CTA Smiles and other fantasies...

I recently made a comment on a post that was peddling the common, low-brow CTA Smile theory. Wait a second. Here's a picture of the AQR Managed Futures Fund gong back 10 yrs. Reality tends to turn the smile upside down.

I also tested the AlphaSimplex Futures Fund as well, same frown. The last decade has been tough for CTA's for two reasons: 1. QE was a tough environment for Macro (long divergence) strategies; and 2. Vol-control risk overlays tend to clip the right tail.

Let me be clear, in a persistent, divergent trend environment, CTA's will still generate Alpha vs. Mkt (Beta) portfolios. The problem has now become performance drag in range-bound markets, and and vol-control risk overlays that clip the right tail during trends that exhibit high-realized volatility.

You can now smile, armed with this additional input with which to screen your allocations to managed futures. 🙂

#cta #managedfutures #convexity #alpha

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