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Dr. Tillmann Sachs Authored by Dr. Tillmann Sachs, CIO and Head of Research at London-based J8 Capital Management.

Recently, an investor asked if investing in CTAs was investing in a crowded trade. We think not!

A) According to the Bank of International Settlement (BIS), the total notional outstanding in derivatives in 2016 was $444 trillion. CTAs manage approximately $350 billion assets under management (BarclayHedge). Assuming an average leverage of 200% across the CTA and Managed Futures industry (CTA survey), CTAs manage approximately $700 billion in notional outstanding. CTAs only make 0.16% of the total notional outstanding in derivatives.

B) Looking at segments and the most crowded: The typical CTA allocation holds 35% in bonds/interest rates, 30% in commodities, 20% in currencies, and 15% in equity linked derivatives (CTA survey). Using BIS data, commodities are the smallest derivatives segment with total notional outstanding of $1.35 trillion. CFTC data suggests about 15% of commodity futures are held by speculators, i.e. approximately 8% of notional outstanding in commodity futures is held by CTAs.

Conclusion: In respect of the total derivatives markets and the US Treasury's definition of a crowded trade, we conclude that CTAs have such small and dissimilar positions that they offer little risk in terms of insufficient liquidity......................

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