As the markets ease into 2007, investors and money managers are beginning to think about how they want to (re)allocate their portfolios. While hedge funds will likely remain a popular investment vehicle, investors would be wise to avoid certain types of funds, namely those that utilize a “global macro” strategy. Technically, such hedge funds examine global economic fundamentals and allocate capital accordingly. In reality, most of these funds make predictions about the global interest rate climate- specifically how interest rates will behave in relation to each other. Since currencies are often seen as proxies for interest rates, many global macro hedge funds are active participants in forex markets. And 2007 was an especially volatile year for forex markets, which translated into a rough year for global macro funds.

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