CTA Fund Performance Report – 31 March 2020 – “Welcome to the disorienting world of uncertainty”

There are unpredictable moments in time when things start becoming….. well…… you know….uncertain. What was up is now down…what was wrong is now right……what worked well works no more……you know what I mean. Uncertain.

This is the moment when what screams in your head as the most rational choice can often lead to your biggest blunder.

,,,,,and therein lies the problem. It’s that squishy stuff in your your head that interferes with your process. So in the words of a great melody….”Where’s your head at?”

Now there is a way to overcome this very disorienting ailment called uncertainty….and this is what us diversified systematic guys and gals like to bring to your attention in moments like these……but we have already given away the punchline.

So here it is….drum roll please……This is where a “Diversified Systematic Divergent approach” takes control and comes to the rescue.

Why diversified? Because it is tempting to conclude that all the financial markets in the universe are simply derivatives of the S&P500. The reality is that this is not the case. The nested open system that are our financial markets create significant trending opportunities across asset classes as the dominoes fall.

Our diversification ensures that we have very limited exposure to a single market but sufficient enough to make a material difference when trending environments occur due to the cause and effect relationships between markets. So exposure to energies, Forex, commodities, fixed interest and metals with systems that cut losses short and let profits run can create a trend heaven in times of uncertainty….and this is what was experienced by many of the TF mob in March.

Why Systematic? Because during these highly volatile uncertain times….every inch of your being wants to over-ride your system with what appears sensible in the moment…..but if you succumb to that brain of yours then you then need to get in line with the thousands of other participants that are thinking exactly the same thing during that moment.

Your success in this game is dependent on your ability to be counter-cyclical to popular opinion. Trend following is an extremely tough game to play….and it is this toughness that provides that enduring edge.

If you are super-human and can act at warp speed….then be my guest and remain discretionary….but if you are a standard mortal human being….then a systematic rules based approach is your way to ensure you are trading against the madness of crowds. What gives us confidence that our systems can navigate uncertainty is derived from a thorough understanding of how your system fares during uncertain market conditions.

If you are worried about the risk inherent in your system….that is a sure fire sign that you have not tested how well your leveraged solution can stand up against uncertainty.

So if you cannot sleep at night….simply turn the portfolio heat down….and if you are still nervous….then turn the systems off….. It means that you are uncertain about your system’s robustness particularly with your given level of leverage…….but learn from this experience and then undertake more rigorous tests designed to ‘break your system’ to build your confidence for your next great challenge.

A robust portfolio is one in which you have ultimate confidence in. If you need to adjust your leverage and turn it off….whilst being a prudent measure….it is also a sign that your system actually is not sufficiently robust for your degree of risk tolerance…..so learn from this experience and fix it.

Why Divergent? Because the lions share of market alpha emanates from the fat tails of the market distribution. If you are after small change or cashflow….then convergence may be your cuppa tea….but if you are after wealth building returns…then divergence rules the roost. For any complex system, it is the fat tailed environment that creates the most enduring change for that system.

During these impact-ful environments wealth is re-distributed from many participants to a few participants. So learn to become a beneficiary of this very natural process that is found in all complex systems….and don’t become the extinct species or the victim.


Anyway….now to the report for March 2020.

We use NilssonHedge for reporting purposes which allows us to expand our performance coverage to include a broader array of long term established FM’s who occupy the CTA space and have been in operation since 1 January 2000 to the current day. This performance report focuses only on those funds with a long term track record (approx 20 years). The reason we adopt this long term horizon for reporting purposes is that to survive in these financial markets over such a long timeframe and still be alive today offering absolute returns to the client takes a special breed of Fund Manager who has expertise in surviving the turmoil of a variety of different market regimes. We like these guys and that is why we focus on them. As the years roll on we will progressively expand our coverage to include those FM’s who narrowly miss out in their inclusion when they reach the 20 year performance track record horizon.

So far for the month of March 2020 we have 49 CTA’s reporting and within that grand total we have 35 Systematic Global Trend Following funds. We have to draw the line somewhere and the slow coaches unfortunately miss out. Note that this month we have re-classified Dreiss Research Corporation into the Systematic Global Trend Following camp as we believe this is a more accurate reflection of the Fund’s investment approach than the current ‘multi-strategy’ listing.

March 2020 was a month that really sorted out those that were warehousing risk from an almost decade long bonanza delivered by central bank intervention. There were very few winners apart from those arcane goat worshippers called the systematic trend following mob.

Even within that broad class not all was roses. There was considerable style drift that could have been a result of many factors including choice of investment universe, degree of diversification, choice of system diversification and system ‘speed’, degree of pure trend following logic versus those that may have compromised results by dabbling with convergence….etc etc etc.

But by and large, the globally diversified traditional trend following firms shined at the expense of their less traditional ‘mongrel cousins’ that have been flirting with other models.

Of course some may just have been ‘simply lucky’ and others ‘unlucky’….however for the long term performers you quickly realise that luck plays a smaller role in the outcome.

For those that like the detail, below are the index constituent performance results for the CTA Composite Index (49) and the TF Global Index (35).

The CTA Composite Index 49 was up a solid 3.28% for the month ….and the TF Global Index 35 put in a great month of 4.15% .  That brings a skip to our step.

Systematic Trend Following Global Index Overview

Now as ardent trend followers ourselves, we like to narrow our focus to the Systematic Diversified Global Trend Following community of CTA’s. Note that as of March 2020 we now include Dreiss Research in this community.

For an overview of what moved and what didn’t for the month in this investment space then you should go straight to the source and listen to the Fund Managers themselves.  In this regard, there is no better resource than that provided by Niels Kaastrup-Larsen of ‘Top Traders Unplugged’ and (Dunn Capital Management) in his Systematic Investor Series with Moritz Seibert with special guests and in Niels’ Market Barometer blog series.

Top 10 by CAGR since 1 January 2000

Below is a performance table and an equal weighted performance chart of the top 10 performers of the Long Term Trend Following Index Composite in terms of annualised returns to investors (net of all fees and expenses) since 1st January 2000.

Here is a scatter plot that highlights where the top 10 sit in terms of their Compound Annual Growth rate (CAGR) and Maximum Drawdown over the performance monitoring period.

Below are the performance metrics of the Top 3 from this Top 10 list by CAGR. Just look at those returns. It might be a bumpy journey along the way….but when these guys nail it…they hit it out of the ball-park. A big congratulations is in order for this month.

Top 10 by Risk Adjusted Return (using the MAR ratio) since 1 January 2000

Now onto the risk adjusted return category. This category is for those that get ulcers when riding the drawdowns of leveraged volatile equity curves. Here are the results of the Top 10 in this category. This month we had a bit of a shake up in style drift. Interesting result that may give a bit more insight to ‘what is under the hood’.

….and the top 3 from this Top 10 category.


Top 10 for the last 12 months

So how are the guys going in the short term? There is enough style drift in this camp to observe significant variation in performance returns over the short term. Some of the mob have performed strongly over the last 12 months including a bonanza result for March 2020.

….and the top 3 from this Top 10 category.

Well that’s a wrap for the month… During these unsettling times stay safe, bet small and simply cut your losses short and let your profits run. We have no idea how or when the dust is going to settle. All we do is follow price using robust trend following systems that have been rigorously tested across as wide a range of different market conditions as we can muster.

While history never repeats and there is never any guarantees in an uncertain future we can be at least confident that we can survive and protect our hard won capital.

Congratulations again for all those who fared well during the highly volatile month of March 2020.

Surfs up!!!!!!

Trade well and prosper

The ATS mob



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