The Crisis Alpha: Managed Futures (CTAs)
The Crisis Alpha: Managed Futures (CTAs)
When stocks crash, correlations go to 1.0—except for this asset class. How Trend Following strategies profit from extreme market chaos.
Executive Summary
- The Philosophy: Humans panic; algorithms don’t. Managed Futures (or CTAs) use computer models to identify and follow trends across hundreds of global markets—stocks, bonds, currencies, oil, gold, and wheat.
- The “Long/Short” Agility: Unlike a mutual fund that can only buy, CTAs can go Short just as easily. If the S&P 500 is crashing, the algorithm detects the downtrend and shorts it, generating profit from the decline.
- Crisis Alpha: History shows that during the worst market crashes (2000, 2008, 2022), CTAs perform their best. They act as “insurance that pays you to hold it,” offsetting losses in your core equity portfolio.
The Whipsaw Risk
Trend followers need trends. In a sideways, choppy market without clear direction (volatility without trend), CTAs get “whipsawed”—buying at the top and selling at the bottom repeatedly. They often underperform during long, quiet bull markets.
Mechanic: The Trend Signal
Crisis Alpha
Wins when others lose
Global Mac
Diversified Mkts
Systematic
Rule-Based Trading
Liquid
No Lock-up
Simulation: 2022 Inflation Shock (Stocks & Bonds Down)
Performance Comparison (Year 2022)
| Feature | Index Funds (Passive) | Managed Futures (CTA) |
|---|---|---|
| Strategy | Buy and Hold | Trend Following (Long/Short) |
| Best Environment | Steady Bull Market | Prolonged Bear Market / Inflation |
| Correlation to Stocks | 1.0 (High Risk) | Negative in Crisis (Hedge) |
“Diversification is the only free lunch, but it often disappears when you need it most. Managed Futures is the only asset class that reliably becomes negatively correlated during a crash.”
Essential Resources
INTERNAL
BMT Playbooks