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Top 15 Managed Futures & Trading Systems

January 12, 2009

 

Twice a year we like to go through some of the statistics which make up the flag rankings on our website to help answer that age old question of which is the best CTA or best trading system.

We list the top 5 programs in each category to not only show who has done well, but also to show that there is much more to being top ranked than just last year’s performance. We are not content to merely show you the best performers this year or a list of the top returns of all time, and instead want the rankings to reflect the risk of the program, consistency of returns, and experience of the manager as well.

For this reason, our rankings have developed over the years into a comprehensive tool which ranks systems across over 25 different metrics measuring performance, risk, experience, and more. The rankings are designed to show which programs are consistently amongst the top rated across all of the different statistical measures important to this type of investment.

Many investors are in search of a "holy grail" investment which has low risk, high average returns, a multi-year track record, and of course - impressive recent gains, and this eternal search for trading's "holy grail" leads investors to quickly weed through hundreds of trading systems and managed futures programs by asking anyone who will respond to show them their BEST. But what are you really asking when putting this question to these "experts"? What is BEST supposed to mean, anyway? Best this month, this year? Best for all time? Best risk adjusted return? Best in terms of lowest Drawdowns?

Aren't we being short sighted when asking to see the BEST system or CTA in one category or another? The real question should probably be more along the lines of: "What system or CTA is consistently amongst the top rated across all of the different statistical measures important to this type of investment?"

This is exactly what our rankings have been designed to do: See which trading systems and CTAs are the BEST across several statistics, then see which are consistently among those on each list - and therefore the BEST overall.

The tables below show who the best in each category was for the period ending 12/31/2008. Programs included were out of the Attain database and do not include the entire universe of trading systems and CTAs. For more on our ranking system, click here.

THE TRADING SYSTEM PERFORMANCE IN THE FOLLOWING TABLES SHOW HYPOTHETICAL MODEL ACCOUNTS. PLEASE SEE IMPORTANT RISK DISCLAIMER BELOW.

THE CTA PERFORMANCE IN THE FOLLOWING TABLES SHOW ACTUAL PERFORMANCE AS REPORTED BY EACH CTA. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.

We begin by looking at the number most people fixate on – last year’s returns – bu showing which systems and CTAs were the BEST in 2008. This is unfortunately the measure most investors use to determine what investment is best for them, and the reason the year's hot system or CTA is usually regarded as the BEST. The downside to this analysis, of course, is that it ignores risk. A high return is nice, but at what cost. The BEST performers so far this year are the following:

 

Top 5 Systems By YTD Return			Top 5 CTAs by YTD Return
System	YTD Return	Init Cap (000S)	CTA Program	YTD Return	Init Cap (000S)
Strategic ES	323.83%	15	Pere Trading Group, LLC Pere Trading Program	130.53%	100
ATB TrendyBalance DAX v2	224.86%	13	Clarke Capital Management, Inc. Millennium	94.66%	1000
Waugh ERL	163.29%	10	Clarke Capital Management, Inc. Jupiter	80.02%	3000
Compass SP	141.03%	30	Clarke Capital Management, Inc. Global Basic	79.91%	50
BetaCon 4/1 ESX	125.02%	5	Attain Portfolio Advisors Modified Program	72.54%	250

While systems such as AG Mechwarrior and Compass SP, and CTAs such as Pere Trading Group and Attain's own Modified program are among the BEST this year, a simple change to looking at total return over the life of the investment quickly inserts others into the top 5 lists, such as Dighton Capital and Rosetta for CTAs. For systems, we don’t believe a computer generated track record going back before the program’s release should count for its total return (all a system developer would have to do is run the program back a little further to move up the rankings), so we only count results generated using actual client fills for ranking the total return of systems. When using this measure, you can see that the newer, unproven programs drop out of the top 5 lists altogether, due to not enough history to build up a significant track record. The BEST programs by Total Return have been the following:

 

Top 5 Systems By Total Return			Top 5 CTAs by Total Return
System	Total Return	Init Cap (000S)	CTA Program	Total Return	Init Cap (000S)
Compass SP	478.24%	30	Rosetta Capital Management, LLC	5576.75%	50
BetaCon 4/1 ESX	199.45%	5	Clarke Capital Management, Inc. Global Basic	3310.36%	50
Waugh ERL	194.60%	10	Chesapeake Capital Corporation Diversified Program	1737.52%	10000
AG Mechwarrior ES	149.62%	15	Dighton Capital USA Swiss Futures Trading	849.24%	100
TZAR ES	119.21%	30	Clarke Capital Management, Inc. Millennium	805.82%	1000

Its easy to play devil's advocate when looking at the total return table and say how it unfairly treats newer systems and CTAs. It admittedly takes a while to build up significant total return numbers, and for that reason looking at the compound rate of return for CTAs, and non compounded rate of return for systems can make more sense. This measure is more of a "what to expect" than a "what has happened" measure. And sure enough, you will see that the Best by Compound ROR includes "newer" systems and CTAs (in the CTA world, newer means less than 3 years of history) such as Attain Portfolio Advisor’s Modified program and Pere Trading Group.

 

Top 5 Systems By Non-Comp RoR				Top 5 CTAs by Compound RoR
System	Non-Comp RoR	Init Cap (000S)	Since	CTA Program	Comp RoR	Init Cap (000S)	Since
Strategic ES	141.09%	15	11/08	Attain Portfolio Advisors Modified Program	66.35%	250	2/07
ATB TrendyBalance DAX v2	109.27%	13	9/08	Pere Trading Group, LLC Pere Trading Program	59.65%	100	6/05
Strategic Bonds	58.39%	15	11/08	Rosetta Capital Management, LLC	58.66%	50	4/00
SeasonalST ERL	53.42%	30	11/05	Dighton Capital USA Swiss Futures Trading	50.56%	100	7/03
Buho ESX	52.45%	5	8/08	NDX Capital Management Shadrach Program	39.52%	100	10/06
Non Compounded ROR = the annual ROR, whose simple arithmetic sum over the total number of years in the period analyzed, yields the cumulative gain/loss for the program during that period. Compound ROR = the annual ROR which, if compounded over the number of years in the period being analyzed, would yield the cumulative gain/loss for the program during that period

But what if we think of BEST not as the one that surpasses all others, but rather the one which is most suitable for me. The question in that case should not be, "What is your BEST system and CTA?" The question should be: "What is MY BEST system and CTA?", or in a more grammatically correct form: "What is the best system and CTA for me?"

To find what system or CTA is the BEST for you, a little soul searching is required. Are you interested in the absolute highest return? Lowest drawdown? Best mixture of the two, perhaps? Or perhaps you think the best system or CTA is the one which has been around the longest. There is surely something to be said for longevity. You will quickly find that different systems and CTAs head many of these lists, showing that finding the BEST is an elusive target indeed.

To begin to filter things down, we must incorporate the riskiness of each system and CTA. Many investors look at Drawdown to get a feeling of the risk involved. But concentrating solely on drawdown is just as bad as looking only at return. For starters, a system or CTA could have a very low drawdown because it has only been trading for a short period of time. The BEST systems and CTAs for 'lowest' maximum drawdown have been:

 

Top 5 Systems By Lowest Max DD			Top 5 CTAs by Lowest Max DD
System	Max DD	Init Cap (000S)	CTA Program	Max DD	Init Cap (000S)
Signum TY	20.06%	30	Mesirow Financial Commodities Absolute Return Strategy	1.56%	800
Signum EBL	24.41%	40	NDX Capital Management Abednego Program	4.80%	100
Polaris ES	25.69%	20	Wellfleet Asset Management, LLC Global Currency Plus	5.37%	200
Polaris ERL	26.70%	20	Cervino Capital Management LLC Diversified Options	5.93%	50
Bounce ERL	36.59%	10	DMH Futures Management, LLC	6.48%	100

But as nice as it is too see a low drawdown, low risk doesn't really help if there is also no return. We can always invest in treasury bills if we want zero risk. The next logical step, therefore, is to evaluate which systems have the BEST return per unit of risk. . This is accomplished through the use of several risk adjusted ratios. The first of these is the Sharpe ratio, which measures returns divided by risk (as measured by the standard deviation of returns, or volatility). The formula actually uses the amount of return over the risk free rate. Attain uses 2% as the risk free rate of return in its calculations, despite the recent drop of T-Bill rates to near 0%. The systems and CTAs with the BEST Sharpe ratios have been:

 

Top 5 Systems By Sharpe Ratio			Top 5 CTAs by Sharpe Ratio
System	Sharpe Ratio	Init Cap (000S)	CTA Program	Sharpe Ratio	Init Cap (000S)
Strategic ES	2.372	15	Mesirow Financial Commodities Absolute Return Strategy	2.792	800
Signum EBL	1.823	40	Zenith Resources Index Options	2.234	100
Strategic Bonds	1.417	15	DMH Futures Management, LLC	1.898	100
AG Mechwarrior ES	1.102	15	Attain Portfolio Advisors Modified Program	1.847	250
Upper Hand ES	1.19	10	Paskewitz Asset Management Contrarian 3X St. Index	1.515	500

One of the problems with using the Sharpe ratio is that it punishes systems and CTAs for having a high upside volatility profile. For example, the Compass system had a one month gain of +74% in 2002, which caused the volatility reading for the system to skyrocket. But it can be argued that upside volatility is of no concern, as that means large positive monthly gains in the distribution of returns. Does it mean an investment is more risky if it has a huge monthly GAIN? Usually not - we think a huge monthly loss is much more important when measuring risk. There is a risk measure which eliminates the upside volatility skew from the Sharpe ratio by using the volatility of negative returns only. This measure is called the Sortino ratio. The BEST systems and CTAs by Sortino ratio have been:

 

Top 5 Systems By Sortino Ratio			Top 5 CTAs by Sortino Ratio
System	Sortino Ratio	Init Cap (000S)	CTA Program	Sortino Ratio	Init Cap (000S)
Strategic ES	8.708	15	Mesirow Financial Commodities Absolute Return Strategy	10.923	800
Signum EBL	3.934	40	DMH Futures Management, LLC	7.412	100
ATB TrendyBalance DAX v2	3.209	13	Attain Portfolio Advisors Modified Program	4.147	250
AG Mechwarrior ES	2.853	15	Robinson-Langley Capital Management, LLC Managed Account	3.003	200
Polaris ES	2.839	20	Paskewitz Asset Management Contrarian 3X St. Index	2.835	500

The Sharpe and Sortino ratios have a flaw, however, in that they view the volatility of returns as the main ingredient of risk. This speaks nothing of what sort of drawdown had to be encountered to get the return. As many managed futures investors can attest to, it is the drawdown period which represents the most risky part of the investment, not the volatility of returns. The Sterling ratio measures returns divided by risk (as measured by drawdown). The BEST systems and CTAs by Sterling Ratio have been:

 

Top 5 Systems By Sterling Ratio			Top 5 CTAs by Sterling Ratio
System	Sterling Ratio	Init Cap (000S)	CTA Program	Sterling Ratio	Init Cap (000S)
Strategic ES	3.611	15	Attain Portfolio Advisors Modified Program	2.850	250
ATB TrendyBalance DAX v2	3.255	13	Rosetta Capital Management, LLC	2.144	50
Signum EBL	2.286	40	NDX Capital Management Shadrach Program	2.056	100
SeasonalST ES	2.155	20	Mesirow Financial Commodities Absolute Return Strategy	1.936	800
Strategic Bonds	1.919	15	Pere Trading Group, LLC Pere Trading Program	1.833	100

One last piece if information it is important to take into consideration is the length of track record. The above tables have looked at systems and CTAs with at least six months of data, but measures such as the Sharpe ratio are usually computed on at least 3 years of data. The shorter the length of a track period, the greater the margin of error in the statistics. Thus a systems such as ATB TrendyBalance v2 and Strategic ES, which look very nice atop many of the BEST tables above, could have a larger margin of error given their relatively short actual trading track records. (we only consider the length of time actual clients have been trading when considering the track record) The longer someone has been at it, the more faith we can put in the stats. The BEST systems and CTAs by length of track record are:

 

Top 5 Systems By Length of Track Record			Top 5 CTAs by Length of Track Record
System	Track Record (months)	Init Cap (000S)	CTA Program	Track Record (months)	Init Cap (000S)
Compass SP	107	30	Chesapeake Capital Corporation Diversified Program	251	10000
RMESA 5 SP	78	30	Clarke Capital Management, Inc. Worldwide	156	250
MESA Bonds	71	30	Clarke Capital Management, Inc. Global Basic	155	50
MESA Notes	67	30	Clarke Capital Management, Inc. Global Magnum	137	50
TZAR ES	65	30	Clarke Capital Management, Inc. Millennium	132	1000

So what systems and CTAs are the best overall? It again depends on what you are looking for, but trying to find some names which keep popping up in the tables above will give you a clue. We unfortunately do not have space to list the rankings for all 25 categories we look at, but we have put together a list of the top ranked trading systems and CTAs we follow at Attain below (these rankings are on the programs in our database, and not inclusive of the entire universe of systems and CTAs).

The Top 15 table below shows the 15 highest flag rankings under CTAs and trading systems on the Attain website. Only programs with at least 12 months of data were included.

Our flag rankings define the BEST systems and CTAs mathematically. All programs are ranked in each category, and then an overall ranking is computed. So a program which is ranked between #10 and #30 in each category may very well be ranked higher overall than a program which is ranked #1 in a single category, but averages in the 50s to 100s for the rest of the categories. The programs in the top 20^th percentile of all rankings are awarded a top 5 flag rating, with the ‘higher program’ amongst two five flag ranking programs the higher ranked one.

 

Top 15 Trading Systems					Top 15 CTAs
Trading System	Non Comp ROR	Max DD	Since	Min Inv 000s	CTA Program	Comp RoR	Max DD	Since	Min Inv 000s
Strategic ES	141.09%	65.65%	11/08	15	Mesirow Financial Commodities Absolute Return Strategy	21.27%	1.56%	6/05	800
ATB TrendyBalance DAX v2	109.27%	56.92%	9/08	13	Paskewitz Asset Management Contrarian 3X St. Index	27.35%	11.30%	12/03	500
Strategic Bonds	58.39%	39.68%	11/08	15	Rosetta Capital Management, LLC	58.66%	39.67%	4/00	50
Signum EBL	37.57%	24.41%	5/07	40	Clarke Capital Management, Inc. Global Basic	31.42%	29.40%	2/96	50
Buho ESX	52.45%	89.01%	8/08	5	Attain Portfolio Advisors Modified Program	66.35%	15.53%	2/07	250
Waugh ERL	37.54%	44.76%	2/07	10	NDX Capital Management Shadrach Program	39.52%	14.00%	10/06	100
Compass SP	45.67%	82.14%	3/00	30	Clarke Capital Management, Inc. Global Magnum	21.24%	26.21%	8/97	50
Polaris ES	32.66%	25.69%	1/09	20	Dighton Capital USA Swiss Futures Trading	50.56%	36.91%	7/03	100
TZAR ES	26.35%	84.91%	9/03	30	NDX Capital Management Abednego Program	14.94%	4.80%	10/06	100
AG Mechwarrior ES	48.89%	75.25%	10/05	15	Zenith Resources Index Options	20.15%	10.28%	12/99	100
TZAR NQ	21.38%	45.25%	3/04	30	DMH Futures Management, LLC	23.39%	6.48%	2/06	100
Bounce ERL	23.26%	36.59%	1/05	10	Clarke Capital Management, Inc. Worldwide	18.12%	26.06%	1/96	250
MESA Bonds	20.33%	91.08%	3/03	30	Attain Portfolio Advisors Strategic Diversification Program	14.91%	8.59%	5/04	1000
MESA Notes	12.58%	57.78%	7/03	30	Robinson-Langley Capital Management, LLC Managed Account	32.97%	13.22%	1/07	200
BetaCon 4/1 ESX	51.54%	55.07%	2/06	5	Pere Trading Group, LLC Pere Trading Program	59.65%	56.11%	6/05	100

 

Important Risk Disclosure

The % returns for trading systems above are hypothetical in that they represent returns in a model account. The model account rises or falls by the exact single contract profit and loss achieved by clients trading actual money pursuant to the listed system's trading signals on the appropriate dates, or if no actual client profit or loss available - by the hypothetical single contract profit and loss of trades generated by the system's trading signals over the test period. The hypothetical model account begins with the initial capital level listed, and is reset to that amount each month. The % returns reflect inclusion of commissions, fees, and the cost of the system. Commission and fee cost = # of monthly trades * $50.00 ($30 for eminis). The monthly cost of the system is subtracted from the net profit/loss prior to calculating the % return. For systems with one time purchase costs, the monthly cost is calculated by dividing the purchase cost by the number of months in the reporting period. HYPOTHETICAL P ERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN; IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM. ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK OF ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL WHICH CAN ADVERSELY AFFECT TRADING RESULTS. THESE PERFORMANCE TABLES AND RESULTS ARE HYPOTHETICAL IN NATURE AND DO NOT REPRESENT TRADING IN ACTUAL ACCOUNTS. The % returns for CTAs above show actual performance as reported by each CTA. Past performance is not necessarily indicative of future results. Managed commodity accounts can subject to substantial charges for management and advisory fees. The above numbers include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets. The regulations of the Commodity Futures Trading Commission (CFTC) require that prospective clients of a CTA receive a disclosure document when they are solicited to enter into an agreement whereby the CTA will direct or guide the client's commodity interest trading and that certain risk factors be highlighted. The disclosure document contains a complete description of the principal risk factors and each fee to be charged to your account by the Commodity Trading Advisor (CTA). This document is readily accessible at Attain's website.