2019 CTA Strategy Review

No keeping up with stocks

RCM Alternatives, Chicago, USA
Originally published in the February | March 2020 issue

It was a decent (not great) year for the many different vessels sent out to sea across the quant, managed futures, and global macro space, with CTAs enjoying their best year since 2014 – as evidenced by the SG CTA Index returning 6.26%. But no matter your captain’s method of attack out on the choppy sea of the markets, there was no keeping up with nearly 30% gains in the stock market.

We mentioned in our 2020 Outlook that managed futures/global macro owe a thank you note to global bonds, showing that the index was up +11.77% when bonds were down -5.39% the rest of the year, and that was the story for the classic managed futures trend following strategy type

Elsewhere, short term systematic and the volatility trading segments were dominated by the mostly too steady march higher in equities and resulting decline back towards record lows in the VIX. Ag traders saw some brief love from normal conditions like flooded fields and herd disease derailed by tweets and trade talks over the year.

Here’s our review of each strategy type in 2019, starting off with that big bond trade in trend following.

Trend following and systematic global macro

2019 Performance: Average 

Trend following and systematic macro saw nearly all of their 2019 gains come from interest rates and the fixed income sector, earning enough in those profitable sectors to offset a forgettable year for the strategy across trades in currencies, equities, and commodities. Trend followers typically have significant exposure to world bond markets; with their large volume, deep liquidity, and many different flavors (Japanese bonds, Aussie bonds, US 5s, 10s, 30s, and more), and a shared trend across different bond markets can add significantly to returns. That was most of the story in 2019, where interest rates across the world fell – even negative rates getting more negative.

Elsewhere, the trend reversal in May as well as August hurt long stock index positions, while commodities and currencies did not provide much help, with both sectors lacking trends throughout the year, except Palladium – which exhibited the strongest trend in the commodity sector climbing and eye popping +60%. We guess those catalytic converters aren’t going away anytime soon?

Summary: Trend followers with large bond exposure did well. Those that are more diversified and/or heavier weighting towards commodity markets underperformed. 

Notable Managers that we work with:

  • Rational Resolve (I) RDMIX: +18.32%
  • EVE GTAP Plus Fund: +16.92%
  • County Cork Acclivity LLC: +16.46%
  • EMC Alpha Plus: +15.80%
  • Red Rock Global Macro: +13.83%
  • Campbell Managed Futures: +11.80%

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