RESEAR CH


Common Denominators Markets traded by CTA and managed futures funds TILLMANN SACHS, HUI YU CHEN, ROBERT L.K. TIONG


Hui Yu Chen and Robert L.K. Tiong: Nanyang Technological University, Singapore. Tillmann Sachs: J8 Capital Management LLP, London. We thank Bolaji Olaniru, Vitali Sakovic, Matthew Jones and Tan Chong It for their contribution and J8 Capital Management LLP for their support.


D


uring the summer of 2014, we conducted a survey to establish “The Common Denominators in the CTA and Managed


Futures Industry”. The survey was sent to over 3,500 financial industry practitioners globally, and we received 51 (1.5%) responses. The survey was conducted from 17 June 2014 until 11 July 2014 by the Nanyang Technological University in Singapore, and supported by J8 Capital Management LLP in London.


This article is the first in a series of three articles. It presents the results on “what are the most popular markets traded in the CTA industry?” The second article will present the survey results on the most popular returns engines, portfolio management methods and fee structures. The final article will present an investible index based on these survey findings which may serve as a new benchmark index for the industry.


The full survey report will be published in the Winter 2014 Edition of the Journal of Index Investing by the Institutional Investor Journals


Traded markets There is clear trend in popularity of traded markets within the CTA industry. All survey participants were asked for their opinions on which markets represent the most relevant or common markets traded by CTAs, and multiple selections were possible. The survey covered a total of 82 markets, of which 27 markets were commodity markets, 10 government bond markets, six interest rate markets, 12 equity index markets, one volatility market, nine G10 currency markets, and 17 emerging market (EM) currency markets.


Fig.1 Share of market ticks (total of 1212 ticks)


Source: J8 3% 7% 12% 13% 14% 16% 35%


Commodities Equity Index Bonds


G10 Currency EM Currency Rates Volatility


Fig.4 The relative size of precious metals traded by the CTA industry


Source: J8 3.80% 10.13%


Gold Silver


27.85%


Fig.1 shows that commodity markets are the most popular markets. This is followed by equity markets, bonds markets, G10 currency markets and EM currency markets. Short-term interest rate markets and volatility are the least popular traded markets.


32 58.23%


Platinum Palladium


Fig.7 The relative size of softs traded by the CTA industry


Source: J8 15.00% 15.00% 35.00% 35.00% Coffee


Sugar #11 Cocoa


Cotton #2 30.10%


Commodity markets The survey sub-categorized commodity markets into six sectors: grains, softs, livestock, energy, industrial metals and precious metals.


Fig.2 shows energy (27%) and precious metals (21%) being the two most popular sectors.


Fig.2 The relative size of commodity sectors traded by the CTA industry


Source: J8 Energy 7% 6%


14% 8%


17% 27%


Precious metals Industrial metals Grains Softs


21% Livestock


Other commodities not covered by the survey


9.38% 33.59% 20.31% 28.91%


Fig.3 The relative size of industrial metals traded by the CTA industry


Source: J8 5.19% 9.09% 24.68% 58.44% 1.30% 1.30% Copper


Aluminum (primary)


Nickel (primary) Zinc (high grade) Lead Tin


Source: J8 5.83% 4.85% 32.04% 27.18%


Wheat Corn


Soybeans Soybean Oil Soybean Meal


Fig.6 The relative size of grains traded by the CTA industry


Fig.5 The relative size of energy traded by the CTA industry


Source: J8 5.47% 2.34%


WTI Crude Oil Brent Crude Oil Natural Gas (HH) Heating Oil #2 Gasoline RBOB Gas oil


Some sectors show a clear market favourite:


• Copper was the most popular industrial metal (58%) (see Fig.3).


• Gold got 58% of the precious metals ticks (see Fig.4).


• WTI and Brent Crude Oil combined to 63% of the ticks of the energy sector (see Fig.5).


• Within the grains, softs, and livestock sectors, there was no distinct winner (see Fig.6, Fig.7 and Fig.8 respectively).


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