CTA Fund Performance Report – 31 May 2020 – “Unbridled Growth on a Finite Planet”

….and here we are in May 2020. The gears of the economy have stopped whirring, unemployment is hurtling upwards, the pandemic is far from over………. and the S&P500 is almost back to it’s all time highs.

As I shake my head in the perplexity of it all I have to come to the ‘correct conclusion’. The market doesn’t care what I think. It represents the thoughts of all participants and with an interventionist policy of ‘growth at all costs’ and a subservient participant community that is tied to profit expectation……then we ‘have what we have’. I am therefore the fool in this equation.

However as a rational man, I keep on coming back to the age old mantra that continuously gnaws at my conscience and keeps me awake at night as I wonder about our future and in particular my kids future……and that is the fallacy of endless economic growth on a finite planet. While technology will continue to attempt to outrun the law of diminishing returns….there comes a time when our now ‘wasted planet’ simply must say ‘enough is enough’. I like to stay optimistic and think that perhaps our exploitation of the stars will offer our future generation hope…but then I realise that I am just once again kicking this problem of humanity down the road. Our only real hope is to accept our place on this very special planet and live within it’s means. This does not mean that progress is suppressed. Opportunities abound under a vision of sustainability…however what it means is that ‘a desire for exploitation’ needs to be supplanted with a desire to ‘protect and preserve’.

Rather than wax lyrical….I thought that this month I would let Jeremy Grantham do all the talking in this excellent podcast with host Patrick O’Shaughnessy

http://investorfieldguide.com/jeremy-grantham-an-uncertain-crisis-invest-like-the-best-ep-177/

Now back to the monthly CTA Fund Performance Report for May 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 May 2020 we have 59 CTA’s reporting and within that grand total we have 37 Systematic Global Trend Following funds. We have to draw the line somewhere and the slow coaches unfortunately miss out.

For those that like the detail, below are the index constituent performance results for the CTA Composite Index (59) and the TF Global Index (37).

The CTA Composite Index 59 was down -0.19% for the month with the calendar year offering modest growth of 2.92%….and the TF Global Index 37 was down -1.23% with a similar YTD contribution of 2.38%

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.

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, Rob Carver and guests…. and in Niels’ Market Barometer blog series. It was great to see an appearance from Jerry Parker this month. I do miss him 🙂 Now with a regular appearance from Rob Carver…the discussion widens its net to venture into alternative systematic methods….and it is always great to have different perspectives thrown into the mix.

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.

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.

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

Top 3 Equal Weighted Combination Portfolio – The Blend of Blends

Now as great as the individual risk adjusted returns of the Top 10 in the prior category are….we can do better when we look at the performance of possible combinations from the TF list. We iterate across the TF Index to find the Top 3 in terms of Risk Adjusted returns as a combination portfolio each month. So for those avid readers looking for the best risk-adjusted result of a possible equal weighted threesome….here is the result for the month.

Just look at those risk adjusted metrics. With a bit of leverage we can reach for the stars with this combination.

The 3 contributing funds for this month based on an equal weighted blend are as follows:

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.