2020 CTA Challenge — Daily Data Advantages
Where Real Research Is Done: Daily Data Analysis
Gathering daily performance, position, risk and margin data for the CTA Challenge is precisely what makes our analysis better. Almost all other managed futures performance ranking databases rely solely on monthly performance metrics to rank the programs they track. Some of these databases perform limited risk-adjusted analysis but it is based off monthly performance numbers, which lacks full transparency and thus, lacks full accuracy. While monthly performance analysis serves a surface level purpose, it lacks the real mechanics to properly evaluate an investment.
Let’s use the example of performance reporting to illustrate the point.
In practical application, the display of dataset minimum/maximum bounds, such as performance Rate-of-Return (ROR) information, changes with different time frames used. Each time frame will correspond with a beginning value and an ending value and display the ROR change from start to finish. The longer the timeframe used, the more likely higher peaks and deeper valleys will be hidden in the data…as the ROR displayed is not the peak and valley difference, but instead the starting point and ending point difference. The shorter the timeframe used for display, the more likely the results will display the high of the peaks and the depths of the valleys…thus showing larger, accurate ROR moves.
Daily performance tracking will reflect the actual ROR peaks and valleys of an investment. Monthly performance tracking will show the ROR change from the beginning of the month to the end of the month, masking the intramonth moves. Yearly performance tracking will show the ROR change from the beginning of the year to the end of the year, masking all volatility throughout the year. As the timeframe grows, we find ourselves moving farther away from displaying the actual dataset minimum/maximum bounds that an investor would experience. This leads to the appearance of a less volatile investment.
Why is this important?
The key here is investor expectations versus investor reality. The farther these two things are disconnected, the more likely the investor will pull out of the investment when something adverse happens. Performance volatility still exists and is experienced by investors, but does not show up in the summary reports that use monthly or annual ROR figures. Monthly performance numbers are the norm for investment reporting and advertising…and are used to solicit investments. Monthly ROR tables are thus typically what investors use as a benchmark for expectations. If an investor expects a maximum of 5% monthly moves up or down, based on the investment’s historical monthly performance table, but actually experiences 10% intramonth moves, there is a high likelihood the investor will question the viability of the investment meeting its stated objective. Higher volatility is seen as higher risk and usually a cause for concern.
Investment managers and brokers who sell investment product need to be familiar with the actual performance moves and not just the summary performance tables listing monthly ROR information. We find more often than not that surprises in performance are not taken well by investors. Properly disclosing actual investment performance swings will give investors better expectations going into an investment and leads to more understanding and acceptance of the daily performance realities.
This same logic carries over to other metrics like worst-drawdowns, margin usage, risk attributions and position sizing. Using longer timeframes to report, or using average amounts instead of actual maximum amounts, works against the idea of properly setting investor expectations.
The CTA Challenge tracks all of these metrics on a daily basis and evaluates the viability of each participating investment program based on actual daily numbers instead of monthly performance data or average metrics. This gives Coquest a clear view of the participating investment programs and allows us to discuss the actual metrics with investors…making sure expectations are in line with reality. Using daily data is the key to complete and accurate analysis of managed futures investment programs.
To better navigate this landscape, interested investors should contact a Coquest representative with any questions on accessing Managed Futures.
Please note that Managed Futures investments and trading in futures, in general, can carry leverage and a high degree of risk. It is not suitable for all investors. See the full disclosure notice at the bottom of this newsletter. And, as always, past performance is not indicative of future results.
Are You An Investor Who Wants To Know More?
To learn more about the CTA Challenge participating investment programs, or others that are performing well in this current environment, please contact Coquest by clicking here or calling 1-214-580-4220.
Visit: CTAChallenge.com for more details.
2020 CTA Challenge:
Top 5 Ranking Through The End Of August
#1: AG Capital Investments LLC / Discretionary Global Macro Program
#2: Breakout Funds LLC / Breakout Strategy *QEP*
#3: Balorca Capital LLC / Strategic I Program
#4: Revolution Capital Management LLC / Alpha Program *QEP*
#5: Metolius Capital LLC / Diversified Systematic Global Macro *QEP*
See the full current rankings here.
CTAs interested in participating, or investors interested in learning more about CTAs and Managed Futures investment strategies, should contact Coquest and the CTA Challenge by clicking here.
Balorca Capital LLC trades a managed futures investment program and utilizes a disciplined approach to derive order from the chaos inherent in the market. The program, which has traded since 2014, is systematic, quantitative, and focused, trading NASDAQ-100 futures exclusively. Positions may be long, short, or fully cash, lasting a few days to months. All accounts are separately managed. The program was designed from the outset for long-term success and it continues to prove its resilience through a variety of market regimes.
Visit CoquestTradersResearch.com to learn more about this CTA and to become a premium member of the site.
ADM Investor Services, Inc. has been a leader in the futures brokerage industry for over 50 years. The company is a registered Futures Commission Merchant known for its financial strength and expert customer service. ADMIS serves a broad base of managed futures professionals and their clients as well as institutional, commercial and retail customers.
Headquartered in Chicago, ADMIS is a wholly owned subsidiary of the Archer
Daniels Midland Company (NYSE:ADM). It’s work is supported through a diverse network of institutional and introducing brokers, branch offices and global affiliated companies located in London, Hong Kong, Taiwan and Singapore.
Upcoming Events – Mark Your Calendars!
CTA Expo / Emerging Manager Forum
September 29 – October 1, 2020
Virtual Conference, Chicago, IL