Recently, Institutional Investor published an article titled “Here’s Why CTA Strategies Are Failing Investors”. The article states, “twice this year commodity trading advisors, which use trend-following strategies, haven’t lived up to their promise to protect investors during market downturns. Their disappointing performance is the result of changes many CTAs have put in place in the last decade.” The article references the SocGen CTA Index which was down 5.19% through May and is skewed toward the larger managers and the majority trend followers.
What this article lacks to identify are the CTAs that don’t fall into the trend following category. For instance, the Barclay Discretionary Trader Index was up 3.05% through May 2018, and the Barclay Agricultural Traders Index was up 2.01% for that same period. So, to make this generalization about CTAs as trend followers is an unfair statement. Furthermore, the author suggests changes made to trend following strategies are the cause of underperformance. This is factually incorrect. Though a large number of strategies may have altered the risk management structure, we believe the core issue stems from an inadequate quantity of futures products in a world removed from disparity normally associated with varied interest rates and capital flows.
The article does properly attribute a “tough environment” because of the sharp reversals in multiple markets at the same time, including equities and fixed income. Since the world interest rates collapsed to nearly identical levels (zero) and assets became correlated from quantitative easing and currencies undifferentiated, the resulting environment created shallow trends across markets in a universe that quite factually has only 40-50 liquid futures products with which to trade.
While not adapting to monetary policy and its broader impacts can be faulted, generalizing an entire industry as trend followers and blaming strategy adjustments for poor performance is inaccurate.
Hehmeyer Trading + Investments CTA platform provides investors with additional information about our "niche" strategies. Visit our website to learn more about our company and to access the Hehmeyer Investment Platform, or feel free to reach out to Roxanne Bennett for more information.