CTAs or commodity trading advisors should be well know to everyone. Unfortunately they are lacking from most asset allocation models due to volatility. This is a mistake.
They are essentially quantitative models that trade a variety of commodity and financial futures contracts. Generically, they are algorithms and trend following systems. They have very low correlation to equities and have proven to make money in up and down markets, as long as there are trends in futures that they can ride.
Of course leave it to investors to have been out of this asset class. They are too volatile . . . yet they put up double digit gains in 2008 as the S&P lost 38%. Obviously stocks are not volatile!
Again another example as to how investors must learn to think for themselves and retrain themselves from the 1982-2000 period that the golden key to everlasting wealth is simply buying more and more US equities.
Most finance professionals under 50, especially in equities learned that we buy the dips. If stocks are up buy more, if they are down buy more. Buy more all of the time. Clearly the results of this group think have been disastrous.
http://bloomberg.com/apps/news?pid=20601087&sid=a1dLkcqAJVbc&refer=home
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I looked at a CTA fund of funds a few years ago and flatly rejected it. I thought it was a fraud. It was up +50% in 2008. I am only further reinforced by the performance that it is a fraud. (if you were up +90% vs the S&P, legitimately, wouldn't you advertise on the front page of the WSJ?)
The problem is that from a fiduciary perspective, Black Box Quantitative models can't hold up under any credible level of due diligence. Not only don't they disclose their managers, they don't even know what their mangers are doing because all the models are "proprietary."
Furthermore, all my anecdotal experience has been that Black box funds blow up much, much more frequently, because the computer model isn't flexible enough to factor in some six-sigma outside force that the programmer failed to account for.
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