTA, not discretionary macro.
- Q2: Trend followers need sustained directional moves.
- Sideways markets with frequent reversals create whipsaws, where the model buys then sells at a loss.
Answer: Q1: Systematic managed futures (trend-following CTA). Q2: Likely weak or negative performance because of whipsaw losses.
Example 2
Vignette: Altair Capital's manager believes a central bank will cut rates sooner than the market expects. He buys government bond futures, shorts that country's currency forward, and sets position size by his own judgment. The central bank instead raises rates. Q1: Classify the fund. Q2: What is the likely outcome? Q3: Is the fund market neutral?
Show the solution
- Q1: A view on central bank policy expressed in bonds and currency, with positions set by the manager's judgment, is discretionary global macro.
- Q2: The long bond and short currency positions both rest on falling rates. A rate rise moves bond prices down and tends to strengthen the currency, so both legs likely lose.
- Q3: The positions are directional bets on rates and currency, not offsetting long and short positions in related securities. The fund is not market neutral.
Answer: Q1: Discretionary global macro. Q2: Likely losses because the thesis was wrong. Q3: No, it takes directional market exposure.
Exam tips
- Look for who decides: the words 'judgment' versus 'model' or 'rules' usually settle discretionary versus systematic.
- Questions often pair a market condition with a strategy. Know that trending markets help trend followers and choppy ones hurt them.
- Do not confuse macro with relative value: macro is directional, relative value exploits pricing gaps between related securities.
- Treat 'always' and 'never' in answer options with suspicion, especially about crisis performance or correlation.
Macro and Managed Futures Strategies in other exams
The same ground in other exams, if you are preparing for more than one or want another angle on it.
Macro and Managed Futures Strategies: frequently asked questions
What is a CTA managed futures fund?
A CTA, or commodity trading advisor, manages a fund that trades futures and forwards in commodities, currencies, interest rates and equity indexes. Many follow systematic trend-following rules, though some are discretionary.
What is the difference between managed futures and global macro?
Global macro bases trades on a view of economic and policy developments and can be discretionary or systematic. Trend-following managed futures bases trades on price trends and usually does not need a fundamental thesis.
When do trend-following funds perform poorly?
They struggle in sideways or choppy markets where trends reverse often. They buy after a rise or sell after a fall, then the market turns, creating whipsaw losses.
Are macro hedge funds market neutral?
No. They take directional positions in currencies, rates, equities and commodities. Their results depend on whether the manager's view of the market is right.