The 2020 CTA Challenge – March Mid-Month Update

Liquid Alternative Investments Outpace The S&P 500

We are now navigating a new norm of investment volatility fueled by global industry disruption, geopolitical liquidity measures and investor fears. Analysts have been warning for months, or years, that the U.S. economy was overheated and due for a reversal and possible recession. The over-extended corporate bond market, stressed overnight repo market and what many considered an over-bought equities market in the U.S. all seemed to hold their ground while teetering on the edge. With the developments of the worldwide pandemic from the COVID-19 virus over the past few months, we are now seeing that the social and economic strain from this medical crisis was more than the straw…it was the tree trunk that broke the camel’s back.

The S&P 500 Index is down -21.72% year to date, at of the close on March 17, 2020. As of writing this article, the S&P is down another -8.69% intraday. We are already in bear market territory and the worst might be yet to come for the U.S. stock market.

One thing is for certain, investors with heavy exposure to the U.S. and global stock markets are reeling from the recent losses and are looking for alternate venues to place their investment portfolios, while remaining liquid and hopefully making profits. That is where alternative investments come into light.


Here’s The Good News For Qualified Investors

I reached out to 2 alternative investment companies yesterday and gained some insight into what is working so well for them this month. One of them runs a Systematic, Non-Trend program (we will call them “Alpha”) while the other runs a Discretionary, Macro program (we will call them “Gamma”). Both program offer daily liquidity and are available for investment by qualified buyers.

  • Alpha is a Systematic/Diversified/Short-Term/Technical (non-trend) trading program that is up an estimated 9.6% month to date and 24.8% year to date, net of all fees as of the close March 16. Quoting the portfolio manager for this investment program:
    • “…in the past month we have made money from being short equities, short energies, and both sides of metals at various times. Currencies and ags have been pretty quiet, and bonds have been a bit profitable but we haven’t been in those heavily either.”
  • Gamma is a Discretionary/Diversified/Macro trading program that is up an estimated 17.0% month to date and 25.0% year to date, net of all fees as of the close March 16. Quoting the portfolio manager for Gamma:
    • “Our strategy was already positioned for a mild global recession heading into 2020, based on slowing global growth; Covid-19 simply turbocharged the recession scenario.
    • We carried long bond (long end of yield curve) and long Eurodollar (short end of yield curve) positions into early March, betting on lower yields. We closed both positions as bonds made exponential moves higher.
    • Our largest gain was from a short palladium position, which we expected to reach $1,600/ounce by late 2020. We covered the position at a large profit as it reached our target in March. Our thesis was proven out: a recession would cause Palladium, an ingredient in gasoline catalytic converters, to be re-priced lower as auto demand
      collapsed and recycling of input metal increased.
    • We also made solid profits short gold throughout the second week of March as it became clear that a severe dollar shortage was appearing in financial markets and markets would price in a deflationary collapse.”

Note, at the end of March 16 the S&P 500 Index was down -19.23% month to date -26.14% year to date. That is more than a 50% comparative performance spread YTD compared to Alpha and Gamma!

As we look across the book of investments in the CTA Challenge, the Systematic Non-Trend and the Discretionary Macro strategies, on average, are doing fairly well so far this month. The above programs are just a sample of what we are seeing. Past performance is not indicative of future results.


How To Invest

To learn more about these mentioned programs, or others that are performing well in this current environment, please contact Coquest by Clicking Here or calling 1-214-580-4220.

Our seasoned team is fully operational and we are able to fast track new investment accounts for investors looking to quickly shift assets.


The Case for Managed Futures

Managed Futures investment strategies, traded by CTAs, as well as Global Macro investment strategies, prove themselves consistently again and again to be non-correlated with the S&P 500 Index and the general stock market. These investments do not necessarily go up when the stock market goes down (negatively correlated) nor do they necessarily go up when the stock market goes up (positively correlated). Managed Futures investments simply behave completely different and are based on the skill (and sometimes luck) of the trading program and its architects more so than the direction of the economy or the stock market. Investments in Managed Futures programs, like anything, should be done with careful consideration.

And, as always, past performance is not indicative of future results.


The CTA Challenge at a Glance

Commodity Trading Advisors (CTAs) are investment managers who trade on-exchange futures contracts. Their products, available for investment to qualified individuals, tend to produce returns that are non-correlated with the stock and bond markets. The level of skill required to trade in the futures markets is considered more difficult than most other capital markets due to the inherent leverage of the traded contracts as well as the ability to go long or short at any time. Futures contracts are available for thousands of global commodity and financial instruments, from Lean Hogs, Wheat, Gold, Crude Oil and Coffee to the S&P 500 index, EUR/JPY cross rate, US 10Y T-Notes, the German Dax index and even Bitcoin. This allows CTAs to participate in the prices moves of a vast number of products controlled by supply and demand as well as geopolitical decisions…but rarely affected by the decisions made in a corporate board room as is the case with each company in the stock market.

The unpredictable nature of futures market price moves, in both direction and size, require CTAs to employ hefty risk controls if they want to protect customers from large losses in their investment accounts. Because of this additional layer of complexity, we cannot simply focus on performance returns when evaluating a CTA investment program. 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 amounts exposed. We are evaluating “what actually happened” while 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:

Top 5 Ranking Through The End Of December

#1: Quantica Capital AG / Managed Futures Program *QEP*

#2: County Cork LLC / Acclivity Program *QEP*

#3: Fort LP / Global Contrarian Program *QEP*

#4: Automaton Trading LLC / Diversified Program *QEP*

#5: AG Capital Investments LLC / Discretionary Global Macro Program

See the full current rankings here

*2020 initial rankings will be published in the next issue of this newsletter.

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.


Featured Sponsor

Traders Fulcrum is an informal networking group of over 2,000 Chicago-area Traders, Alternative Investment Fund Managers, Asset Allocators and other Money Management professionals who get together to hoist a few beers and talk shop. Meetings occur about once every quarter with an average of 200 attendees.


Featured CTA

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.


Upcoming Events – Mark Your Calendars!

TEXPERS – 2020 Annual Conference
May 2-6, 2020
Moody Gardens Hotel, Spa & Convention Center, Galveston, TX

Talking Hedge – Toronto
June 10-11, 2020
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MFA Forum 2020
June 16, 2020
Four Seasons Hotel, Chicago, IL

Coquest Annual Soiree
June 16, 2020
TBD, Chicago, IL


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