Common markets in the CTA and managed futures industry Tillmann Sachs, Hui Yu Chen, Robert L.K. Tiong 1 This draft: 30 September 2014 Reprint in The Hedgefund Journal, September 2014 1 Hui Yu Chen and Robert L.K. Tiong: Nanyang Technological University, Singapore. Tillmann Sachs: J8 Capital Management LLP, London. We thank Bolaji Olaniru, Vitali Sakovic, Matthew Jones and Tan Chong It for their contribution and J8 Capital Management LLP for their support.
Abstract During the summer 2014, we conducted a survey to establish The Common Denominators in the CTA and Managed Futures Industry. The survey was sent to over 3,500 financial industry practitioners globally and we received 51 (1.5%) responses. The survey was conducted from 17th June 2014 until 11th July 2014 by the Nanyang Technological University in Singapore and supported by J8 Capital Management LLP in London. This article is the first in a series of three articles. It presents the results on what are the most popular markets traded in the CTA industry? The second article will present the survey results on the most popular returns engines, portfolio management methods and fee structures. The final article will present an investible index based on these survey findings which may serve as a new benchmark index for the industry. The full survey report will be published in the Journal of Index Investing with the Institutional Investor Journals. Traded Markets There is clear trend in popularity of traded markets within the CTA industry. All survey participants were asked for their opinions on which markets represent the most relevant or common markets traded by CTAs, and multiple selections were possible. The survey covered a total of 82 markets, of which 27 markets were commodity markets, 10 government bond markets, 6 interest rate markets, 12 equity index markets, 1 volatility market, 9 G10 currency markets, and 17 emerging market (EM) currency markets.
Exhibit 1 shows that commodity markets are the most popular markets. This is followed by equity markets, bonds markets, G10 currency markets and EM currency markets. Short-term interest rate markets and volatility are the least popular traded markets. 3% 7% 12% 13% 14% 16% 35% Commodities Equity Index Bonds G10 Currency EM Currency Rates Volatility Exhibit 1: Share of market ticks (total of 1212 ticks) COMMODITY MARKETS The survey sub-categorised commodity markets into six sectors: grains, softs, livestock, energy, industrial metals and precious metals. 7% 6% Energy 8% 27% Precious metals Industrial metals 14% 17% 21% Grains Softs Live stock other Exhibit 2: The relative size of commodity sectors traded by the CTA industry Exhibit 2 shows the number of ticks for each sector were spread fairly equally, with energy (27%) and precious metals (21%) being the two most popular sectors. Some sectors show a clear market favourite:
Copper was the most popular industrial metal (58%). 5.19% 1.30% 1.30% 9.09% Copper Aluminum (primary) Nickel (primary) 24.68% 58.44% Zinc (high grade) Lead Tin Exhibit 3: The relative size of industrial metals traded by the CTA industry Gold got 58% of the precious metals ticks(exhibit 4). 10.13% 3.80% 27.85% 58.23% Gold Silver Platinum Palladium Exhibit 4: The relative size of precious metals traded by the CTA industry WTI and Brent Crude Oil combined to 63% of the ticks of the energy sector(exhibit 5).
2.34% 5.47% 9.38% 33.59% 20.31% 28.91% WTI Crude Oil Brent Crude Oil Natural Gas (HH) Heating Oil #2 Gasoline RBOB Gas Oil Exhibit 5: The relative size of energy traded by the CTA industry Within the grains, softs, and live stock sectors, there was no distinct winner(exhibit 6, 7 and 8 respectively). 5.83% 4.85% 27.18% 30.10% 32.04% Wheat Corn Soybeans Soybean Meal Exhibit 6: The relative size of grains traded by the CTA industry
15.00% 15.00% 35.00% 35.00% Coffee Sugar #11 Cocoa Cotton #2 Exhibit 7: The relative size of softs traded by the CTA industry 45.45% 54.55% Lean Hogs Live Cattle Exhibit 8: The relative size of livestocks traded by the CTA industry EQUITY INDICES The second most popular markets were equity indices with S&P 500 taking the lead with 23% of the share (Exhibit 9).
2.29% 1.83% 3.67% 2.29% 4.59% 6.42% 6.88% 10.55% 11.01% 0.92% S&P 500 Euro STOXX 50 Nikkei 225 22.48% DAX FTSE 100 Nasdaq HANG SENG 14.22% CAC40 KOSPI2 IBEX 35 12.84% FTSE/MIB S&P/TSX 60 other Exhibit 9: The relative size of equity indices sector traded by the CTA industry GOVERNMENT BOND MARKETS 14% of all markets selected were government bond futures, making it the 3 rd most popular category (Exhibit 1). Within government bonds, 10yr US Treasury Notes (20%) and 10yr Euro Bunds (16%) were the most popular markets. The other government bond markets show similarly popularity among each other (Exhibit 10).
4.43% 7.88% 8.37% 8.87% 9.36% 2.96% 10.84% 0.49% 10yr US Treasury Note Euro Bund (10yr) 20.20% 10.84% 15.76% 5yr US Treasury Note 30yr US Treasury Bond 2yr US Treasury Note 10yr Japanese Government Bond Long Gilt Euro Bobl (5yr) Euro Schatz (2yr) Exhibit 10: The relative size of government bonds sectors traded by the CTA industry G10 CURRENCY MARKETS Within the G10 currencies, Euro and the Japanese Yen were the favourite markets (Exhibit 11). 3.13% 7.81% 11.98% 13.54% 1.56% 1.04% 0.00% 16.15% 25.00% 19.79% Euro FX Japanese Yen British Pound Australian Dollar Swiss Franc Canadian Dollar New Zealand Dollar Swedish Krona Norwegian Krone other Exhibit 11: The relative size of G10 currencies sector traded by the CTA industry
EM CURRENCY MARKETS Emerging market currencies are slightly less popular in the CTA industry than G10 currencies, with a total of 11% of all ticks received. The most popular EM currency was the Brazilian Real. 0.62% 0.62% 3.09% 0.62% 3.70% 4.32% 4.94% 6.17% 8.02% 8.64% 9.26% 0.62% 0.00% 0.00% 14.81% 12.35% 11.11% 11.11% Brazilian Real Mexican Peso Russian Ruble South African Rand Indian Rupee Singapore Dollar Korean Won Turkish New Lira Taiwan Dollar Polish Zloty Indonesian Rupiah Malaysian Ringgit Philippine Peso Czech Koruna Argentine Peso Chilean Peso Colombian Peso other Exhibit 12: The relative size of EM currencies traded by the CTA industry INTEREST RATE MARKETS The Eurodollar dominates the interest rate markets (45%), however, Exhibit 1 shows that rates in total were the 2 nd least popular category, with only 7% of the total ticks being allocated to rates.
6.12% 11.22% 3.06% 0.00% Eurodollar 3M Euro Euribor 3M Sterling 44.90% 3M Euroyen 12.24% 22.45% 3M Euroswiss Bank Accept (Canada) other Exhibit 13: The relative size of interest rates sectors traded by the CTA industry VOLATILITY MARKETS There was only one volatility market listed on the survey, the CBOE VIX. However, it was voted the 8 th most popular individual market out of all listed markets. Three respondents suggested VDAX and Eurex VSTOXX as relevant volatility markets. Markets ranked by popularity Following tables show all 82 markets included in the survey, ranked by their popularity as measured by the numbers of ticks received. Number of Ticks Market Number of Ticks Market 49 S&P 500 15 Indian Rupee 48 Euro FX 14 HANG SENG 46 Gold 14 Singapore Dollar 45 Copper 13 Korean Won 44 Eurodollar 12 Cocoa 43 WTI Crude Oil 12 Cotton #2 41 10yr US Treasury Note 12 Heating Oil #2
40 CBOE VIX 12 3M Sterling 38 Japanese Yen 11 3M Euroyen 37 Brent Crude Oil 10 CAC40 33 Wheat 10 Turkish New Lira 32 Euro Bund (10yr) 9 Euro Schatz (2yr) 31 Corn 8 Platinum 31 Euro STOXX 50 8 KOSPI2 31 British Pound 8 Taiwan Dollar 28 Soybeans 7 Gasoline RBOB 28 Coffee 7 Nickel (primary) 28 Sugar #11 7 Polish Zloty 28 Nikkei 225 6 Soybean Oil 26 Natural Gas (HH) 6 Canadian 10yr Bond 26 Australian Dollar 6 3M Euroswiss 24 Lean Hogs 6 New Zealand Dollar 24 DAX 6 Indonesian Rupiah 24 Brazilian Real 5 Soybean Meal 23 FTSE 100 5 IBEX 35 23 Swiss Franc 5 FTSE/MIB 22 Silver 5 Malaysian Ringgit 22 5yr US Treasury Note 4 Zinc (high grade) 22 30yr US Treasury Bond 4 S&P/TSX 60 22 3M Euro Euribor 3 Gas Oil 20 Live Cattle 3 Palladium 20 Mexican Peso 3 Bank Accept (Canada) 19 Aluminum (primary) 3 Swedish Krona 19 2yr US Treasury Note 2 Norwegian Krone 18 10yr Japanese Government Bond 1 Lead 18 Russian Ruble 1 Tin 18 South African Rand 1 Philippine Peso 17 Long Gilt 1 Czech Koruna 16 Euro Bobl (5yr) 1 Argentine Peso 15 Nasdaq 1 Chilean Peso 15 Canadian Dollar 0 Columbian Peso Exhibit 14: Ranking of all 82 surveyed single markets by their popularity CONCLUSION Markets have been ranked based on popularity within the CTA and managed futures industry. The commodity markets emerged as the most relevant and traded market in the CTA industry, closely followed by equity indices, government bonds, and G10 currencies. However, the mix of asset classes of the most popular single markets suggests that the CTA and managed futures industry trades diversified asset portfolios.