CTA Strategies: Diversification, Crisis Alpha, and Manager Selection

Summary

This 2018 report reviews managed futures, including how CTA strategies trade futures and options and how they differ by analysis method, trading style, holding period, and markets covered. It describes systematic and discretionary approaches alongside trend following, reversal, and arbitrage strategies. The report presents CTA funds as able to trade in both directions and across markets, making them a potential diversifier in portfolios dominated by other strategies.

Its allocation case rests on reported low correlations with other strategies and stronger performance during difficult equity or bond markets, which the report calls crisis alpha. It cites overseas and domestic fund data, including estimates of industry size and a 2018 performance snapshot, but the supplied text does not include the underlying analysis or detailed methodology. It also notes differences between domestic and overseas findings. For selecting managers, it recommends reviewing long-term results, strategy maturity and style, and whether assets under management fit strategy capacity. These are historical research conclusions, not evidence that CTA allocations will improve future portfolios.

Key ideas

• CTA strategies trade futures and options using varied methods, holding periods, and markets.
• The report presents low correlation with other strategies as a potential source of portfolio diversification.
• It describes CTA strategies as having performed relatively well during some severe equity and bond market periods.
• The report recommends assessing manager track record, strategy maturity, style, and capacity fit.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.