CTA FUND PERFORMANCE REPORT – 31 October 2019 – “I say….Stick your Head up Johnson Old Chap and see if the Trend is Dead”

Another tough month lads….but don’t lose heart……uncertainty still exists….though some bright sparks won’t see it.

Ok…so Trend Following is difficult…..but it always has been. So what has changed?……well actually nothing really. Drawdowns are just a fact of life in this particular game where our long term success is defined by a handful of positive outliers.

What these months actually tell us is how well we are doing in preserving our finite capital until that unpredictable moment when uncertainty combined with wide diversification delivers that windfall that makes this game so worth it.

Last month I gave you a puzzle to work out. How did you go? The puzzle related to a visual question which asked you to compare and contrast the monthly returns of the TF Global Index 36 and the S&P500TR Index. It then posed a question…..what do you see and what is the mantra that gives rise to these results?

Well the answer to this riddle was the following…..the rules based process used by the FM’s that occupy the TF Global Index 36 is……… to ‘Cut Losses Short and Let Profits Run”.

Can you see then how this principle translates into overall monthly performance returns. Look at what happens when we adopt a Buy and Hold technique and don’t apply an asymmetrical rules based process to the overall performance returns of the S&P500TR Index.

Can you see how the TF Global Index 36 skews the overall result to harvesting the fruits of the large positive outlier….and how this ‘outlier’ effect is cancelled by a Buy and Hold approach?

Now here is a further question for you to consider which goes a bit deeper into this performance puzzle where I will provide the answer in next month’s Performance Report.

Take another close look at the annual return totals of the TF Global Index 36 and the S&P500TR Index. Notice how the total annual returns are higher in the S&P500TR Index than the TF Global Index 36, yet the CAGR of the TF Index is higher than the CAGR of the S&P500 Index……so you have to now answer the why to this question?

….anyway…enough puzzles…now onto the Performance Report for October 2019.

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 October we have 54 CTA’s reporting and within that grand total we have 36 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 (54) and the TF Global Index (36).

The CTA Composite Index 54 is still up 5.53% calendar year to-date despite the -2.61% negative impact for the month….and the TF Global Index 36 is up 4.75% for the calendar year with a similar -3.62% hit for the month.

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 and Jerry Parker and in Niel’s 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.

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 10 for the last 12 months

So how are the guys going in the short term? Some of them have been powering ahead despite the last few month’s hiccup.

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

Well that’s a wrap for the month.

…”ah good Johnson you have returned and are still alive. Thank goodness….ok lads, let’s get in a line as we are about to give it another go for next month. Stand ready with fixed bayonets…..Just need to find the damn bugle.”

Trade well and prosper

The ATS mob

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