As one of our projects for 2023, we had promised to start looking at the CTA ETFs. The nice thing with these, except for costs and pricing transparency, is that they offer full portfolio details. We finally got started and have now started to collect the data to see how they replicate or execute Trend Following strategies.
As a partial result, we started to collect data from $DBMF and $CTA, because they are offering interesting insights into design choices. There are five CTA ETFs with total assets north of one billion. They do not certainly not dominate the landscape for active trend followers, but they have grown rapidly. ETFD.com has a nifty list with facts and figures.
One thing to note is that the decisions made by each advisor are very different. We expect some of them to even out as we get more data. Some of the design decisions strike us as odd, but regardless of that fact, most of the CTA ETFs have done a good job of following fully-fledged managers.
There is a relatively high position concentration, with the DBMF being the most concentrated portfolio, holding only 13 different Futures. The Simplify Managed Futures ETF has 47 different Futures contracts, but only 14 distinct Futures markets. The positions are spread over various maturities.
As seen above, the notional exposure is dominated by Fixed Income, especially shorter-term fixed-income instruments (the SOFR contract, representing a 3-month instrument). To make the sector picture somewhat clearer, we can for instance adjust the Fixed Income exposure to "10-year" equivalents. Here we adjust the notional to indicate the rough equivalent of all of the Fixed Income exposure if it would have been a single ten-year bond position.
While it is still early days, we note that CTAs are reducing the Fixed Income exposure relatively slowly. Some of the funds do not trade frequently. The chart is dynamic on the website but may not be so in email. The chart can be accessed here: https://datawrapper.dwcdn.net/lvd79/1/
CTAs are still mostly short assets. Fixed Income and Equity positions contribute to the recent "whipsaws". The recent rally in Financial Assets has resulted in a small reduction of these positions. As long as the market is in Christmas rally mode, CTAs look to be wrongfooted.
Thanks for reading, we aim to publish one more update this year and will be on holiday between Christmas and New Year.