Futures Magazine's Top CTAs

11/19/2012 6:00 am EST


Daniel Collins

Editor-in-Chief, Modern Trader

Dan Collins, managing editor of Futures magazine, discusses the criteria they use to judge CTAs in their annual review and how investors can learn to evaluate them.

My guest today is Dan Collins from Futures magazine, and their October issue is talking about CTAs, an annual issue they do, so Dan, talk about the October issue, and how you judge CTAs.

Well, we do our hot new CTAs, it’s the 24th year, I think, we’ve been doing it, and it’s evolution.  Judging CTAs, it’s difficult.  I started out with performance, but you see who’s doing well, but that’s not the only judge because you really have to look at performance based on risk and kind of look at their standard deviation, look at their worst drawdown, it’s kind of interesting because you can find someone who made maybe 13% who actually has a better risk adjusted return than somebody who’s maybe up 50-60 taking on a lot of risk.

So, how do you choose a commodity trading advisor; what should an investor be looking for?

Well, one, they should be looking at what they’re looking to do with their portfolio, if they’re diversifying their portfolio, and they need to understand the level of risk that they’re comfortable with.  I don’t think low-risk CTAs are necessarily better, what’s important is that you understand what they’re doing; the risk levels they’re taking, but you’re looking at solid performance.  As a journalist, and I think this would work really well for an investor I really look at someone who can explain what they’re doing because if I talk to somebody for a half hour or 45 minutes, and I still don’t have a really good handle on their trading, it raises the red flag with me.

Now, you mentioned before we started recording here that there was something interesting about this year’s CTAs that they were involved with.

This year’s CTAs; everyone that we’re featuring are option traders, and they’re not only option traders, they do collect premium, but they’re not premium writers.  I coined it because our September profile was on option writers that seemed to be in the value category, a volatility value where they’re not simply selling premium, they’re looking to sell premium when it’s high priced and maybe buy it when volatility is high, buy it when it’s low, and that way you kind of balance your returns.  The risk of premium sellers is always they look good for a very long period of time and something bad happens, and they blow up.  Some of the people that I have profiled had positive performance in 2008, and 2008 was the year that ended a lot of careers of premium sellers because you had the huge spike in volatility and a lot of people lost a lot of money.

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