Not everyone doubts the judgment of these more single-minded robots. When there is a clear trend in the market, like in December as the S&P 500 tumbled 9 percent over several weeks, CTAs actually work. The SocGen trend index gained 1 percent that month.
“I am not trying to become an apologist for the trend-following space, but market conditions in 2018 weren’t even close to a crisis,” said Douglas Greenig, whose firm Florin Court Capital in London focuses almost exclusively on trend-following strategies.
Even Greenig, a former chief risk officer at the quant unit at Man Group Plc, is adapting. In April 2017, Florin switched from following trends on the S&P futures, U.S. Treasuries and crude oil to focusing entirely on so-called exotic assets that don’t get as much attention, like cheese, sunflower seeds, rough rice, Chinese eggs and electricity.
Luring back skeptical investors like Ritchey from Franklin Templeton won’t be easy. He says the current geopolitical and economic environment is too volatile for CTAs to work, especially given the lack of clarity on issues like the U.S.-China trade war, the health of the global economy and Brexit.
“It’s almost like CTAs are clarity-trading advisors. They need clarity, not randomness,” Ritchey said. “The models are designed for a non-crazy-headline environment. Even the discretionary managers are having trouble keeping up.”
This article was provided by Bloomberg News.