Q. So this is a style of managed futures investing that’s a little bit uncommon – but you say might get more attention going forward. But let’s start out with what a CTA is…
A. A commodity trading advisor, a CTA, is someone who invests in futures for clients. Its been a rapidly growing area of interest for investors, who’ve plopped over $100 billion into managed futures over the past few years. Generally, the big idea here is that the strategies are uncorrelated to the stock markets– the argument is that they make money when the stock market stumbles.

Q. But the stock market isn’t stumbling these days…
A. No, it isn’t. Definitely a big reason for the popularity of managed futures is that they performed very well during the 2008 crash. Since then, not so much. Some of the most famous managers, like Winton, have had a couple of down years in a row now. A lot of folks think that’s mostly because most CTAs are “trend followers”… they trade on certain, specified formulas that track trends in commodity prices.

Q. So why is that controversial?
A. Because there’s a finite set of rules that these things follow. And if I’m a smart trader on the other side, I can understand what these algorithms are going to do and exploit that. One friend says these algos are the clay pigeons at the hedge fund manager shooting gallery.

Q. So where’s all this headed?
A. I expect you’ll see a lot more focus on discretionary CTAs, guys who are not married to trading systems. In fact, that’s really what a lot of “global macro” managers are– they very often use futures to express a view, but don’t get locked into rigid rules for trading them.