Trying to understand what the edge is in macro RV strategies. I’d think that most are fairly commoditized (e.g. bond basis, FX carry), so are more successful teams just faster/modeling the same thing a little better/get better funding treatment? Or is it more about running things with a discretionary lean (e.g. over hedging one leg that you think is more mispriced)?
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In macro RV (Relative Value) strategies, the edge often comes from exploiting distortions in the rates markets created by large, somewhat price-insensitive flows. This allows traders to construct trades with favorable risk/reward characteristics. While many strategies like bond basis or FX carry may seem commoditized, the edge lies in the nuances of execution and approach. Here's a breakdown:
Execution and Modeling:
Funding and Costs:
Discretionary Overlay:
Market Microstructure and Flows:
Adaptability:
While many RV strategies may appear commoditized, the edge often comes from a combination of superior execution, funding advantages, discretionary insights, and a deep understanding of market dynamics.
Sources: Q&A: Non-Target School to Portfolio Manager at a Top Hedge Fund – 6 Years Out of Undergrad, https://www.wallstreetoasis.com/forum/hedge-fund/developing-macro-understanding?customgpt=1, Ask me anything - quant/quantamental Hedge fund manager/Consultant - Everything on liquid hedge fund strategies, HF PM Q&A, Q&A: Non-Target School to Portfolio Manager at a Top Hedge Fund – 6 Years Out of Undergrad
bump
macro rv == picking dealers off?
This. No one else can seem to articulate anything better. I swear half of my PMs pnl is dealers snoozing at the wheel
Helpful, thanks. What's the other half?
Selling vol
Mostly by being able to do it in size to make it worth it. Or by guessing better than others
Bump
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