The assumption that larger is better is deeply embedded in how the financial industry evaluates fund managers. Assets under management functions as a proxy for credibility, institutional trust, and implied performance. The largest managers attract the most capital, which reinforces their position in size-weighted indices, which reinforces their visibility, which attracts more capital. The logic is circular, and its relationship to actual long-run performance is weaker than the industry generally acknowledges.
The comparison between the TTU TF Index and the SG Trend Index makes this visible with unusual clarity, because the two indices differ in exactly one fundamental dimension: the criterion used to select constituents.
Two Indices, Two Selection Criteria
The SG Trend Index is constructed from the ten largest systematic trend-following CTAs by assets under management, as tracked by Societe Generale. Its constituents are selected on the basis of size. The TTU TF Index, by contrast, selects constituents on the basis of track record, requiring a minimum of fifteen years of continuous performance history for inclusion. It currently comprises approximately 57 trend-following funds, each with a verified track record exceeding that threshold.
The performance difference between the two indices over the period from January 2000 to the present is substantial. An initial investment of $1,000 in the TTU TF Index would have grown to $6,100, with a maximum peak-to-trough drawdown of 17%. The same investment in the SG Trend Index would have grown to $3,750, with a slightly higher maximum drawdown of 21% over the identical period.
Chart: TTU TF Index and SG Trend Index Performance since 1st January 2000. Performance Value Added Monthly Index “VAMI”, rebased to 1,000.
Source: Top Traders Unplugged. For current performance data refer to the monthly Trend Following Performance Reports at toptradersunplugged.com/blog
The TTU TF Index produced approximately 63% more terminal wealth from the same starting capital, with lower maximum drawdown, over a period spanning multiple full market cycles including the dot-com collapse, the 2008 global financial crisis, the 2020 pandemic shock, and the inflationary regime of 2022. This is not a marginal difference attributable to a single favourable period. It is a structural outperformance across the full distribution of market conditions.
Why Track Record Outperforms Size as a Selection Criterion
The explanation for this divergence lies in what each selection criterion actually captures.
AUM size reflects capital flows, which are driven by recent performance, institutional preferences, marketing capacity, and regulatory accessibility. A manager who has recently performed well attracts capital. A manager who has recently underperformed loses it. The SG Trend Index, reconstituted on the basis of current AUM rankings, systematically includes managers at their performance peaks and excludes managers during their drawdown periods. This reconstitution process introduces a performance dilution effect: capital leaves the index constituents at precisely the moments when recovery and subsequent compounding would generate the most value, and re-enters through new constituents who have recently performed well and may be approaching the peak of their current cycle.
Track record of fifteen years or more captures something categorically different: demonstrated survival and adaptability across the full range of market regimes that have occurred during that period. A manager with fifteen years of continuous performance has navigated at least two to three major market dislocations, multiple transitions between trending and non-trending environments, and the full spectrum of regime shifts that define the distributional character of financial markets. Their inclusion in the TTU TF Index is evidence not of recent good performance, which is available to any manager in the right conditions, but of the structural robustness that allows a process to persist and compound across adverse conditions as well as favourable ones.
The TTU TF Index’s lower maximum drawdown relative to the SG Trend Index is the direct expression of this distinction. Managers selected for track record have demonstrated, repeatedly and across different market environments, the capacity to limit losses and protect their compounding base. This is not a coincidence of their history. It is the reason they have a history long enough to qualify.
Size and Fragility in Complex Adaptive Systems
The relationship between size and fragility in complex adaptive systems provides a useful frame for understanding why large AUM does not reliably confer performance advantage in trend following.
Large cities are among the most complex adaptive systems that human organisation has produced. They exhibit remarkable apparent resilience, concentrating economic activity, information flow, and adaptive capacity in ways that smaller settlements cannot match. Yet this apparent resilience conceals a structural fragility: the largest cities depend on a small number of critical infrastructure systems, and the failure of any one of them, electricity, water, transport, communication, can disable the entire system with a speed and completeness that would be impossible in a smaller, more distributed organisation. The concentration of scale and the concentration of critical dependencies are the same phenomenon.
Large trend-following programs face an analogous dynamic. Scale introduces capacity constraints that limit the universe of markets and position sizes available to the strategy. Liquidity requirements at large AUM restrict the ability to maintain meaningful exposure in smaller, less liquid markets where some of the most significant trending opportunities arise. The execution footprint of a large manager becomes visible to other market participants, which can adversely affect entry and exit prices in the very markets where the strategy depends on clean execution. The institutional infrastructure required to manage large AUM introduces operational complexity and organisational inertia that smaller, focused operations do not face.
None of these constraints are insurmountable, and the largest managers have developed approaches to managing them. But they represent genuine headwinds to performance that the size-as-proxy-for-quality assumption ignores. A smaller manager with a fifteen-year track record of navigating diverse market regimes is not disadvantaged by their size. They are, in several respects, advantaged by it.
What the Evidence Advocates
The TTU TF Index versus SG Trend Index comparison is not merely a data point about two specific indices. It is a case study in the consequences of selection criteria for long-run compounding outcomes.
When evaluating trend-following managers, the relevant question is not how large they are. It is how long they have survived, across what range of market conditions, and with what drawdown characteristics relative to their compounded return. The multitude of trades and strategic decisions required to maintain a fifteen-year track record across diverse market regimes is a more reliable barometer of a manager’s structural edge than any measure of current AUM or recent performance.
Capitalization-weighted indices and AUM-ranked selections reflect the preferences of capital allocators at a specific moment. They are shaped by recency bias, institutional familiarity, and the gravitational pull of scale. Track record-based selection reflects something more durable: the demonstrated capacity of a process to survive and compound across the full distribution of market conditions, including the conditions that most managers do not survive long enough to encounter.
For Outlier Hunters, whose long-run compounding advantage depends entirely on remaining in the market long enough to capture the fat-tail events that define the strategy’s return distribution, this distinction is not peripheral. It is central to everything the process is designed to achieve.