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By: Don Steinbrugge, Agecroft Partners

Commodity trading advisors’ (CTAs) perception among investors is more divergent than any other major hedge fund strategy. A large percentage of investors view the strategy as smoke and mirrors using black box models that they cannot understand or properly evaluate. Other investors view CTAs as one of the purest hedge fund strategies that is uncorrelated to long only equity and fixed income indices, as well as other hedge fund strategies; thus providing valuable diversification benefits. Advocates of CTAs have helped propel the strategy to a 12% market share of the hedge fund industry at approximately a quarter trillion dollars in assets. The strategy also boasts many of the largest hedge funds in the world. This brings us to the following questions:

• What is a CTA?
• Why do many investors think trend following CTAs are a bunch of Mumbo Jumbo?
• What is the underlying philosophical base of the strategy?
• Why have investors invested such a large percentage of industry assets to the strategy?
• What are some of the things to consider when selecting a CTA?

What is a CTA? The term CTA or commodity trading advisor refers primarily to quantitative investment strategies that buy or sell futures contracts across four primary markets: commodities (metals, energy, agriculturals), currencies (dollar, yen, euro, pound), equities (S&P 500, Nikkei, DAX, FTSE) and interests rates or sovereign bonds (10 year......................

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