Common Denominators

Markets traded by CTA and managed futures funds

Originally published in the September 2014 issue

During the summer of 2014, we conducted a survey toestablish “The Common Denominators in the CTA and Managed Futures Industry”. The survey was sent to over 3,500 financial industry practitioners globally, and we received 51 (1.5%) responses. The survey was conducted from 17 June 2014 until 11 July 2014 by the Nanyang Technological University in Singapore, and supported by J8 Capital Management LLP in London.

This article is the first in a series of three articles. It presents the results on “what are the most popular markets traded in the CTA industry?” The second article will present the survey results on the most popular returns engines, portfolio management methods and fee structures. The final article will present an investible index based on these survey findings which may serve as a new benchmark index for the industry.

The full survey report will be published in the Winter 2014 Edition of the Journal of Index Investing by the Institutional Investor Journals

Traded markets
There is clear trend in popularity of traded markets within the CTA industry. All survey participants were asked for their opinions on which markets represent the most relevant or common markets traded by CTAs, and multiple selections were possible. The survey covered a total of 82 markets, of which 27 markets were commodity markets, 10 government bond markets, six interest rate markets, 12 equity index markets, one volatility market, nine G10 currency markets, and 17 emerging market (EM) currency markets.

Fig.1 shows that commodity markets are the most popular markets. This is followed by equity markets, bonds markets, G10 currency markets and EM currency markets. Short-term interest rate markets and volatility are the least popular traded markets.

Commodity markets
The survey sub-categorized commodity markets into six sectors: grains, softs, livestock, energy, industrial metals and precious metals.

Fig.2 shows energy (27%) and precious metals (21%) being the two most popular sectors.

Some sectors show a clear market favourite:

  • Copper was the most popular industrial metal (58%) (see Fig.3).
  • Gold got 58% of the precious metals ticks (see Fig.4).
  • WTI and Brent Crude Oil combined to 63% of the ticks of the energy sector (see Fig.5).
  • Within the grains, softs, and livestock sectors, there was no distinct winner (see Fig.6, Fig.7 and Fig.8 respectively).

Equity indices
The second most popular markets were equity indices, with the S&P 500 taking the lead with 23% of the share (see Fig.9).

Government bond markets
Government bond futures are the third most popular asset class (see Fig. 1). Within government bonds, 10-year US Treasury Notes (20%) and 10-year Euro Bunds (16%) were the most popular markets. The other government bond markets show similarly popularity among each other (see Fig.10).

G10 currency markets
Within the G10 currencies, the euro and the Japanese yen were the favourite markets (see Fig.11).

EM currency markets
Emerging market currencies are slightly less popular in the CTA industry than G10 currencies, with a total of 11% of all ticks received. The most popular EM currency was the Brazilian real.

Interest rate markets
The Eurodollar dominates the interest rate markets (45%). However, Fig.1 shows that rates in total were the second least popular category, with only 7% of the total ticks being allocated to rates.
Volatility markets
There was only one volatility market listed on the survey, the CBOE VIX. However, it was voted the eighth most popular individual market out of all listed markets. Three respondents suggested VDAX and Eurex VSTOXX as relevant volatility markets.

Markets ranked by popularity
Table 1 shows all 82 markets included in the survey, ranked by their popularity as measured by the numbers of ticks received.

Markets have been ranked based on popularity within the CTA and managed futures industry. The commodity markets emerged as the most relevant and traded market in the CTA industry, closely followed by equity indices, government bonds, and G10 currencies.

However, the mix of asset classes of the most popular single markets suggests that the CTA and managed futures industry trades diversified asset portfolios.

Hui Yu Chen and Robert L.K. Tiong: Nanyang Technological University, Singapore. Tillmann Sachs: J8 Capital Management LLP, London. We thank Bolaji Olaniru, Vitali Sakovic, Matthew Jones and Tan Chong It for their contribution and J8 Capital Management LLP for their support.