Hedge Fund Investors Retreating from Underperforming CTAs Apr 24 2017 | 6:05pm ET Underperformance by CTAs for much of the past 12 months has noticeably lessened investor appetite for the trend-following strategy segment, according to new research from Preqin. Ongoing performance difficulties experienced by CTAs, which use sophisticated quantitative algorithms to establish investment positions, led to losses of 0.30% in Q1 2017 and have returned -1.07% over the past 12 months, Preqin said in its first quarter hedge fund update. In contrast, the wider hedge fund industry recorded its best start to a year since 2013 and generated gains of 11.65% over the past 12 months. Investors have noted the sustained underperformance by CTAs, Preqin’s research suggests. The proportion of total hedge fund investor searches issued for CTAs fell by more than a third in Q1 2017, dropping to 7% from 25% in Q4 2016. Other highlights from Preqin’s Q1/17 report: Discretionary CTAs generated gains of 0.12% through Q1 to drive 12-month returns to 6.18%, but systematic CTAs have lost 3.28% over the past 12 months. Over 12 months, US-based ALPHA Z Futures Fund LLC is the top performing CTA fund with returns of 71.28%, while second-ranked DeltaHedge VIXVOX Program has posted gains of 56.36%. Despite the underperformance, fund managers still see opportunities in the CTA space. The proportion of launches accounted for by CTAs rose to 11% in Q1 2017, up from 8% in Q4 2016. Asset flows also remain healthy. CTAs recorded inflows of $25.5 billion over 2016, with total assets rising by 12.3% to $251 billion. No other top-level hedge fund strategy witnessed positive asset flows last year. “Despite the return to form of hedge funds in the past 12 months, investors remain cautious when it comes to this area of their portfolios,” said Amy Bensted, Preqin’s head of hedge fund products. “CTAs, in particular, may find fundraising increasingly difficult over the rest of 2017 if the reduced appetite indicated by the diminishing proportion of investor searches is not reversed." Founded in 2003, Preqin is a leading source of information for the alternative assets industry, providing data and analysis via online databases, publications and bespoke data requests. More than 40,000 professionals in 90 nations use the company’s products. from FINALTERNATIVES
I often think investors are like a drive home in LA/suburbs or Dallas/Ft Worth, you driving the right hand lane that most would label "turtle lane" during rush hour, you notice a car that is Lime Green next to you, you can see Limey zig zagging in different lanes, jumps onto shoulder of road and has to slam on brakes cause police is writing up an accident and limey gets an expensive ticket for driving on median shoulder and another for driving in carpool lane-can only use the mannequin so often, and you are tooting in right hand lane, after 2 hours and gone 30 miles to same stop and no one will let Limey over and he forces him way right and clips your front end. If one selects hedge fund based on their personality, it be like they are either Limey or turtle lane, jumping around way too much, you can end up missing out on one that you were in blasting off and now you stuck into one in drawdown. Big percentage funds often have big drawdowns, if it was me, I be checking smoothness of equity curve and if old enough, check out if they lost less than S&P Index in down years. Timing of hedge funds is I would believe is impossible as there are few that have very long term histories.
This is what kills the hedge fund model.... investors look at a short meaningless time-frame such as 12 months, then a tail event happen and the hedge funds that they just left make +30%, so ex-investors start dancing again and putting their money again, essentially buying the high and selling the low. The average perf of the s&P 500 is about 7% p.a. with max drawdowns of 50%, that's if you look at it since inception. it's an incredibly shitty risk/return profile and has a long-term sharpe of 0.3.
You might be forgetting dividends. Total return of S&P has been ~10% over history, and ~8% even during the relatively poor last 20 years.
Correct I forgot dividends, this is still very mediocre when you can find 20+ managed futures funds that made 20 or 30pc on average with the same drawdown as the spx
I'm calling BS on this. Please name these funds. I highly doubt you can name a single CTA that has 20% net returns with at least a 10 year track record. Preferably 20 years, but let's start with 10. Tony Crabel is probably the best name in the business in terms of assets under management and lengthy track record (20 plus years). His returns are in the mid to high single digits.
That is exactly the problem investors want a long term record of success but judge you on short term results.
Dunn is probably the "best for the longest" CTA. Not 20% CAGR, but in the neighborhood. I think I saw a long term chart of his total composite that showed 18% CAGR since inception, but with multiple 30%+ drawdowns. "DUNN is one of the managed futures industry’s oldest firms and is managing approximately $1 billion in its strictly systematic, computer-based portfolios. In addition to organizing, selling and managing over a dozen private futures funds, DUNN has traded for numerous other public and private funds and private accounts. DUNN's flagship World Monetary & Agriculture ("WMA") Program has achieved a net compounded annual rate of return of over 14% since inception in 1984."
Here is the link, which includes the chart "I think I saw." https://www.trendfollowing.com/performance/ EDIT: This is NOT an endorsement of Michael Covel! He is a salesman, not a trader.
Dunn and Abraham are two of the best. Neither are over 20% but very good funds nonetheless. I stand by my statement that as of now, I'm not aware of any CTA with net performance of greater then 20% of 10 years or more.