The most damning evidence is the 3.7% returns for past 10 years. The annualised interest is close to bank deposits. Risk-adjusted, the performance of CTAs is so dismal that they should bury their heads in the sands. Who would want to invest in high-risk, low-gain CTAs. https://www.bloomberg.com/news/arti...ost-popular-trading-strategies-is-now-failing Hedge fund investors learned that the hard way last year when data-crunching computers that invest $220 billion based on historical price trends did worse than most other managers, robot or human. The losses were so bad that investors pulled billions of dollars out of an investment strategy that for years had, paradoxically, been regarded as a great way to protect portfolios from downside risks. Turns out the algorithms behind so-called trend-following quants are rather primitive and suffer from many of the same weaknesses a mortal brain might. They've struggled to react fast enough to the unforeseen side effects of ending a decade of central bank stimulus, and even seem to get baffled by U.S. President Donald Trump. Robotic traders now manage about $1 out of every $3 held in the world’s $3 trillion hedge fund industry, including models that use inputs like company’s profitability, trends in volatility or shifts in economic cycles to make trading decisions. But trend followers keep it simple, identifying when to enter and exit trades by back testing price trends against decades of data. Problem is, they aren’t very good at responding to surprises—and there have been plenty when central banks removing support from markets can trigger abrupt spikes in volatility or a 280-character tweet from Donald Trump can exacerbate tensions with China. Ultimately, the speed of markets these days can easily confound the historical price trends at the heart of the approach. “It’s a strategy which in its pure terms is really probably obsolete,” said Robert Frey, whose been working in quantitative investing since it was still in its nascent stages of development in the early 1990s. Frey, who has a doctorate in applied mathematics and statistics, previously worked with Jim Simons at Renaissance Technologies LLC as it grew into the world’s biggest quant-focused hedge fund, now with about $58 billion in assets. He started his own company, FQS Capital Partners, in New York in 2009 to invest in quants, and has gradually moved away from trend followers. The strategy hasn’t really delivered. Between 2008 and 2018, Societe Generale’s main trend-following index made only 3.7 percent, compared with an average gain of 62 percent for hedge funds and a more than tripling in the S&P 500, including dividends. It was the crash of early February 2018 that really exposed the limitations of CTAs. It happened unexpectedly after a rally in January, only for markets to bounce back days later. Unlike high-frequency traders that can get in and out of trades in milliseconds, CTAs are typically programmed to change holdings slowly, over several days or even months. By the time they’d adjusted for the falling trend, CTAs were getting burned on the way up. Their net asset value slumped 9 percent in February, the worst drop in 15 years, and took another 4 percent beating during the abrupt market U-Turn in October.