Industry Updates

Campbell & Company: CTA performance historically invariant to direction of interest rates

Thursday, February 14, 2013

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Opalesque Industry Update – According to new research by Campbell & Company, the performance of commodity trading advisors (CTAs) has historically exhibited a distinctly different pattern than equities and fixed income in relation to the direction of interest rates.

In a new white paper, Prospects for CTAs in a Rising Interest Rate Environment, the firm provides a comprehensive quantitative evaluation of CTA performance in relation to the direction of rates and concludes that the strategy has not historically been rate regime-dependent.

This conclusion is positive news for investors who may wonder if CTAs, many of whom have spent their entire existence operating in a bull market for fixed income, can weather a secular uptrend in rates.

How might a rising interest rate environment impact CTA performance? Here’s a snapshot of the conclusions:

• Unlike stocks and bonds, CTA returns have not historically been rate regime-dependent.
• Since 1972, there has been no statistical difference between the average monthly performance of CTAs in rising and falling rate environments, as defined by changes to the Fed Funds target rate (if anything, the strategy tended to do somewhat better when rates were rising).
• There has, historically, been no linear relationship between CTA performance and the direction of Treasury yield changes.
• The multi-dimensional approach to portfolio diversification employed by many CTAs may be one reason why the monetary policy environment historically has had a minimal impact on performance.

For a copy of the white paper, Prospects for CTAs in a Rising Interest Rate Environment, investment professionals may go to: www.campbell.com/_files/Prospects%20for%20CTAs%20in%20a%20Rising%20Interest%20Rate%20Environment.pdf

Founded in 1972, Campbell & Company is a pioneer in absolute return investment management, specializing in systematic managed futures and equity market-neutral strategies. The firm has long been an innovator in quantitative modeling, Campbell’s research efforts are designed to exploit structural market inefficiencies and have delivered attractive risk-adjusted returns over time. Campbell and its affiliates manage $3Bn in assets for a broad array of institutional and private clients around the world.

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