Traditional versus non-traditional futures markets

 

There has been an ongoing debate within the trend-following community about whether traders should add more markets to their portfolios. Quantica Capital, in its Quarterly Insights #23, September 2025, discusses the value of alternative market trends. There has been an unusual period of high return during the period when many managers extended their set of investment. This provided a strong tailwind for managers who widened their market exposure. More recently, the Sharpe ratios for these investments have fallen relative to traditional asset markets. Hence, there has been a performance drag on the CTAs that widened their exposure. This suggests that managers should reconsider their involvement in these markets. However, the answer is more complex. A strategy with a lower Sharpe ratio may still add value when its correlation with the existing portfolio is low.  

The fundamental thinking about the value added from a given asset is old and well-known, yet has often been forgotten by managers in their search for better returns. The key to trading alternative markets is not just based on backtested returns, but also on the correlation with the existing markets. 

Nevertheless, transaction costs, which include liquidity, must be taken into account. A successful strategy with high returns must account for the costs of trading and liquidity.