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Beverly Chandler, Opalesque London:

James Skeggs, global co-head of the advisory group at Newedge and senior director of Alternative Investment Solutions presented his latest research paper on managed futures industry capacity and its effect on CTA returns at the Emerging Manager Forum in London last week.

This paper came at a time when CTAs and the managed futures sector have been struggling to make returns. Skeggs said: "Recent performance has been far from spectacular with a long and deep drawdown which has seen performance at minus 9% at its worst and lasting over two years."

Limited capacity in the managed futures space has often been cited as one of the potential causes for underperformance. Skeggs and his team evaluated excess return from the CTA sector by taking out the performance of the underlying asset in a CTA portfolio, cash, and any interest earned on it to arrive at an excess returns index. They looked at a total history of some 23 years, with CTAs returning 298.7% equivalent to an annualised return of 6% with 9% volatility and a maximum drawdown over that period of 10.3%. They then asked how large an investor or a manager can be before affecting the pool. "There is a danger of over-simplification" Skeggs said. He and his team had to take into account extra events that would affect trend followers and trading......................

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