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Semi Annual Top 15 CTAs and Trading Systems

January 14, 2008

 

We release our rankings twice a year to give investors a concise summary of the trading systems and CTAs we believe have the best chance for success moving forward. We are not content to merely show you the best performers this year or a list of the top returns of all time, however; as the best system or advisor for one investor may be anything but best for a second investor. For this reason, our rankings have developed over the years into a comprehensive tool which ranks systems across 8 different statistical categories.

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 advisors 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 in each of 8 categories, then see which are consistently among those on each list - and therefore the BEST overall.

THE TRADING SYSTEM PERFORMANCE IN THE FOLLOWING TABLES SHOW HYPOTHETICAL MODEL ACCOUNTS COMPILED USING ACTUAL CLIENT BUY AND SELL PRICES. ALL NUMBERS ARE INCLUSIVE OF COMMISSIONS AND THE COST OF THE SYSTEM. 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.

RT Viper YM trades for December 2006 through February 2007, May 2007, and July 2007 represent computer generated trades inclusive of $20 slippage per trade.

We begin by looking at which systems and CTAs are the BEST by 2007's returns. 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 for 2007 were 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)
RT Viper YM	71.17%	10	Ascendant Asset Advisors - Strategic1	87.39%	100
Tzar ES	66.35%	30	Ascendant Asset Advisors - Strategic2	60.38%	100
Beta Con 4/1 ESX	48.41%	5	Dighton Capital USA	30.01%	100
Tzar eRL	46.09%	30	Attain Portfolio Advisors - Strategic Diversification Program	27.98%	1000
Adaptive Futures Euro Portfolio	45.70%	60	CKP Finance Associates - LOMAX	21.93%	100

While systems such as RT Viper and Adaptive Euro, and CTAs such as Ascendant and Attain's own 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 - Compass SP and the Bounce Portfolio for systems, and the venerable Chesapeake and Ace for CTAs. The newer RT Viper and Attain's program 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	270.52%	30	Chesapeake: Diversified	1409.75%	10000
Bounce Index Portfolio	127.23%	25	ACE Investment Strategists	860.12%	50
Tzar ES	102.53%	30	Dighton Capital USA	648.66%	100
Bounce Swing ERL	94.70%	10	Ascendant Asset Advisors - Strategic2	591.28%	100
Tzar ERL	94.54%	30	Zenith Resources - Index Option Program	456.88%	100

 

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 Avg ROR contains newer systems such as RT Viper and Waugh eRL, and contains "newer" CTAs (in the CTA world, newer means less than 3 years of history) such as Ascendant and FCI.

 

Top 5 Systems By Non-Comp RoR				Top 5 CTAs by Compound RoR
System	Avg Ann RoR	Init Cap (000S)	Since	CTA Program	Avg Ann RoR	Init Cap (000S)	Since
RT Viper YM	49.73%	10		Ascendant Asset Advisors - Strategic2	122.56%	100	8/05
Waugh eRL	44.76%	10		Ascendant Asset Advisors - Strategic1	77.75%	100	10/05
Bounce Index Portfolio	42.41%	25		Dighton Capital USA	56.42%	100	7/03
Signum TY	39.94%	30		ACE Investment Strategists	43.61%	50	10/01
Beta Con 4/1 ESX	36.39%	5		Financial Commodity Investments Program	36.07%	100	7/04
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 could have a very low drawdown because it has only been trading for a short period of time (note the Signum system below has only been tracked with actual fills for less than a year) 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	8.61%	30	Zenith Resources - Index Option Program	3.74%	100
Bounce Swing ERL	17.11%	30	Cervino Capital Management - Diversified Options Strategy	4.47%	50
RT Viper YM	17.88%	10	Diamond Capital - Option Trading Program	4.69%	100
Ultramini ES	18.20%	15	Zenith Resources - Diversified Option Program	4.86%	100
BounceMOC eMD	18.78%	10	Attain Portfolio Advisors - Strategic Diversification Program	9.57%	1000

 

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. 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)
RT Viper YM	1.66	10	Zenith Resources - Index Option Program	2.93	100
Signum TY	1.47	30	Zenith Resources - Diversified Option Program	2.22	100
PGA Powergrowth 1	1.37	35	Ascendant Asset Advisors - Strategic1	2.20	100
Bounce Swing ERL	1.20	10	Zephyr Asset Management (Aggressive)	1.95	100
Bounce Index Portfolio	1.04	25	Financial Commodity Investments Program	1.79	100

 

One of the problems with using the Sharpe ratio is that it punishes trading systems 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)
RT Viper YM	4.13	10	Zenith Resources - Index Option Program	20.51	100
PGA Powergrowth 1	4.04	35	Ascendant Asset Advisors - Strategic1	13.89	100
Signum TY	3.70	30	Financial Commodity Investments Program	11.72	100
Bounce Swing ERL	2.70	10	ACE Investment Strategists	11.28	50
BounceMOC ERL	2.14	10	Ascendant Asset Advisors - Strategic2	9.10	100

 

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 trading system investors can attest to, it is the drawdown period which represent 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)
Signum TY	2.15	30	Ascendant Asset Advisors - Strategic1	4.68	100
RT Viper YM	2.02	10	Ascendant Asset Advisors - Strategic2	2.96	100
Bounce Index Portfolio	1.54	25	ACE Investment Strategists	2.59	50
Bounce Swing ERL	1.3	10	Zenith Resources - Index Option Program	2.18	100
BounceMOC ERL	1.15	10	Financial Commodity Investments Program	1.96	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 actual trading 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 system such as RT Viper YM or Signum TY, which look very nice atop many of the BEST tables above, could have a larger margin of error given their relatively short track records. 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	94	30	Chesapeake: Diversified	238	10000
Mesa Notes	54	30	CCM - Millennium Program	119	2000
Tzar ES	52	30	MCM	108	3000
Jaws US 60	51	35	BC Capital Management	106	50
Tzar NQ	46	30	Zenith Resources - Index Option Program	97	50

 

So what systems and CTAs are the best overall? It again depends on what you are looking for, but the overall picture does have some clues. Our rankings define the BEST system and CTA mathematically by using a simple formula based on their ranking among all 100 systems we track with actual customer fills and 25 CTAs on our recommended list. For each of the above eight categories, we ranked each system and CTA 1 through 100 (25), with a BEST in category equaling 1 point on down to a worst ranking of 100 (25). The sum of all scores was computed to get the following standings for the Top Fifteen BEST systems and CTAs at Attain as of the end of 2007.

 

You will see that 10 out of the 15 trading systems were on the Top 15 list at the end of 2006 (see the '06 year end Top 15 here), and 10 out of 15 CTAs were on the Top 15 list at the midpoint of 2007 (see the mid '07 Top 15 here) - a good sign, in our opinion, that programs which make it to the top of the rankings have a good chance of staying there by continuing to perform.

Best Overall? Attain's Top Fifteen

Following numbers based on the 36 month period 01/05 - 12/07

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
Bounce Swing ERL	31.6%	17.1%	12/04	10	Zenith Resources - Index Option Program	23.7%	3.7%	12/99	100
Bounce Index Portfolio	42.4%	19.9%	12/04	25	Ascendant Asset Advisors - Strategic1	77.7%	15.4%	10/05	100
Tzar ES	23.7%	32.5%	9/03	30	ACE Investment Strategists	43.6%	28.3%	10/01	50
BounceMOC ERL	29.5%	23.9%	12/04	10	Ascendant Asset Advisors - Strategic2	122.6%	49.4%	8/05	100
RT-Viper YM	49.7%	17.9%	12/06	10	Financial Commodity Investments Program	36.1%	16.3%	7/04	100
Bounce Swing EMD	20.5%	21.2%	12/04	10	Dighton Capital USA - Swiss Program	56.4%	36.9%	7/03	100
BounceMOC EMD	15.4%	18.8%	12/04	10	PFG K3 Forex	34.5%	19.8%	5/04	5
Signum TY	39.9%	8.6%	4/07	30	Zenith Resources - Diversified Option Program	17.5%	4.9%	2/05	100
Mesa Notes	11.1%	20.3%	7/03	30	CKP Finance Associates - LOMAX Program	33.1%	29.3%	8/02	100
Compass SP	34.5%	82.1%	3/00	30	Diamond Capital - Option Trading Program	12.2%	4.7%	3/01	100
Tzar eRL	24.7%	53.1%	3/04	30	Raithel Investments - Target Volatility Trading Program	16.8%	14.0%	2/00	50
PGA Powergrowth 1	25.1%	21.5%	10/06	35	Zephyr Asset Management (Aggressive)	23.9%	15.7%	7/03	100
Beta Con 4/1 ESX	36.4%	55.1%	2/06	5	PFG FIT FX Program	27.5%	16.4%	1/05	5
Ultramini ES	26.1%	18.2%	3/07	15	Chesapeake: Diversified	14.6%	23.4%	2/88	10000
Adaptive Futures Euro Portfolio	32.2%	43.0%	6/06	60	Attain Portfolio Advisors - Strategic Diversification Program	11.6%	9.6%	05/04	1000

 

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 PERFORMANCE 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.