A Comparison Of: CTA Indexes

A Comparison of
CTA Indexes
Thomas N. Rollinger
Scott T. Hoffman
www.RedRockCapital.com
Red Rock Capital, LLC www.RedRockCapital.com

5000 Birch Street, Suite 3000
Newport Beach, CA 92660
A Comparison of CTA Indexes | By Thomas N. Rollinger & Scott T. Hoffman | Red Rock Capital
I nvestors and money managers interested in diversifying into Managed Futures are often attracted to the
daily transparency and better liquidity that Managed Futures have over the typical hedge-fund structure.
Professional money managers in the Managed Futures space are known by the regulatory designation of
Commodity Trading Advisors (CTAs). However, with hundreds of CTA programs from which to choose, it can
be daunting to know where to start one’s analysis of this investment space. One place to begin is with CTA
indexes, which compile and track the performance of different CTA programs. This paper summarizes and
analyzes information on over ten CTA indexes, and while it attempts to encompass the most-oft used indexes,
it is not a completely exhaustive list. Finally, since much of this information is not readily available, the purpose
of this paper is to serve as an effective and efficient informational resource for the industry going forward.
Upon delving into this material one quickly discovers there are differences between the various CTA indexes
in terms of construction methodology, the number of CTA programs tracked, and minimum requirements
with regard to track record length, financial auditing, and assets being managed.
Before presenting the information on the indexes themselves, we thought it would be helpful to offer some
background on the terms “Managed Futures”, “CTAs”, and “Systematic Trend Following.”
Defining Managed Futures,

CTAs, & Systematic Trend Following
“Managed Futures” is an extremely broad term that That being said, Managed Futures may be thought
requires a more specific definition. Managed Futures of as a collection of liquid, transparent hedge fund
traders are commonly referred to as “Commodity strategies which focus on exchange-traded futures,
Trading Advisors” or “CTAs,” a designation which forwards, options, and foreign exchange markets.
refers to a manager’s registration status with the Com- Trading programs can take both long and short
modity Futures Trading Commission and National positions in as many as 400 globally diverse markets,
Futures Association. CTAs may trade financial and spanning physical commodities, fixed income, equity
foreign exchange futures, so the name Commodity indexes, and currencies. Daily participants in these
Trading Advisor is somewhat misleading since CTAs markets include hedgers, traders, and investors, many
are not restricted to trading only commodity futures.1 of whom make frequent adjustments to their posi-
[Note: many investors generically say “Managed tions, contributing to substantial trading volume and
Futures” or “CTAs” when they more precisely mean plentiful liquidity. These conditions allow most Man-
“systematic CTAs who employ trend following strat- aged Futures programs to accommodate large capacity
egies (or ‘Systematic Trend Followers’),” likely due to and provide the opportunity to diversify across many
the fact that many of the largest and most successful different markets, sectors, and time horizons.2
trading managers employ some variation of a trend
Diversification across market sectors, active manage-
following strategy.]
ment, and the ability to take long and short positions
[For a more thorough summary on Systematic Trend Fol- are key features that differentiate Managed Futures
lowing / Systematic Global Macro, see Appendix I.] strategies not only from passive, long-only commodity

2 5000 Birch Street, Suite 3000
indexes, but from traditional investing as well. Al- easier to measure and model.1 In fact in research con-
though most Managed Futures programs trade equity ducted before the Global Financial Crisis, Bhaduri and
index, fixed income, and foreign exchange futures, Art (2008) found that the value of liquidity is often
their returns have historically been uncorrelated to underestimated, and, as a result, hedge funds that trade
the returns of these asset classes. The reason for this is illiquid instruments have underperformed hedge funds
that most managers are not simply taking on system- that have better liquidity terms.5
atic beta exposure to an asset class, but are attempting
The quantitative nature of many Managed Futures
to add alpha through active management and the free-
strategies makes it easy for casual observers to mistak-
dom to enter short or spread positions, tactics which
enly categorize them as “black box” trading systems.1
offer the potential for completely different return
According to Ramsey and Kins (2004), “The irony is
profiles than long-only, passive indexes.1
that most CTAs will provide uncommonly high levels
Early stories of futures trading can be traced as far of transparency relative to other alternative invest-
back as the late 1600s in Japan.3 Although the first ment strategies.”6 They go on to suggest that CTAs
public futures fund started trading in 1948, the indus- are generally willing to describe their trading models
try did not gain traction until the 1970s. According and risk management in substantial detail during the
to Barclays (2012), “…a decade or more ago, these course of due diligence, “short of revealing their actual
managers and their products may have been consid- algorithms.” CTAs are also typically willing to share
ered different than hedge funds; they are now usually substantial position transparency with fund investors.
viewed as a distinct strategy or group of strategies Ramsey and Kins conclude that, “It is difficult to call
within the broader hedge fund universe. In fact, Man- CTAs black box, considering they disclose their meth-
aged Futures represent an important part of the alter- odology and provide full position transparency so that
native investment landscape, commanding approx- investors can verify adherence to that methodology.”
imately 14% of all hedge fund assets [which equated
Separately managed accounts, common among Man-
to] $284.4 billion at the end of 3Q11.”4 More recent
aged Futures investors, greatly enhance risk manage-
estimates, according to alternative investment data-
ment by providing the investor with full transpar-
base BarclayHedge located in Fairfield, Iowa, show
ency, and in extreme cases, the ability to intervene
that Managed Futures now account for approximate-
by liquidating or neutralizing positions.1 In addition,
ly 13% of all hedge fund assets under management
institutional investors who access CTAs via separately
($316.8 billion of the total $2,478.6 billion invested in
managed accounts substantially reduce operational
hedge funds).
risks and the possibility of fraud by maintaining custo-
Managed Futures should also be thought of as a sub- dy of assets. Unlike the products traded in other hedge
set of global macro strategies that focuses on global fund strategies, those traded by CTAs allow investors
futures and foreign exchange markets and is likely to customize the allocation by targeting a specific
to utilize a systematic approach to trading and risk level of risk through the use of notional funding.
management. The instruments that are traded tend to The cash efficiency made possible by the low margin
be exchange-listed futures or extremely deep, liquid, requirements of futures and foreign exchange allows
cash-forward markets. Futures facilitate pricing and investors to work with the trading manager to lever or
valuation and minimize credit risk through daily set- de-lever a managed account to target a specific level of
tlement, enabling hedge fund investors to mitigate or annualized volatility or other risk metric. Some CTAs
eliminate some of the more deleterious risks associat- offer funds with share classes with different levels of
ed with investing in alternatives. Liquidity and ease of risk. Unlike traditional forms of leverage, which re-
pricing also assist risk management by making risks quire the investor to pay interest to gain the additional
2

exposure, assets used for margin in futures accounts Hedge database representing at least 50% of total assets
can earn interest for the investor. Another advantage in all CTA programs that are open to new investment.
of trading futures is that there are no barriers to short To qualify for inclusion in the index the program
selling. Two parties simply enter into a contract; there must be open to new investment, the manager must
is no uptick rule, there is no need to borrow shares, be willing to report daily returns, the program must
pay dividends, or incur other costs associated with have two years of performance history, and the pro-
entering into equity short sales. Thus, it is easier to gram CTA must have at least three years of operating
implement a long-short strategy via futures than it is history.
using equities.1
The index calculation methodology is such that the
[To see a summary of how institutional investors view index performance represents the return of a hypo-
Managed Futures and CTAs, see Appendix II.] thetical portfolio comprising an equal dollar allocation
to each index constituent at the beginning of each
calendar year. During the fourth quarter of each year,
Overview of the all CTA programs in the BarclayHedge database that
meet the inclusion requirements (candidate universe)
CTA Indexes are ranked by third quarter ending program assets.
Beginning with the largest program, the constituent
ALTEGRIS 40 INDEX list for the following year is compiled by successively
The Altegris 40 Index is designed to represent the adding the next largest program to the constituent list
performance of the 40 largest CTA programs based until a minimum of 20 programs have been included
on program assets. All programs in the Altegris CTA and the cumulative program assets of the constituent
database are eligible for inclusion in the index. list equals at least 50% of the total program assets of
the candidate universe. The result of this process is the
Each month all CTA programs in the Altegris database constituent list for the index for the following calen-
are ranked by program assets. The 40 largest pro- dar year. At the beginning of the year a hypothetical
grams are selected as index constituents for the follow- portfolio is formed with each constituent program
ing month. The index return for the month is the asset given an equal dollar allocation. The index daily return
weighted average return of the constituent programs is simply the daily return of this hypothetical portfolio.
for that month. There is no rebalancing of allocations during the year.
As of December 2014, the 40 programs in the index As of December 2014 there were 20 constituent pro-
represented assets of approximately $91.4 billion. grams in the index representing $93.8 billion.
The proprietor of the Altegris 40 Index is Altegris The proprietor of the Barclay BTOP50 Index is Bar-
Clearing Solutions, LLC, and they, in conjunction clayHedge, Ltd., and they also calculate the index. The
with Altegris Advisors, LLC, calculate the index. The index is available without cost online at www.bar-
index is available without cost online at www.man- clayhedge.com and Sol Waksman, the President and
agedfutures.com and Altegris Clearing Solutions can Founder of BarclayHedge, can be reached at
be reached at TSG@altegris.com or (858) 459-7040. swaksman@barclayhedge.com or (641) 472-3456.
BARCLAY BTOP50 INDEX BARCLAY CTA INDEX

The Barclay BTOP50 Index is designed to represent The Barclay CTA Index is designed to broadly rep-
the performance of CTA programs in the Barclay- resent the performance of all CTA programs in the
3

BarclayHedge database that meet the inclusion re- rebalancing of allocations during the year.
quirements. To qualify for inclusion in the index, a
As of December 2014, the 457 programs in the index
program must have at least four years of performance
represented assets of approximately $220.8 billion.
history. Additional programs introduced by qualified
advisors (advisors who have at least one program that The proprietor of the Barclay Systematic Traders
meets the four year history requirement) must have at Index is BarclayHedge, Ltd., and they also calculate
least two years of performance history. the index. The index is available via a $150 yearly
subscription which provides a complete monthly
The index constituent list each year is comprised of
historical data set for all of the Barclay CTA Indexes
all CTA programs that meet the inclusion require-
and monthly updates for the next 12 months. Bar-
ments at the end of the prior year. At the beginning of
clayHedge’s website is www.barclayhedge.com and
the year a hypothetical portfolio is formed with each
Sol Waksman, the President and Founder of Barclay-
constituent program given an equal allocation. The
Hedge, can be reached at swaksman@barclayhedge.
index monthly return is simply the monthly return of
com or (641) 472-3456.
this hypothetical portfolio. There is no rebalancing of
allocations during the year.
CISDM CTA EQUAL WEIGHTED INDEX
represented assets of approximately $232 billion. The CISDM CTA Equal Weighted Index is designed
to broadly represent the performance of all CTA
The proprietor of the Barclay CTA Index is Barclay-
programs in the Morningstar database that meet the
Hedge, Ltd., and they also calculate the index. The
inclusion requirements.
index is available via a $150 yearly subscription which
provides a complete monthly historical data set for all The index calculation methodology is designed to
of the Barclay CTA Indexes and monthly updates for exclude, each month, constituent performance deemed
the next 12 months. BarclayHedge’s website is www. to be an outlier observation. Each month, statistics
barclayhedge.com and Sol Waksman, the President are generated for CTA programs in the Morningstar
and Founder of BarclayHedge, can be reached at database that meet the inclusion requirements and
swaksman@barclayhedge.com or (641) 472-3456. that have reported returns for that month. Programs
whose returns are +/- 3 standard deviations from the
average return are excluded. The index return for the
BARCLAY SYSTEMATIC TRADERS INDEX
month is the simple average return of the non-exclud-
The Barclay Systematic Traders Index is designed to ed programs.
represent the performance of CTA programs in the
As of December 2014 there were 262 constituent pro-
BarclayHedge database whose approach is at least 95%
grams in the index.
systematic. To qualify for inclusion in the index, a
program’s approach must be at least 95% systematic The proprietor of the CISDM CTA Equal Weighted
and have at least two years of performance history. Index is the Center of International Securities and De-
The index constituent list each year is comprised of all rivatives Markets (CISDM) and their research analysts
CTA programs that meet the inclusion requirements calculate the index. CISDM provides Morningstar
at the end of the prior year. At the beginning of the with the index on a monthly basis and it is available
year a hypothetical portfolio is formed with each con- without cost on both Morningstar’s and CISDM’s
stituent program given an equal allocation. The index websites. See CISDM’s website at www.isenberg.
monthly rates of return are simply the monthly rates umass.edu/CISDM or contact Patricia Bonnett, Execu-
of return of this hypothetical portfolio. There is no tive Director, at CISDM@isenberg.umass.edu.
4

CREDIT SUISSE MANAGED FUTURES At the end of each year all CTA programs that meet
HEDGE FUND INDEX the inclusion requirements are ranked by program
assets. The 20 largest programs that meet the inclusion
The Credit Suisse Managed Futures Hedge Fund In- requirements are selected as index constituents for
dex is designed to broadly represent the performance the following year. The index return each month is
of Managed Futures hedge funds (in contrast to CTA the simple average of the individual volatility adjusted
programs) in the Credit Suisse database representing (normalized) return of each constituent. A rolling 36
at least 85% of total Managed Futures hedge fund month standard deviation of each constituent’s returns
assets under management. To qualify for inclusion in is used as the measure of volatility.
the index, a fund must provide audited financials, have
a minimum $50 million in assets, have a minimum As of December 2014, the 20 constituents in the index
one year of performance history, and consistently represented approximately $67 billion in assets.
report to the database. The proprietor of the iSTOXX Efficient Capital
At the end of each quarter, funds that meet the in- Managed Futures 20 Index is STOXX Ltd, and they
clusion requirements are added to the constituent list independently calculate and publish the index value
for the following quarter. Constituent funds remain on a daily basis. Efficient Capital Management serves
in the index until they cease operations even though as the research partner. The index is available online
they may not continue to meet the initial inclusion at http://www.stoxx.com/indices/index_information.
requirements. The index return each month is the html?symbol=STXECMF and STOXX can be reached
asset weighted average return of all constituents for at customersupport@stoxx.com or +41.58.399.5900.
that month.
As of December 2014, the 32 constituent funds in the NEWEDGE CTA INDEX
index represented approximately $58 billion in assets. The Newedge CTA Index is designed to represent
Credit Suisse is both the proprietor and responsible the performance of the 20 largest CTA programs. To
for calculating the Credit Suisse Managed Futures qualify for inclusion in the index, a program must be
Index. The index is available without cost online open to new investment and report returns on a daily
at www.hedgeindex.com and Credit Suisse can be basis.
reached at hfindices.ir@credit-suisse.com. At the end of each year all CTA programs in the
Newedge CTA database that meet the inclusion
ISTOXX® EFFICIENT CAPITAL® requirements are ranked by program assets. The 20
MANAGED FUTURES 20 INDEX largest programs are selected as index constituents
for the following year. At the beginning of the year a
The iSTOXX® Efficient Capital® Managed Futures 20 hypothetical portfolio is formed with each constituent
Index is designed to represent the aggregate return of program given an equal allocation. The index daily
20 of the largest CTA programs and be easily replicat- return is simply the daily return of this hypotheti-
ed as an investment product. To qualify for inclusion cal portfolio. There is no rebalancing of allocations
in the index, a program must have a minimum of during the year.
$100 million in assets, be open to new investment,
be available through a managed account, be offered As of December 2014, the 20 programs in the index
with fees lower than or equal to the corresponding represented assets of approximately $93.5 billion.
publically traded fund, and have at least three years of The proprietor of the Newedge CTA Index is Société
performance history. Générale, and they, in conjunction with BarclayHedge,
5

calculate the index. The index is available without a monthly basis.

cost online at www.newedge.com and James Skeggs,
Each month all CTA programs in the database are
Global Head of the Advisory Group, can be reached at
ranked by program assets. The 300 largest programs
james.skeggs@newedge.com.
comprise the constituent list for the following month.
The index return for the month is the asset weighted
NEWEDGE CTA TREND INDEX average return of the constituent programs for that
month.
The Newedge CTA Trend Index is designed to rep-
resent the performance of the 10 largest Trend Fol- As of December 2014, the 300 programs in the index
lowing CTA programs. To qualify for inclusion in the represented assets of approximately $72.56 billion.
index, a program must be open to new investment,
Daniel B. Stark & Co., Inc. is both the proprietor and
report returns on a daily basis, be an industry recog-
is responsible for calculating the Stark 300 Trader
nized Trend Follower, and exhibit significant correla-
Index. The index is available without cost online at
tion to trend following peers and the Newedge Trend
www.starkresearch.com and they can be reached at
Indicator.
info@starkresearch.com or (619) 702-1230.
At the end of each year all CTA programs in the
Newedge CTA database that meet the inclusion STARK SYSTEMATIC TRADER INDEX
requirements are ranked by program assets. The 10
largest programs are selected as index constituents The Stark Systematic Trader Index is designed to
for the following year. At the beginning of the year a broadly represent the performance of the all CTA
hypothetical portfolio is formed with each constituent programs in the Stark database whose approach is
program given an equal allocation. The index daily systematic and that meet the inclusion requirements.
return is simply the daily return of this hypotheti- To qualify for inclusion in the index, a program’s ap-
cal portfolio. There is no rebalancing of allocations proach must be systematic, the program’s CTA must
during the year. be registered with the NFA and be willing to report
performance to the Stark database on a monthly basis.
represented assets of approximately $73.8 billion. The index return for the month is the asset weighted
average return of all programs that meet the inclusion
The proprietor of the Newedge CTA Index is Société requirements for that month.
Générale, and they, in conjunction with Barclay-
Hedge, calculate the index. The index is available As of December 2014, there were 601 constituent pro-
without cost online at www.newedge.com and James grams in the index representing approximately $70
Skeggs, Global Head of the Advisory Group, can be billion in assets.
reached at james.skeggs@newedge.com. Daniel B. Stark & Co., Inc. is both the proprietor and
is responsible for calculating the Stark Systematic
STARK 300 TRADER INDEX Trader Index. The index is available without cost
online at www.starkresearch.com and they can be
The Stark 300 Trader Index is designed to represent
reached at info@starkresearch.com or (619) 702-1230.
the performance of the 300 largest CTA programs in
the Stark database that meet the inclusion require-
ments. To qualify for inclusion in the index, a pro-
gram’s CTA must be registered with the NFA and be
willing to report performance to the Stark database on
6

Analysis
DESCRIPTIVE INFORMATION
Type of
Number CTAs Start Backfilled Rebalance Constituents Reporting Is Index
Weighting
of CTAs Disclosed Date To Frequency Reformed Frequency Investable
Method
ALTEGRIS 40 Asset 40 No Jan-90 N/A Monthly Monthly Monthly No

BARCLAY BTOP50 Equal 20* Yes Jan-02 Jan-87 Annually Annually Daily No
BARCLAY CTA Equal 535* No Jan-87 Jan-80 Annually Annually Monthly No
BARCLAY SYSTEMATIC Equal 457 *
No Jan-88 Jan-87 Annually Annually Monthly No
CISDM Equal 262* Yes^ Jan-94 N/A Monthly Monthly Monthly No
CREDIT SUISSE Asset 32*
Yes Nov-99 Jan-94 Monthly Quarterly Monthly No
ISTOXX EFFICIENT Equal† 20 Yes Aug-12 Jan-01 Monthly Annually Daily Yes
NEWEDGE Equal 20 Yes Jan-00 N/A Annually Annually Daily No
NEWEDGE TREND Equal 10 Yes Jan-12 N/A Annually Annually Daily No
STARK 300 Asset 300 Yes Oct-93 Jan-82 Monthly Monthly Monthly No
STARK SYSTEMATIC Asset 601 *
Yes Oct-93 Jan-82 Monthly Monthly Monthly No
* Number of constituents is dynamic
^
Yes—with subscription
†
Volatility-adjusted / normalized
In the above table, rebalance frequency refers to how trading styles. They both have merit. If one wants
often the index is reset back to its original weighting to gauge the performance of the majority of AUM
scheme. The annual rebalancing methodology of the allocated to Managed Futures, then they should focus
equal weighted Barclay and Newedge indexes has the on an asset weighted index. If, however, they are
effect that during the calendar year between rebal- interested in how the average program performed,
ancing, the effective weight or contribution of well then they should concentrate their focus on an equal
performing constituents increase relative to poorer weighted index.
performing constituents. In this way, the hypothetical
Are more constituents better than fewer? The num-
portfolio of the initial equal weighted constituents
ber of constituents in an index is a measure of how
become unbalanced over time; hence the need to re-
broadly the index represents the performance of CTA
balance. Technically, rebalancing only has significance
programs. Since the vast majority of assets in the
when the index reporting period is different than the
Managed Futures space are concentrated in a relative-
rebalance period. If the index reporting period is the
ly small number of the largest managers, the number
same as the rebalance period, the index never has a
of constituents in an asset weighted index becomes
chance to become unbalanced.
less significant once the number of constituents in
Is an asset weighted index better than an equal the index represents the vast majority of assets being
weighted index? The answer will depend on what managed in the space. For an equal weighted index,
aspect of the Managed Futures space the reader is the more constituents represented in the index, the
interested in. An asset weighted approach is more more broadly the index represents the entire diversity
representative of the total assets under management of CTA programs in the Managed Futures space. Ad-
(AUM) in the space. On the other hand, equal weight- ditionally, rebalancing and reconstitution events have
ing is more representative of the diversity of different a bigger impact with a smaller number of constituents

since each constituent has a larger percentage impact the Newedge Trend Index, and the relatively new
on the index as a whole, i.e. with 500+ constituents, iSTOXX Efficient Capital Managed Futures Index.
dropping, adding, or rebalancing will not have much Such indexes will necessarily have fewer constituents
impact on the entire index. and qualify constituents by size. These qualifications
are necessary to facilitate the practical considerations
Some indexes have been designed to be easily rep-
of actually replicating the index methodology, partic-
licated in an investable product, such as the Barclay
ularly the issues of manager capacity, reallocation, and
BTOP50 Index, both the Newedge CTA Index and
rebalancing events.
PERFORMANCE STATISTICS (January 2003 – December 2014)

Annualized
Annualized Sharpe Sortino Max
Standard Skewness Kurtosis
Return Ratio (0) Ratio (0) Drawdown
Deviation
ALTEGRIS 40 5.13% 9.58% 0.54 0.87 -15.74% 0.03 -0.63

BARCLAY BTOP50 4.47% 6.96% 0.64 1.12 -10.92% 0.24 0.30
BARCLAY CTA 3.90% 5.98% 0.65 1.14 -9.96% 0.24 0.30
BARCLAY SYSTEMATIC 3.75% 7.17% 0.52 0.87 -11.81% 0.19 0.33
CISDM 6.71% 8.00% 0.84 1.61 -11.94% 0.44 0.03
CREDIT SUISSE 5.72% 11.19% 0.51 0.82 -17.40% 0.00 -0.81
ISTOXX EFFICIENT 5.05% 7.58% 0.67 1.12 -12.80% 0.02 -0.06
NEWEDGE 5.05% 7.71% 0.65 1.10 -11.97% 0.03 -0.38
NEWEDGE TREND 6.38% 12.34% 0.52 0.82 -17.53% -0.07 -0.48
STARK 300 4.23% 7.16% 0.59 0.99 -10.33% 0.08 -0.58
STARK SYSTEMATIC 4.21% 7.62% 0.55 0.92 -10.71% 0.11 -0.55
U.S. STOCKS 10.90% 14.53% 0.75 1.11 -50.84% -0.86 2.53
AGGREGATE BONDS 4.38% 3.54% 1.24 2.18 -3.93% -0.32 1.87
60% STOCKS / 40% BONDS 8.38% 8.84% 0.95 1.44 -32.48% -1.00 3.61
U.S. Stocks represented by Vanguard Total Stock Market Index Fund (VTSAX).
Aggregate Bonds represented by Vanguard Total Bond Market Index Fund (VBTLX).
60% Stocks / 40% Bonds represented by Vanguard Balanced Index Fund (VBIAX).
Indexes with a larger number of constituents tend to distribution of monthly returns was impacted more
be less volatile than indexes with a smaller number of by negative outliers than positive outliers – i.e. they
constituents possibly due to the more diversification showed a propensity for downside volatility / negative
represented by the more broadly defined indexes. fat tails.
During the analysis period the maximum drawdowns When comparing the performance of CTA indexes to
for all CTA indexes were substantially lower than those of traditional asset classes like stocks and bonds,
for U.S. Stocks and the traditional 60% Stocks / 40% it is important to recognize that the return report-
Bonds institutional portfolio. Furthermore, all three ed by CTAs does not include the return on interest
traditional asset class variants exhibited significant earned on any notional amount invested in the pro-
amounts of negative skewness, which means the gram. This is a significant point which will understate,

and in periods of higher interest rates significantly is in fact earned by the investor, but is not includable
understate, the actual return earned by an investor in in the CTA’s reported performance. Current regula-
a CTA program. tions prohibit CTAs from imputing interest earned on
notional funds; they may only report returns actually
This is because of the notional funding possible in a
earned in the futures account.
futures account whereby an investor in a CTA pro-
gram is only required to deposit a small fraction of the All indexes in our survey were very highly correlated
nominal account size used by the CTA to determine to each other regardless of index size, composition,
the size of trading positions. The amount not on weighting method, or calculation methodology. For
deposit as margin with the futures broker, termed the the period of 2003 through 2014, the average correla-
notional amount, is retained by the investor and can tion was 0.94 with a minimum of 0.89.
earn interest outside the futures account. This interest
ANNUAL RETURNS (January 2003 – December 2014)
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
ALTEGRIS 40 15.99% 2.57% 4.51% 6.70% 7.18% 15.47% -7.98% 11.33% -3.23% -4.75% -2.45% 15.75%
BARCLAY BTOP50 15.55% 0.86% 2.76% 5.61% 7.57% 13.58% -4.77% 6.38% -4.25% -1.83% 0.76% 12.32%
BARCLAY CTA 8.69% 3.30% 1.71% 3.54% 7.64% 14.09% -0.10% 7.05% -3.09% -1.70% -1.47% 7.21%
BARCLAY SYSTEMATIC 8.71% 0.54% 0.95% 2.10% 8.72% 18.16% -3.38% 7.82% -3.83% -3.20% -1.09% 9.52%
CISDM 11.07% 3.83% 2.44% 5.66% 11.57% 21.76% 0.61% 14.29% -3.14% -1.76% 0.72% 15.12%
CREDIT SUISSE 14.15% 5.96% -0.11% 8.05% 6.00% 18.23% -6.57% 12.20% -4.19% -2.93% -2.56% 18.36%
ISTOXX EFFICIENT 15.82% -0.53% 5.58% 7.70% 9.54% 13.24% -3.57% 8.68% -4.82% -3.79% -0.70% 14.35%
NEWEDGE 15.75% 1.46% 3.20% 5.75% 8.05% 13.07% -4.30% 9.26% -4.45% -2.87% 0.75% 15.41%
NEWEDGE TREND 11.91% 2.68% 0.75% 8.24% 8.58% 20.88% -4.80% 13.13% -7.93% -3.52% 2.67% 19.37%
STARK 300 10.55% 2.93% 0.47% 5.94% 5.85% 11.41% -4.18% 7.92% -4.67% -3.38% 4.33% 11.08%
STARK SYSTEMATIC 10.17% 2.86% -0.32% 5.25% 5.85% 12.48% -5.44% 8.36% -4.69% -3.74% 5.25% 14.28%
U.S. STOCKS 31.95% 12.57% 6.12% 15.59% 5.59% -36.99% 28.82% 17.22% 1.10% 16.38% 33.53% 12.57%
AGGREGATE BONDS 1.93% 4.37% 2.51% 4.35% 7.04% 5.24% 6.02% 6.22% 7.71% 4.20% -2.29% 5.96%
60% STOCKS / 40% BONDS 19.98% 9.36% 4.80% 11.07% 6.35% -22.15% 20.17% 13.26% 4.30% 11.51% 18.07% 10.01%

CORRELATIONS (Monthly data, January 2003 – December 2014)
1 2 3 4 5 6 7 8 9 10 11 12 13 14
1. ALTEGRIS 40 1.00
2. BARCLAY BTOP50 0.96 1.00
3. BARCLAY CTA 0.91 0.92 1.00
4. BARCLAY SYSTEMATIC 0.92 0.92 0.99 1.00
5. CISDM 0.92 0.91 0.96 0.96 1.00
6. CREDIT SUISSE 0.98 0.94 0.89 0.90 0.91 1.00
7. ISTOXX EFFICIENT 0.95 0.96 0.92 0.92 0.90 0.92 1.00
8. NEWEDGE 0.97 0.97 0.91 0.92 0.92 0.95 0.96 1.00
9. NEWEDGE TREND 0.97 0.95 0.91 0.92 0.91 0.96 0.93 0.96 1.00
10. STARK 300 0.97 0.95 0.91 0.91 0.92 0.96 0.95 0.97 0.96 1.00
11. STARK SYSTEMATIC 0.97 0.95 0.90 0.90 0.91 0.96 0.94 0.97 0.96 0.99 1.00
12. U.S. STOCKS 0.07 0.04 0.06 0.01 0.07 0.11 0.03 0.04 0.08 0.09 0.07 1.00
13. AGGREGATE BONDS 0.17 0.10 0.14 0.13 0.11 0.15 0.14 0.09 0.08 0.09 0.07 0.01 1.00
14. 60% STOCKS / 40% BONDS 0.10 0.05 0.08 0.03 0.09 0.13 0.05 0.05 0.10 0.10 0.08 0.99 0.17 1.00

cus exclusively on one time frame, while others trade

Appendix I a variety of time frames in an attempt to enhance di-
versification. Since trend followers typically diversify
SYSTEMATIC TREND FOLLOWING across both markets and time frames, it becomes quite
likely that at any point in time, trends will be present
Systematic Trend Following (“Trend Following”) is
in several market and/or time-frame combinations.1
a mature and well-established trading style, having
Obviously differences in risk budgeting across mar-
demonstrated performance persistence for more than
kets, time horizons, and parameter selection will
thirty years. Approximately 72% of the assets under
result in Trend Following programs that produce
management in Managed Futures belong to this strat-
somewhat different return profiles.2
egy sub-style.2
Trend Following attempts to capture price trends Appendix II
which generally result from sustained capital flows
across asset classes. Investable trends often occur as
WHERE INSTITUTIONAL INVESTORS
markets move both toward and away from their natu-
POSITION MANAGED FUTURES AND CTAS
ral equilibrium.2
Most Trend Following strategies are of the momen- According to a survey in the Barclays Capital February
tum or “break-out” style, both of which attempt to 2012 Hedge Fund Pulse report, institutional investors
capture large directional moves. Trend followers viewed the top three key benefits of investing in
generally place stop orders to limit losses when trends CTAs as:
reverse. Most trend followers, however, will either 1) Low correlation to traditional return sources
not utilize profit objectives, or will set profit objec-
tives much further away from the entry price than the 2) The risk-mitigation/portfolio-diversifying
stop-loss orders.1 The basic strategy often results in characteristics of the strategy
a payout profile that is similar to being long options; 3) The absolute-return component of the strategy and
that is, the strategy experiences large profits when a its attributes as a source of alpha
trend emerges, but relatively small losses when trends
reverse or fail to materialize.7 Also, 50% of the investors had some of their current
hedge fund portfolio allocated to CTA strategies,
Managers who deploy these trading strategies gener- while 50% of investors surveyed plan to increase their
ally make investment decisions systematically, based allocations to the strategy in the next six months.4
on mechanical rules devised through statistical and
historical analysis.1 Trend Following has evolved More recent data found in Preqin’s 2015 Global Hedge
from its naïve, primarily rules-based beginnings to Fund Report8 shows that:
become a highly sophisticated group of quantitative • 19% of institutional investors felt the performance
strategies whose ability to generate robust returns has of CTAs/Managed Futures exceeded expectations
been enhanced by more precisely controlling risk and in 2014. This is up from only 2% of investors
drawdown.2 that felt performance exceeded expectations
Managers may attempt to capture price trends across a throughout 2013.
wide variety of time horizons, from intraday to more • During 2014, 22% felt performance fell short of
than one year. Most intermediate- and long-term expectations. This was down from almost half of
trend followers are focused on time frames of a few investors that felt CTAs fell short of expectations
weeks to a few months. Some managers choose to fo- in 2013.
9

12
5000 Birch Street, Suite 3000
• 13% of investors worldwide are seeking CTA • Fund of hedge funds make up almost a third (32%)
investments over the course of this year. This of investors with an investment preference for
compares to 10% of investors that were seeking CTAs. This is followed by foundations and public
CTA investments the year before. pension funds, which both account for 12% each,
and private pension funds which account for 11%.
• 20% of private wealth firms specifically are
targeting CTA investments this year. • 58% of investors with an investment preference for
CTAs are based in North America, 29% in Europe,
• There are 1,093 institutional investors worldwide
11% in Asia and 2% across the rest of the world.
that invest in CTAs. This us up from 982 at the end
of 2013.
References
1. Park, Peter, Tanrikulu, Oguz and Wang, Guodong. “Systematic Global Macro: Performance, Risk and
Correlation Characteristics.” February 24, 2009.
2. Abrams, Ryan, Bhaduri, Ranjan and Flores, Elizabeth. “Lintner Revisited — A Quantitative Analysis of
Managed Futures for Plan Sponsors, Endowments and Foundations.” CME Group, May 2012.
3. Bakken, Henry H. “Futures Trading — Origin, Development, and Present Economic Status.” University
of Wisconsin. Mimir Publishers, Inc., 1966: p. 3.
4. Barclays Capital. “Trending Forward: CTAs/Managed Futures.” Hedge Fund Pulse, February 2012.
5. Bhaduri, Ranjan and Art, Christopher. “Liquidity Buckets, Liquidity Indices, Liquidity Duration, and
their Applications to Hedge Funds.” Alternative Investment Quarterly, Second Quarter, 2008.
6. Ramsey, Neil and Kins, Aleks. “Managed Futures: Capturing Liquid, Transparent, Uncorrelated Alpha.”
The Capital Guide to Alternative Investment. ISI Publications, 2004: pp. 129–135.
7. Hsieh, David A. and Fung, William. “The Risk in Hedge Fund Strategies: Theory and Evidence from
Trend Followers.” The Review of Financial Studies, Vol. 14, No. 2, Summer 2001. Available at SSRN:
http://ssrn.com/abstract=250542
8. Preqin. “Overview of CTAs”, 2015 Preqin Global Hedge Fund Report, January 2015.
Important Disclosures
This document is for informational purposes only, and it is not a solicitation for investment. Past results are
not necessarily indicative of future results. An investment with any Commodity Trading Advisor should only
be made after careful study of the advisor’s Disclosure Document, including the description of the objectives,
principal risks, charges, and fees associated with such an investment.
11

About Red Rock Capital, LLC

Red Rock Capital is an award-winning commodity investment management firm. The firm is helmed by Thomas
Rollinger, most notably a devoted pupil and former protégé of quantitative hedge fund pioneer and legend,
Edward O. Thorp.
Rollinger, along with his partner Scott Hoffman, developed and actively manage two award-winning quantita-
tively based, systematic CTA programs. The Commodity Long-Short strategy just won a coveted peer-decided
award for outstanding performance from CTA Intelligence. And throughout its 11+ year track record the System-
atic Global Macro program (Systematic Trend Following) has won multiple industry awards for excellence in
performance.
Registered with the Commodity Futures Trading Commission (CFTC) as a Commodity Trading Advisor (CTA),
and as a member of the National Futures Association (NFA), Red Rock Capital will proudly celebrate its 12th
anniversary during 2015.
Given recent developments with the firm, plus favorable market conditions, it is especially well-positioned to
grow and thrive in the alternative investment arena.
16


A Comparison Of: CTA Indexes

Uploaded by

Copyright:

Available Formats

A Comparison Of: CTA Indexes

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

A Comparison Of: CTA Indexes

Uploaded by

Copyright:

Available Formats

A Comparison of

Red Rock Capital, LLC www.RedRockCapital.com

Defining Managed Futures,

Red Rock Capital, LLC www.RedRockCapital.com

Red Rock Capital, LLC www.RedRockCapital.com

BARCLAY BTOP50 INDEX BARCLAY CTA INDEX

Red Rock Capital, LLC www.RedRockCapital.com

Red Rock Capital, LLC www.RedRockCapital.com

Red Rock Capital, LLC www.RedRockCapital.com

calculate the index. The index is available without a monthly basis.

Red Rock Capital, LLC www.RedRockCapital.com

ALTEGRIS 40 Asset 40 No Jan-90 N/A Monthly Monthly Monthly No

Red Rock Capital, LLC www.RedRockCapital.com

PERFORMANCE STATISTICS (January 2003 – December 2014)

ALTEGRIS 40 5.13% 9.58% 0.54 0.87 -15.74% 0.03 -0.63

Red Rock Capital, LLC www.RedRockCapital.com

ANNUAL RETURNS (January 2003 – December 2014)

Red Rock Capital, LLC www.RedRockCapital.com

CORRELATIONS (Monthly data, January 2003 – December 2014)

Red Rock Capital, LLC www.RedRockCapital.com

cus exclusively on one time frame, while others trade

Red Rock Capital, LLC www.RedRockCapital.com

Red Rock Capital, LLC www.RedRockCapital.com

About Red Rock Capital, LLC

Red Rock Capital, LLC www.RedRockCapital.com

You might also like