According to actual performance data, top 20 CTA woes continue in 2018 with an average return of about -2.65% year-to-date. A statistical test shows that the null hypothesis of random performance of top 20 CTAs since 1987 cannot be rejected.
According to BarclayHedge, year-to-date top 20 CTA estimated performance is -2.65%. The majority of the CTAs in top 20 employ systematic trend following. Below is a chart of top 20 performance since 1987:
Despite a rebound in 2014, CAGR since 01/2009 is nearly flat and since 01/2000 it is only about 3.5%. A Runs Test shows that since 1987, the null hypothesis of randomness in the yearly returns cannot be rejected (large p-value.)
Edit on 07/18/2018 Someone questioned the size of sample equal to 32. Note that we are not estimating distribution parameters with this test but only looking if there is a trend in the data. Actually that there is no trend can be confirmed by visual inspection of the returns series. In addition, the Runs Test is usually stable for n1 and n2 greater than 10. In this case n1=n2=16.
It is also important to understand that this asset class may provide a hedge during equity market turmoil. In 2008 the average return of top 20 CTAS was in excess of 13%. Therefore, despite recent woes, this is an important asset class.
Furthermore, it is also important to realize that existence of trends in various markets and trend-following success are not equivalent notions. Trend-following success depends on influx of dumb money and that has declined in recent years. Some claim trend-following may not survive in the future due to this lack of dumb money.
Regardless, we believe that CTA performance may rebound in the future but nowhere close to the spectacular returns of the 80s and 90s but possibly above equity market returns.
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