Should you invest in the SG CTA index?

The SG CTA index has reached its 25th birthday and as a celebration, the people at Transtend offered their ode to the index called "Just Buy the Index". However, their paper does not offer the celebration that the index creators would like. There is no question that the SG CTA and Trend indices have become somewhat of a benchmark for the industry. It is popular, yet there are significant issues once you start to dig into the construction of the index. 

The SG CTA index is supposed to be investable through being an equal-weighted index of the largest 20 CTA funds that are open for investments. Hence, you can, in theory, replicate the index. Nevertheless, the components of the index will change every year with fund joining and being dropped from the index. The composition of the index today is not the same as the composition five or ten years ago. Since the index is for CTAs, it is not a trend-following index although many of the funds in the index are trend-followers. The index behavior will change with the composition of the managers and the changes in the strategies of the managers. It is hard to compare the behavior of the index today with performance ten years ago other than to say that both represent the behavior of the largest investable CTAs at a given point in time.

There is an argument that the index is not that different than a portfolio of stocks. These companies change their behavior through time like managers. The stock composition of the index will change like the CTA index. Hence, there is nothing special with investing in a manager benchmark.

Transtrend shows that if you invest with just the largest CTA listed in the index you will have a higher return and lower risk. You can beat the index by holding a subset of the index. Unfortunately, the work does not focus on what would happen if you randomly invested in a few of the index components. Is there a benefit with holding the index? That question was which was he title of the paper was not addressed.