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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
Can you help answer these questions from other members on NexusFi?
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.
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.
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.