CTAs should not only outperform the wider financial industry during a downturn but also their own “bull market” performance as they engage to fulfil the promise of portfolio protection. This study seeks to test this assertion and finds that it holds for only a few “true CTA” strategies while the remainder exhibit risk-return profiles that are increasingly correlated to market cycles.
That CTAs offer the promise of portfolio protection in a financial downturn via outperformance relative to the rest of the industry has been demonstrated in recent research . However the question has not yet been asked about the relative performance within CTAs during cycles in the financial markets – are CTAs a strategy that, in a crisis, should not only outperform the industry but also their own “bull market” performance?
The study seeks to answer this question by examining CTA performance during the recent crisis relative to the bull years that preceded it. One would like, if not expect, to see an equal and opposite shift in return profile in counterpoint not only to the negative movements in the wider market but also to its own bull market performance as this hedge fund sub-strategy engages to fulfil its promise of portfolio protection.
What we find is that this holds true for a surprising few funds for a variety of interesting reasons and leads us to make the distinction between traditional CTAs and true CTAs.
 AQR, Understanding Manager Futures, Winter 2010