With tens and hundreds of unique CTA programs and large dispersion of returns, matching investors with appropriate CTAs and constructing a portfolio of managed futures trading programs is not an easy task. With this in mind, we first conduct quantitative and qualitative analyses (enhanced due-diligence) to filter and reserve invest-worthy managed account programs and CTAs. Only after, we engineer a custom portfolio. See details below:

Quantitative Analyses

Using database developed and maintained by IASG, we continuously chase CTA programs by observing their risk and performance parameters.

       Quantitative analysis involves, including but not limited to,

• Analysis of nominal historical returns.
• Analysis of risk adjusted returns, such as Sharpe Ratio, etc.
• Analysis of drawdown experiences.
• Analysis of return distributions.
• Comparison of size of funds under management versus open interest and volume of markets traded.

Qualitative Analyses (Enhanced Due-Diligence)

If the results of quantitative analyses reveal that performance statistics of the reviewed CTA programs fully fit our predetermined standards, we perform qualitative analysis to evaluate whether recent performance of CTA may sustain or improve.

       Qualitative analysis involves, including but not limited to,

• NFA background check.
• Evaluation of risk disclosure documents.
• Evaluation of length of presence of the trading program and the CTA firm.
• Cross-examination of risk management procedures and evaluation of leverage used.
• Commitment to research.
• Comparison of CTA’s performance with that of its peers following similar strategies.
• Investigation of potential conflicts of interests. (e.g. commission share between the FCM and the CTA)
• Review of CTA’s organizational structure and personnel.
• Assessment of investment process and portfolio construction.

Portfolio Construction

If findings of quantitative analyses and enhanced due-diligence confirm that the managed account program is invest-worthy, it becomes part of our CTA program space, from which we pick up programs and construct tailor made portfolios of CTA programs.

We optimize portfolio risk by picking up CTA programs that have no or very low correlation to each other, thus we avoid collinearity and achieve diversification at its best.

We also consider that, the selected CTA programs fall in to different categories in terms of trading style (e.g. trend following, option writing, discretionary, systematic, combos, etc.) and futures contracts (e.g. energy, equity indices, agricultural, financial, metals, softs. etc.).