CTAs vs Global Macro Hedge Funds

Systematic versus Discretionary Masters of the Universe

August 2023. Reading Time: 10 Minutes. Author: Nicolas Rabener.
SUMMARY

  • CTAs and global macro hedge funds offer attractive diversification benefits
  • However, both are moderately correlated and offer similar risk exposures
  • CTAs have slightly better diversification characteristics

INTRODUCTION

We recently compared the alpha generation of generalist versus sector-focused fund managers in the US equity market, which highlighted that neither was able to generate alpha on average between 2014 and 2022. Worse, there was no consistency for the few fund managers that produced positive alphas (read Alpha Generation: Equity Generalists vs Sector Specialists).

Perhaps the US stock market has just become too efficient and fund managers should seek less constrained investment mandates. There are two types of asset managers that are almost completely flexible, namely CTAs and global macro hedge funds, as they trade all asset classes. The former are systematic and specialize in identifying trends in commodities, currencies, fixed income, and other markets. The latter also take long and short positions across asset classes, but tend to invest more discretionary.

Global macro investing tends to be associated with specific fund managers like George Soros, Stanley Druckenmiller, or Paul Tudor Jones (read Global Macro: Masters of the Universe?), while CTAs are usually linked to firms like MAN AHL or Winton that have teams that code investment processes. To a degree, it is man versus machine.

In this research article, we will compare global macro hedge funds versus CTAs.

PERFORMANCE

We take two indices from Eurekahedge as proxies for the performance of CTAs and global macro funds in this analysis.

Comparing their performance from 2004 to 2023 highlights that they generated an identical return for the 19-year period, which is a remarkable coincidence. Although the average volatility of global macro funds was lower at 5.1% versus 8.5% for CTAs, these generated a larger maximum drawdown durin