31.2 HISTORICAL PERFORMANCE OF CTAs

This section provides some evidence regarding the historical performance of CTAs both as stand-alone investment products and within the context of diversified portfolios of traditional asset classes (the role of CTAs in diversified portfolios is further examined in Chapter 32). In addition, the benefits of CTAs as risk diversifiers, especially during periods of market stress, are presented.

Exhibit 31.5A presents basic statistics of two CTA indices, the Barclay Trader Index Discretionary and the Barclay Trader Index Systematic, along with similar statistics reported for two traditional asset classes (equities and bonds). Several issues must be addressed in connection with the results reported here. First, the CTA indices represent equally weighted portfolios of CTAs; therefore, their volatility, skewness, and kurtosis are not necessarily representative of the properties displayed by individual CTAs. For instance, according to Exhibit 31.5, the annual volatility of the discretionary index is less than 50% of the volatility of the systematic index. However, if the average volatility of discretionary CTAs is examined, it will be seen that it is only slightly less than the average volatility of individual systematic CTAs. The reason for the difference is this: Because discretionary CTAs are less correlated with each other, a portfolio consisting of a large number of discretionary CTAs will have a relatively small volatility.

EXHIBIT 31.5A Estimates ...

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