After several decades of riding a government bonds bull market, investors are now looking for alternative drivers of return. Commodity Trading Advisor (CTA) strategies, with their ability to make gains in rising, as well as falling markets, have historically been able to improve risk-adjusted returns when introduced to a balanced portfolio. However, a question that investors can legitimately ask today is how are CTAs impacted by rising interest rates?

 

CTAs’ lowly correlated/uncorrelated performance is based on sources of return different to the main asset classes. They are trend-following strategies, that aim to improve the risk/return characteristics of diversified portfolios in both bull and bear markets.

They track a range of momentum indicators, such as price moving average, use price channel breakout models, and sometimes mobilise other tools when markets lack momentum. To capitalise on a certain market trend, CTAs can take long and short positions across asset classes.

 

  • Which interest rate environment works best for CTAs?
  • How about the inflation-ridden 1970s?
  • So what is the answer?