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FRM Part II · FRM Exam Part II · Hedge Fund Investment Strategies

An investor compares two hedge fund approaches: a discretionary global macro fund and a systematic CTA. Which statement most accurately describes a distinguishing feature of these approaches?

Discretionary global macro managers form judgment-based views on economic and policy developments and take directional bets, whereas systematic CTAs use rules-based models, often trend following, applied mainly to liquid futures. Neither is market neutral, and both commonly use leverage, so the key difference is discretion versus systematic rules.

  1. AGlobal macro funds generally trade only futures, while CTAs trade only cash equities
  2. BDiscretionary global macro relies on managers' judgment about economic and policy themes, while systematic CTAs follow rules-based models that are often trend-drivenCorrect
  3. CBoth strategies are market-neutral and have zero exposure to directional price moves
  4. DCTAs typically use no leverage, while global macro funds must be unlevered by regulation

Explanation

Discretionary global macro funds take directional positions based on views of macroeconomic and policy developments. Systematic CTAs apply rules-based models, frequently trend following, across liquid futures. The other options misstate instruments, market neutrality and leverage.

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