Wednesday, January 20, 2021

Dispersion in CTA returns and small managers again lead with strong performance in 2020

Averages don't tell a good or complete story for CTA's in 2020. The average return for a set of managers reporting to SocGen Prime Services in their Nelson Report show positive performance but not what would expected given the size of market dislocations. We looked at large managers above $400 million in AUM and who also reported December numbers. This includes the generally favorable trading for the end to the year. The average return was 2.69 percent, but there were some strong winners with returns above 10% for the year. Dispersion was with a range of over 30%. 

When you slice the entire dataset based on performance for all CTA and quantitative macro managers, the numbers become more interesting. The average is 4.27 percent return which is almost 60% higher than the selected large managers. If we look at the top decile of performance, the 2020 average return is 30.96% or over 10 times higher than the returns for the large managers. Only 8 of 23 (35%) managers in the top decile are above $100 million in AUM and only 4 of 23 (17.5%) are in our large group category with AUM above $400 million. This top decile has a standard deviation that is about 40% higher than the large group. There is more risk-taking, but returns are significantly higher.

The small managers proved to be nimble in 2020 and again suggests that investors should not be focused on just the largest managers for return generation. Nevertheless, the investor has to be careful about taking on the added business risk from a small firm which may not have the same set of controls and infrastructure versus larger managers. Of course, the real question is whether these high performing managers will show persistence or just be one-hit wonders. 

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