An article in today’s Wall Street Journal shined light on our much overlooked and, until recently, sad, diminishing slice of the strategy pie. Global macro funds outpaced the S&P 500 by a significant margin in 2007 — about 11 percentage points (on average, and depending on the different data providers’ survey sets and strategy definitions, among other factors). The performance was also competitive among hedge fund strategies.

Global macro funds have had a hard time attracting new capital in recent years, with annual returns in the mid-single digits range since 2004. We expect a bit of a shakeout in the manager ranks following last year’s turnaround. And while it is by no means an easy time for these funds to be raising new capital, a few positive outliers — BH Macro, cited in the article, is up 46% since the start of 2007 — can transfer marginal advantage to emerging managers from a strategy’s underperformers.

Of course, the vast disparities we have seen in the direction of interest-rate changes/expectations among different countries has been a boon here, and that trend could be ending (as the BoE signaled today). And looking at the performance of true multi-strategy funds (a subset of global macro) reveals no recent uptick in performance from the long-term, mediocre trend.

Somewhere between Goldman Sachs’ Global Alpha on the downside and Brevan Howard (positive extreme) lies the Stracia™ Globally Optimized™ Capital Markets Index™. Active investors can use this type of approach as a baseline for reacting to news and changing macroeconomic and market exectations, and passive investors could employ a “mimic strategy” — that is, begin to create their own global macro hedge fund (without paying 2 and 20) — based on optimal allocations… because somebody has to keep our butler, Baines, in hair potion, shoe horns, Richmonds, and stifling cologne. ♦