CTAs can perform throughout the economic cycle, and we at Candriam believe that they can post returns and provide de-correlation from traditional asset classes across a wide range of market configurations.
Learn more about CTAS with videos of Steeve Brument, Head of Systematic Funds at Candriam.
How CTAs add value to a portfolio
Academic research has established that adding a CTA strategy to a portfolio enhances performance and reduces drawdown and volatility. Before investing in a CTA fund, an investor must pay attention to three features: the models used, asset class allocation, and how risk is calibrated.
Are CTAs a trendy investment?
CTAs: a transparent and easy-to-grasp strategy
Trend-following CTAs have the particularity of being very transparent, because either there are trends in the markets (that can thus be followed) or there are not. Hence market configurations with long-lasting trends are favourable to CTAs whereas the risk-on/risk-off mode is detrimental to this kind of strategy.
Opportunities for CTAs in the current environment
CTAs are best suited to profit from the current environment as sustained market trends are expected to continue in several asset classes. Indeed, divergent central bank monetary policies and the return of volatility will offer opportunities on equity indices, commodities, currencies and short-term rates.
More than just trend followers
The Candriam CTA programme aims to follow trends but also uses short-term models to take profit from market imbalances, and pattern recognition models to benefit from statistically significant patterns in the market.
Getting the best out of market trends with Candriam’s CTA strategy
Diversification and differentiation: the two keys of our programme
The CTA programme at Candriam exhibits features that enable greater diversification and differentiation, from the use of three different uncorrelated models to the equal weighting of risk across the different asset classes.
A risk budgeting algorithm focusing on short-term volatility: an edge for Candriam’s CTA programme
The risk-budgeting algorithm allocates the same portion of the risk budget across asset class. This adds value by enabling us to be reactive to shifts in underlyings’ volatility. The example of gold in the summer of 2011 provides a case-in-point as to how this process reduces false signals and strengthens risk management while enhancing performance.
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