CTAs – Down, But Definitely Not Out!

A Unique Perspective on CTAs

I normally dedicate this blog to matters pertaining to pensions, pension funding, and the social and economic impact from our failure to do that effectively, but I also like to discuss other aspects of pension management that could potentially enhance a fund’s ability to meet the promised benefits. In this case, I want to highlight a product that has struggled to meet the expectations on both return and risk. CTAs are valuable diversifiers, particularly when it is needed most. However, since the Global Financial Crisis (GFC) performance has been disappointing, to say the least! The researchers at Spring Valley Asset Management have produced a research study in which they’ve developed a unique framework for understanding CTA performance and exploring the causes of underperformance over the past ten years.

Since CTAs represent an important source of diversification, especially at this point given the equity market’s continuing bull market advance, it is critical to understand the underlying mechanics of CTA strategies and how their performance varies across different environments. While the researchers drill down on the different factors that impact the performance of CTAs, they also provide a promising outlook. With the clarity this research provides, it is difficult to imagine that the reasons CTAs have underperformed will become permanent features of the markets. I highly recommend you read this paper!

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