One Analyst Suggests CTAs Face Existential Crisis After February Quant Quake
I don't know this for sure, but I'd be inclined to think that the quant community would be just fine with it if JPMorgan would go a day or two without weighing in on what happened earlier this month to CTAs, risk parity, and other systematic strats.
To be sure, the commentary hasn't been all bad and indeed, both Marko Kolanovic and Nikolaos Panigirtzoglou have taken the lead when it comes to suggesting that the forced deleveraging from the programmatic crowd is likely out of the way. For ins
One thing that comes to mind is are these analysts looking only at the equity side of the portfolio? A true CTA will be positioned across equity indexes, sure, but also in rates, currencies, and the entire universe of commodities. I don’t see how a 10% correction in equities translates to a ~10% loss in the portfolio.
To be sure, the real downside to these strategies is that they will miss the recovery during a v-shaped rebound. The situation was also exacerbated by the ultra-low vol environment leading into the end of Jan, which should have increased the leverage ratio in equities (but also placing closer stop-losses).
Could you clarify “since the end of January 2016, CTAs have lost 3.7%”? Is that inclusive of 2017? Cause 2016 was a rocky year for equities so that makes sense. But if they suffered an 11-12% loss from the equity correction, where was the exposure when indexes rallied 25%+ in 2017?
Did you really have to use that title?