Spring Valley Asset management has written a short analysis of the drivers of CTA returns over the last decades. Well worth reading.
CTAs, mostly trend followers, have historically delivered meaningful diversification to both traditional and alternative asset classes. However, CTAs have struggled over the last ten years. There have been various explanations such as low volatility, increased correlations, and suppressed interest rates. By understanding the drivers behind trend following, we isolate the impact each variable has had on CTA performance. Our investigation finds that the magnitude of market moves has been much lower over the past ten years. As a result, trends have been smaller and more challenging to identify. It is for this reason that CTAs have been unable to deliver outsized performance. However, we believe CTAs will continue to be valuable diversifiers as there is no clear evidence that market moves will remain perpetually below their long-term averages.