Systematic Trading research and development, with a flavour of Trend Following
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Super Trend Following Index?

July 28th, 2010 · 12 Comments · Trend Following, Trend Following Wizards

I am firm believer in diversification, and so are most of the Trend Following Wizards tracked on the AuTraSy blog. How about applying diversification to the Trend Following Wizard funds themselves?

Instead of trying to see which funds performed best (as I did previously with the Geometric Information Ratio ranking), I wanted to see what sort of performance would be obtained by diversifying investments across all of the Wizard funds.

Historical Performance Background

To start with, let’s look at the historical individual performance of our wizards, starting from 1990:

Click to zoom in - VAMI for all funds since 1990 or inception, in log scale. Excuse the messy firework look, but try plotting 20 different overlapping time series in one chart...

Click to zoom in - VAMI for all funds since 1990 or inception, in log scale. Excuse the messy firework look, but try plotting 20 different overlapping time series in one chart...

And some performance statistics – to consider with some “perspective” since the different track record lengths tend to distort stat comparisons (ie. MaxDD increases with track period length, different periods might be more or less conducive to Trend Following, etc.):

Organisation / Fund # Yearsa CAGRb Max DDc Avg DDd mod Sharpee
Abraham Trading1 20
Altis Partners2 8.5
BlueTrend3 6
Campbell & Company4 20
Chesapeake Capital5 20
Clarke Capital6 13.9
Drury Capital7 12.7
Dunn Capital8 20
Eckhardt Trading9 18.4
EMC Capital10 20
Hawksbill Capital11 20
Hyman Beck & Co.12 18.8
JWH & Co.13 20
Man AHL Diversified14 11.7
Millburn Ridgefield15 20
Rabar Market Research16 20
Saxon Investment17 20
Superfund18 14
Transtrend19 17.6
Winton Capital20 12.3

a: Number of years contained in the track record (since 1990)
b: Compound Annual Growth Rate
c: Maximum Drawdown level over full length of track record
d: Average Drawdown level over full length of track record
e: Modified Sharpe ratio is as per Jack Schwager’s definition in Managed Futures, Myths and Truths, which introduces interesting performance metrics. The Modified Sharpe ratio is simply a Sharpe ratio where Rf (risk-free rate of return) is set to 0 (makes it independent of leverage). mSR = E[R] / sd.
See further below for additional, wizard-specific notes

As expected, most of the highest max drawdown figures can be foud amongst the longest track records (everybody’s worst drawdown is yet to come). Still, not bad showings for some of the oldies (TransTrend, Eckhardt, Millburn).

Diversifying across all Trend Following Wizards: The Index

The next step was simply to build an index to represent a “Fund of Funds” approach encompassing all the Wizards. Below are the chart and the stats for the index. Note that the index is not so realistic as it assumes a monthly rebalancing, which is not practically reproducible with CTA funds. The rebalancing is done on an equal allocation basis, for all funds available at that time (ie 10 funds in 1990 and 20 funds in 2009). This should still gives a good representation of an aggregate performance and should highlight the impact of diversification.

Click to zoom in - VAMI for TF Wizard Index, plotted in bright orange

Click to zoom in - VAMI for TF Wizard Index, plotted in bright orange

Organisation / Fund # Years CAGR Max DD Avg DD mod Sharpe*
TF Wizards Index 20

One thing we can notice visually as well as in the stats numbers is that diversification allows the index to rise towards the top of the performance table, be it measured in raw performance, drawdown or volatility/sharpe ratio.

I like to think of diversification as a way of extracting value out of multiple semi-random processes and it seems to have done the trick on that exercise. Eggs, wizards, basket and all that…
Note that the index is not intended to represent Trend Following’s performance as a whole since 1990 (because of no accouting for survivorship bias), but rather a measure of the effect of diversification.
Additional Notes:
1. Abraham Trading was founded by Salem Abraham, after he was introduced to Managed Futures and Trend Following by Jerry Parker. He is considered as a “second-generation” Turtle.
2. Altis Partners started trading in 2001 and now manage over a $1B with their Altis Global Futures Portfolio. The figures referenced in the performance table are not provided by Altis Partners and no reliance should be taken as to their accuracy, and as a consequence the figures may not be in accordance with any CFTC / NFA performance reporting requirements
3. BlueTrend, from BlueCrest Capital, is one of the largest Trend Following funds – headed by Ms. Leda Braga
4. Campbell & Company is one of the oldest Trend Following firms, operating for around 4 decades.
5. Chesapeake Capital was founded by Jerry Parker, a former Turtle.
6. Clarke Capital was founded by Michael Clarke in 1993.
7. Drury Capital, Inc., was founded in Illinois in 1992 by Mr. Bernard Drury.
8. Dunn Capital was founded by Bill Dunn.
9. Eckhardt Trading is the firm managed by William Eckhardt, who co-led the Turtle experiment with Richard Dennis
10. EMC Capital was founded by Liz Cheval, a former Turtle.
11. Hawksbill Capital was founded by Tom Shanks, a former Turtle.
12. Hyman Beck & Co. main principals are Alexander Hyman and Carl Beck.
13. JWH & Co. was founded by John W. Henry, Owner of the Boston Red Sox.
14. Originally ED & F Man. Became a succesful CTA under Larry Hite and went on to form part of The Man Group plc, which subsequently bought AHL to form the Man AHL: the systematic trading division of the Man group.
15. Millburn Ridgefield have been trading Trend Following models since the early 1970’s. As they report performance figures one month later, last month performance is not reported in this report and their YTD, AUM stats are from the month before.
16. Rabar Market Research is the company of Paul Rabar, a former Turtle.
17. Saxon Investment was founded by Howard Seidler, a former Turtle.
18. Superfund founder and CEO: Christian Baha.
19. Transtrend is a Trend follower CTA based in Netherlands
20. Winton Capital is a London-based CTA founded by Dave Harding (also co-founder of AHL).
Note that the figures referenced in the performance table are not provided directly by any of the funds/CTAs featured in this report, but are sourced from other publications such as hedge fund/CTA websites.

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12 Comments so far ↓

  • cordura21

    Hey Jez. Did you check the indexes by Barclays and Altegris? I checked them and the return is around 9%-11% with 16% drawdown. I think it’s pretty interesting to notice, maybe there’s a difference in survivorship bias in your sample? (or to put it another way, the road is full of dead market wizards? ;-) Here are links to both indexes:

  • Jez

    Hi Cord,
    Thanks for the links.
    I did know about the BarclayHedge one but not the Altegris one. PumperNickel (who comments on the blog) also posted a link to alternative indexes ( ) , and I think I must have a list of other somewhere.

    One reason I’m not a fan of them (for this exercise) is that they are not specific to Trend Following (even though most CTA’s probably use Trend Following).

    Anyway, very good point about survivorship bias. Although, it was not my initial intention to devise a “complete” Trend Following index (despite the “catchy” post title). I really wanted to see what sort of performance could be obtained by mixing all the performances together and basically make a case for diversification (there’ll probably be more of that theme coming in the next few months).

  • prazor


    I agree that diversification is in play here
    but would guess that rebalancing is also a

    Would be interesting to see the curve for a
    not-rebalanced index on the same chart.

    Rebalancing is a kind of position sizing

    Each month capital is taken from the best performers and then distributed to the worse performers.

    Since the effect seems so strong i would guess one can boost performance using momentum techniques and also by allowing different weights on rebalancing.

  • Steven

    In the above table, what is the difference between Average DD, and Max DD?

    I think the Avg DD, is based on the current month or year results? While the Max DD, is based on the lifetime DD of the fund?

    My question is is AVG DD based on current month or current year?

    Many thanks!

  • Steven

    Is it possible to get the drawdown figures for the other funds not listed above, but listed on your home page? Those are:
    Altis, Aspect, Auspice, Beach, Sunrise and Tactical.

    Thanks again.

  • Jez Liberty

    AvgDD is simply the average of all monthly drawdown values.

    These other funds have been added to the TF Wizards list after this chart was produced, and I am not really planning to run an update of this.
    However you should be able to retrieve the MaxDD figures for them on websites like IASG or AutumnGold (sorry, I do not have them handy)


  • Cameron

    Hi Jez,

    What I notice when skimming these stats is that the funds with a full 20 year history invariably have lower CAGRs (all bar one below 20%) and higher Max DDs.

    Intuitively I suspect this is due to exposure to sets of adverse market conditions that the funds with shorter history haven’t known.

    I wonder how it might look if you gave index constituents a weight commensurate with history, such that funds with a full 20 year history are weighted heaviest.

    The only fund with a full 20 year history to exceed 20% CAGR is Hawksbill, and to achieve that involved a massive MaxDD of 61.78%.

    I also wonder what the relationship looks like between increasing CAGR and “tradabilty” metrics like MaxDD, AvgDD an Sharpe ratio.

    Thanks for the analysis!

  • Jez Liberty

    Hi Cameron,
    The higher MaxDD would be expected I believe (ie probability of MaxDD=100% tends to 1 over time).
    With regards to CAGR, it does not look that skewed negatively for the longer track records (ie there are only 2 with CAGR > 20% for track records less than 20 years).

    There are however a few more recent funds with better Sharpe ratio (to put CAGR in perspective): BlueTrend, Winton, Transtrend, Altis, etc.

    As for the weighting, I just wanted to use a simple approach to replicate a virtual portfolio of CTAs available to an investor. If I had to change it I think I would rather do a risk-parity type allocation..

  • Dan

    Hi Jez,

    Can you tell me were you got the data for the various CTAs for this article? I would like to do some more analysis on their performance.


  • Jez Liberty

    Dan – mostly from AutumnGold, IASG and/or altegris. Some are not in there and need to be checked on the CTA’s website directly.

  • Van Beek

    Timeless information. Thanks for putting this chart up. Do you know which of the featured CTAs accept to manage money for private individuals starting with an amount in the tens and not hundreds of thousands of dollars? I

  • Jez Liberty

    Van Beek,
    I think you’ll struggle to find well-established CTAs who accept clients with less than 100k. There are a few I believe but I do not know them on top of my head..

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