The performance of commodity trading advisors (CTAs) has historically exhibited a distinctly different pattern than equities and fixed income in relation to the direction of interest rates, according to research by Campbell & Company.
In a new white paper, Prospects for CTAs in a Rising Interest Rate Environment, the firm provides a quantitative evaluation of CTA performance in relation to the direction of rates and concludes that the strategy has not historically been rate regime-dependent.
This conclusion is positive news for investors who may wonder if CTAs, many of whom have spent their entire existence operating in a bull market for fixed income, can weather a secular uptrend in rates.
The paper shows:
• Unlike stocks and bonds, CTA returns have not historically been rate regime-dependent.
• Since 1972, there has been no statistical difference between the average monthly performance of CTAs in rising and falling rate environments, as defined by changes to the Fed Funds target rate (if anything, the strategy tended to do somewhat better when rates were rising).
• There has, historically, been no linear relationship between CTA performance and the direction of Treasury yield changes.
• The multi-dimensional approach to portfolio diversification employed by many CTAs may be one reason why the monetary policy environment historically has had a minimal impact on performance.
