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Trend following

CTA Woes Continue in 2016

Top 50 CTA performance results for the first four months of this year are estimated to be negative by BarclayHedge, after positive returns in the first two months. If this year’s performance is negative, it will be the fifth yearly loss in the last eight years.

Below is the yearly performance of the top 50 CTAs according to BarclayHedge:


Note that the majority of top 50 CTAs (there are actually 20 in that index) are systematic trend followers. The compound annual return of this group since 2009 is about 0.75%. The positive performance in 2014 helped in securing a marginally positive annual return in the last 8 years.


Trend-following is a crowded space where fairly simple models are used, most already disclosed by managers who have turned book authors. These models cannot generate profits because they are targets of robot algos and also the market cannot deliver profits to every ambitious trend-follower as it did in the 1980s when there were only a few players around. Unfortunately, some of the failed traders in that area are in a state of denial of reality and attack anyone who informs the public about the risks of trend following. This is understandable because they are trying to profit from books and talks. However, the results speak for themselves. Except for the 2016 estimates for March and April, the results show that after 2004, or about since 12 years ago, trend-following started losing any edge that it night had left.

Trend-following is slowly being converted into an asset/risk allocation method to survive, in hope of better returns in the future. One problem with this approach is that when a trend develops in a market that has experienced a high volatility period, the allocation is small to make a large contribution to returns. Obviously, there is no free launch. Maybe after a significant percentage of the players withdraw, trend-following will become profitable again but until them we may see more books published on the merits of trend-following but not on the perils…

Related articles:

Evidence Based Analysis: CTA Gross Underperformance

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