One of the legacy myths of managed futures includes "all Commodity Trading Advisors (CTAs) are the same". (See Decoding the Myths of Managed Futures for a full list of the myths)
Over the years I've explained again and again, in presentations, workshops and in the managed futures course I teach at DePaul University, there are many differences among CTAs. This sort of myth would equate to someone saying all hedge funds are the same regardless of their strategies or markets they trade. Even among the trend-following CTAs, that make up the majority of the managed futures industry there are differences. However, this is all part of an investor's learning curve about the investment, as they should do with any other investment.
Future articles will discuss the internal differences of CTAs, thus a more "micro" view of CTAs. This article will take a look at the returns of the sub-sectors of CTAs, a more "macro" view, if you will.
BarclayHedge, is one of the industry leaders in managed futures indices. They list both an index of all CTAs in their database and sub-sector indices. It is in the sub-sector listing where one begins a journey to understand there can be many differences among CTAs.
In the month of June the Barclay CTA index is an estimated -1.13% and YTD -1.33%. However the sub-sector indices are showing the Ag, FX and Discretionary traders up 1.5%, 0.8% and 1.72% respectively YTD. Diversified, Fin/Metals and Systematic traders are -2.96%, -0.36% and -2.82% respectively YTD.
2008 is considered a good year for CTAs as the Barclay CTA index was up 14.09%. However, the Forex traders index were up only 3.5% and the Diversified Traders index returned 26.55%, thus showing the diversity of CTAs.
The following year of 2009, The Barclay CTA index was relatively flat at -0.10%, the Diversified traders index was -3.61% and the Discretionary traders index reported 1.89%.
2002, also considered a good year for CTAs as the Barclay CTA index returned 12.36%, Ag traders index reported -0.05%, FX index 6.29% and Diversified traders reported 14.17%.
Once an investor understands the markets, strategy and duration of trades of a CTA, then understanding a difference in short term and long term returns and volatility and more importantly the source of volatility is the next step in the learning process.
Copyright Mark Shore. Contact the author for permission for republication.