CTA Fund Performance Report – 31 October 2020 – It is Better to Win Big than Win Often

It is not easy being a trend follower. You live much of your life in persistent drawdown so it is very natural to continuously question your dedication to this pursuit. So when the drawdown blues get you down….it really helps to revisit the long term track record of your trusted trend following fund managers to revel in the glory of what can be unpredictably delivered to you from time to time following periods of incessant drawdown….which makes this difficult game so worth it.

In this particular game it is not about the frequency of times that you are right….it is actually about the magnitude of the gains that sometimes can be delivered to you by the market.  You see in this Yin and Yang sport of ours……it is far better to Win Big than to Win Often.

For the trend follower that accepts that most liquid instruments can, at unpredictable times, deliver fat tailed returns of extreme profit potential ………then it is always preferable to strike for a higher Reward to Risk relationship by applying a trailing stop with no profit target than by attempting to improve the expectancy result by lifting the win rate by using a profit target.

The win rate is expressed as a % relationship that lies somewhere between 0 and 100%. This rate relates to the number of successful events that are profitable. It is silent in relation to whether the wins are materially significant or not. Now in our Non-Gaussian world where fat tails reside, a single event can lead to a profit that is ‘extreme’ so we are less concerned with the number of successful events that can be materially insignificant to overall expectancy and more concerned with unique events of unbridled magnitude that materially impact the expectancy value. Win rate is therefore far less important than the significance of material events for a diversified trend follower.

So we can participate in outlier events if we have an understanding of where the Gaussian distribution ends and the Non Gaussian components of the tails of the distribution commences….. and then…… coupled with extensive market and system diversification….only participate in the market when these more extreme conditions arise.

This way we avoid over-trading when market conditions are not extreme yet from extensive diversification can still lift trade frequency of more exotic events combined with our win rate. Diversification benefits, cutting losses short at all times and the restriction of trading activities to more exotic fat tailed regimes …….allows us to achieve superior risk adjusted returns to alternative approaches.

The actual wealth delivered by the infrequent and unpredictable tail events is therefore not compromised by the inevitable whipsaws that accompany many trends that you may find within the noise or mean reverting environment…… and allows us to only focus on trends that extend into the zones of ‘outlier’ potential.

Of course we can only attempt to achieve this response if we are fully systematic in our application and in our method of quantitative analysis. The suite of diversified methods applied to trading in Non Gaussian regimes needs to be extensive to capture these rare and unpredictable opportunities and we need to use the data itself as a method of identifying when price lies outside normal Gaussian boundaries.

You see to be a participant in a wealth event of unlimited magnitude you need to be ‘in the right place’ at the ‘right time’. This is not a mere ‘statement of luck’ as many assume… but is a circumstance that can be addressed by:

  1. capital preservation (knowing when to trade and when not to trade so you can be eligible to participate in the unpredictable event);
  2. systematic processes (so you can participate at any time that the market dictates 24/5);
  3. diversification (aka being in the right place);
  4. quantitative techniques…..knowing when to participate in the extreme event (aka being at the right time).

….anyway…..enough navel gazing………….

Now to the monthly CTA Fund Performance Report for October 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 October 2020 we have 52 CTA’s reporting and within that grand total we have 34 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 (52) and the TF Global Index (34).

The CTA Composite Index 52 was down again for the month by -0.60% with the calendar year offering modest growth of 4.24%….and the TF Global Index 34 was also down -0.41% with a YTD contribution of only 0.53%. Barely a breakeven result for a difficult and volatile year so far.

Now as ardent trend followers ourselves, we like to narrow our focus to the Systematic Diversified Global Trend Following community of CTA’s.

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.


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


Well that’s a wrap for the month…


So the next time you get depressed as you are wading through drawdowns month after month….take some time out and have a long look at your performance track record to understand that you need the pain to get the gain with these diversified systematic trend following programs.

Toughen up trend followers and take a teaspoon of cement……WORD!!!!!!!!



Trade well and prosper

The ATS mob





You must be logged in to post a comment.