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CTA Performance


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CTA Performance

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  #1 (permalink)
Birmingham, AL
 
 
Posts: 1,065 since Apr 2012

I am pretty perplexed when I look at the performance of as many CTA's as I can get my hands on. Why are so many of them so bad?

I understand (from academic studies) that there is an inverse relationship between the size of the fund's assets under management and the returns (more assets = lower returns), but excluding that and even looking at smaller funds, they're not so hot either.

I've not only considered absolute returns, but also taking a look at drawdowns as well to get an idea for risk-adjusted performance of the fund manager.

Some of the better performing funds this year (+40-60% returns) nearly all have equally large (or larger) drawdowns. Not good.

I'm sure I haven't found all the funds, but I've looked at the best that barclayhedge, attain, etc have to offer.

What is the deal? I assume there are many traders here at futures.io (formerly BMT) with superior performance both in absolute and risk-adjusted terms. I know many of the traders will want the simplicity and ease of doing their own thing and not dealing with starting a CTA and managing other people's money, but surely this doesn't encompass ALL very successful traders.

Am I not considering something? Am I mis-informed in some way? Looking forward to hearing from others on this.

-IT7

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  #3 (permalink)
Thessaloniki, Greece
 
Experience: Beginner
Platform: QTS
Broker: IB
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Posts: 165 since May 2012
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There's a nice (academic) paper that suggests that CTAs as an asset class are essentially a scam. On average they don't achieve high returns, and what they manage to achieve is mostly captured by the fees.


Quoting 
during the period 1994-2007 CTA excess returns to investors (i.e., net of fees) averaged 85 basis points per annum over US T-bills, which is insignificantly different from zero. We estimate that CTAs on average earned gross excess returns (i.e., before fees) of 5.4%, which implies that funds captured most of their performance through charging fees. Yet, even before fees we find that CTAs display no alpha relative to simple futures strategies that are in the public domain. We argue that CTAs appear to persist as an asset class despite their poor performance, because they face no market discipline based on credible information. Our evidence suggests that investors' experience of poor performance is not common knowledge.

Fooling Some of the People All of the Time: The Inefficient Performance and Persistence of Commodity Trading Advisors by Geetesh Bhardwaj, Gary Gorton, K. Geert Rouwenhorst :: SSRN

Naturally there are many skilled managers who do far better, but I suspect there are reasons why that type of trader would tend to choose to start a hedge fund instead of a CTA.

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  #4 (permalink)
Birmingham, AL
 
 
Posts: 1,065 since Apr 2012


imPairsonator View Post
There's a nice (academic) paper that suggests that CTAs as an asset class are essentially a scam. On average they don't achieve high returns, and what they manage to achieve is mostly captured by the fees.



Fooling Some of the People All of the Time: The Inefficient Performance and Persistence of Commodity Trading Advisors by Geetesh Bhardwaj, Gary Gorton, K. Geert Rouwenhorst :: SSRN

Naturally there are many skilled managers who do far better, but I suspect there are reasons why that type of trader would tend to choose to start a hedge fund instead of a CTA.

What reasons do you suspect one would start a hedge fund over a CTA?

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  #5 (permalink)
Birmingham, AL
 
 
Posts: 1,065 since Apr 2012


imPairsonator View Post
There's a nice (academic) paper that suggests that CTAs as an asset class are essentially a scam. On average they don't achieve high returns, and what they manage to achieve is mostly captured by the fees.



Fooling Some of the People All of the Time: The Inefficient Performance and Persistence of Commodity Trading Advisors by Geetesh Bhardwaj, Gary Gorton, K. Geert Rouwenhorst :: SSRN

https://realitycheck.no-ip.info/library/E-Books/Commodity%20Trading%20Advisors%20-%20Risk,%20Performance%20Analysis,%20And%20Selection.pdf


A different view....

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  #6 (permalink)
Windsor Ontario
 
Experience: Beginner
Platform: Ninja
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Posts: 14 since Apr 2012
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Yes, retail traders are presented with quite optimistic projections of expectations and success rates. I believe the actual retail trader success rate is maybe 5% actually succeed - the rest donate. In regards to CTAs I have heard that their average is maybe 10% (good ones). If greater that that then more is being put at risk.
If lots of retail traders (>5%) could generate +10% returns then there would be a lot more happy traders a round. The same holds true for CTAs (or hedge funds).
Yes, there are exceptions and I am sure many of the esteemed traders here are 5%ers.


AdamGG

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July 25, 2012


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