Sunday, March 10, 2013

Is CTA trend following Dead?


This is just a very short comment related to discussions I've been having with a friend about trend following funds and a lot of the recent blogs and debates proclaiming the death of trend following.

                                                 Fig. 1 Barclay CTA Index

Using the Barclay CTA Index as a proxy, we can certainly see that there was a huge level shift of performance from around the 1990s and onwards, making the annual return appear to be on an almost exponential decay. However from about 1990 to present, the annual returns have have been steadily oscillating in a range band from around -1% to 13% (with some outliers), and although the return per decade has been dropping over the last few decades, there's not really enough data to make any strong judgements about it's demise. Just looking at the oscillatory behavior and considering the bearishness towards this class of funds-- It might just suggest a good reversion based long bet on trend-followers.


  1. I'm guessing these are "raw returns"? What does it look like compared to the general market?

  2. Part of the low returns for CTAs lately might be attributed to low interest rates environment since they invest primarily in Futures.

    I guess one has to keep the big picture in mind and compare CTA returns against other hedge funds/asset classes returns: since 2007/2008, I believe CTAs do not lag other asset classes (HF down 20% in 2008, equities down > 50%, and so on).

  3. Thanks for the comments. On a longer term basis, the CTA index when compared to a market proxy such as the S&P500 total return index is not too bad at all (particularly on a risk adjusted basis). Rather than dig up some charts on it, I'll refer to a pretty good post on it here: