CTA Challenge 2019- Numbers Revisited
Now in its 7th consecutive year, the Coquest CTA Challenge finds success in utilizing a proprietary model for performing quantitative and qualitative evaluations of alternative investment programs. The results of these evaluations are presented as annual rankings and advertised to the investing public that is specifically looking for this type of product. Qualified high net worth investors, wealth managers, capital introduction teams, institutional investors and industry brokers are among the many groups that regularly monitor the year to date progress of the participants and the annual final results. The CTA Challenge uses the below seven criteria to analyze, compare and rank the daily performance and daily risk of the participating liquid alternative investment programs:
- Daily Rate of Return [ROR]
- Daily Rate of Return vs. Daily Volatility [Sharpe Ratio]
- Daily Rate of Return vs. Daily Downside Volatility [Sortino Ratio]
- Daily Rate of Return vs. Maximum Daily Drawdown [Sterling Ratio]
- Daily Rate of Return vs. Daily Margin to Equity [Return on Margin]
- Daily Rate of Return vs. Daily Value at Risk [Return on VaR]
- Daily Rate of Return vs. Daily Conditional Value at Risk [Return on CVaR]
The CTA Challenge was specifically structured to provide a large portion of the heavy lifting analysis that is required in institutional investment program reviews. We have arguably automated the majority of the quantitative, in-depth number crunching that institutions prefer to be conducted before making any formal consideration on a liquid alternative investment program. Although the CTA Challenge cannot fully replace the respected investment analysts and their hands on reviews, it sure is a great tool to help investors fast track the entire review process. By providing risk-adjusted rankings and using daily transparency, the CTA Challenge has become a key tool for use in picking investments in the liquid alternative space.
Of the 90 programs in the 2019 CTA Challenge, we have seen performance range from -36% to +81% ROR since January 1st (gross performance numbers). Just like the futures market prices, the performance moves for CTA managed futures programs have been all over the place. The unpredictable nature of market prices, and the size of the moves, require CTAs to employ hefty risk controls if they want to protect their customers from large losses in the investment accounts. In the CTA Challenge, we take a risk-adjusted approach to analyzing and ranking CTA programs to ensure we are evaluating performance and risk numbers achieved as well as performance and risk exposures. We are evaluating “what actually happened” and also looking at “what could have happened”. See below for the most recent top 5 ranked programs year-to-date in the CTA Challenge.
2019 CTA Challenge Current Top 5 Ranking
#1: AG Capital Investments LLC / Discretionary Global Macro Program
#2: County Cork LLC / Acclivity Program *QEP*
#3: Fort LP / Global Contrarian *QEP*
#4: Quantica Capital AG / Managed Futures Program *QEP*
#5: Emil Van Essen LLC / Global Tactical Allocation Program *QEP*
FORT Investment Management (also known as Fort LP) is an investment management firm founded by Dr. Yves Balcer and Dr. Sanjiv Kumar in 1993. Based in Washington D.C. and New York, FORT has provided alternative investment advisory services to many of the world’s institutional investors and high-net-worth individuals for over 25 years.
Started in 1919 by Mr. D. Howard Doane, Doane Advisory Services was built with the vision of creating a more efficient, productive agriculture industry. Acquired by Farm Journal in 2015, Doane Advisory Services is a market leader for agricultural economic information and outlook.
Objects In Mirror Are Closer Than They Appear – QE
Central Banks Revisiting Easement Policy
At the press conference following the July 25, 2019 meeting of the European Central Bank (ECB) monetary policy committee, Mario Draghi announced the desire to stimulate the Eurozone economy through multiple actions. Draghi, the current ECB president, described the economic situation in Europe as softening and in threat of an ultra-low inflationary situation that the central bank wants to step in front of. Indications of policy change to be made at the September meeting of the ECB include a cut to core interest rates as well as the introduction of a fresh round of quantitative easing (QE). This move would not only further reduce rates that are currently at record lows across Europe, but also lead to the restart of the Asset Purchase Programme (APP) that injects substantial capital into the European economy each month through the purchase of private and public debt securities. The APP, which topped at 80bln Euro per month in April 2016 through March 2017, tapered off to zero at the end of 2018. The ECB is taking this coordinated and aggressive measure to boost the European economy and pin inflation rates closer to their target goals.
The US Federal Reserve Bank (Fed) has its July policy meeting next week to discuss an highly expected interest rate cut to bolster the US economy. Last month’s policy meeting announcement hinted to keeping the Fed Funds core interest rate consistent until 2021 but also gave subtle indications that there was still a likelihood of an interest rate cut at the July 2019 meeting. Market analysts expect the Fed to decrease interest rates by 0.25% or even 0.50% next week. This is a stark contrast from the Fed’s perspective over the past few years as they have consistently echoed the desire to get out of a low interest rate environment.
The Fed Funds target rate has been steadily increasing over the past 3.5 years, beginning with the Dec 15, 2015 increase from 0.25% to 0.50% all the way until the December 19, 2018 increase from 2.25% to 2.50%, where it currently sits. The target rate is still well under the levels maintained up until the 2007-2008 U.S. financial crisis commonly referred to as the Great Recession. In September 2007 the Fed cut interest rates from 5.25% to 4.75% and then continued to cut all the way down to 0.25% on December 16, 2008 where it sat for exactly 7 years.
According to the Federal Open Market Committee, the policy making division of the US Federal Reserve, historical data over the last 50 years (1970-2019 YTD) shows the Fed Funds annual yield has averaged an effective rate of 5.16% with a high of 16.39% in 1981 and a low of 0.10% in 2011. Despite rising over the past few years, the current target of 2.5% is well below the historical average for the Fed Funds rate. Any interest rate cuts now appear to be short sided, seeming to only focus on market conditions of the past 5 years and quite possibly forgetting (or ignoring) the lessons of history learned over decades of monitoring and policy making.
With the current Fed Funds rate target well below historical norms, the US economy booming, unemployment at near all-time lows and stock markets at all time highs, one can’t help but wonder why the Fed is using its effective, yet limited, tool for fiscal expansion in a time when market forces are already moving in a strong positive direction. Recession worries have been discussed on the news since 2018 and haven’t amounted to much. Current analyst views around the street are pointing to another 1-3 years of expansion before recessionary fears could be realized. Personally I have been a bit pessimistic on the direction of the economy these last few years and, like many of my peers, have been consistently proven wrong by the markets. It makes me now wonder what the Fed sees that the street doesn’t see this summer, in terms of a potential US recession. And if they do see something brewing, what tools do they have to use when they have already tapped out the usage of rate cuts? Food for thought before next week’s policy meeting.
Upcoming Events – Mark Your Calendars!
TEXPERS Summer Educational Forum
August 18-20, 2019
Omni Hotel, Frisco, TX
CTA Expo Chicago 2019
September 11-12, 2019
The Conference Center, Chicago, IL
Talking Hedge: Alternative Strategies
November 20-21, 2019
The Driskill Hotel, Austin, TX
2019 CTA Challenge Sponsors