Commodity trading advisors (CTAs), hedge funds specialising in trend-following strategies, are facing increased competition from major asset managers as BlackRock, Fidelity, and Invesco move into the space with new managed futures ETFs, according to a report by Bloomberg.
These exchange-traded funds (ETFs) aim to replicate CTA strategies — historically the domain of institutional investors — by using derivatives to capture momentum across asset classes.
Despite controlling approximately $340bn, hedge fund CTAs have seen stagnant growth over the past decade, with assets declining since 2022, according to BarclayHedge data. Meanwhile, managed futures ETFs, though still small by comparison, have nearly doubled their assets in the past year to $3.3bn with lower fees and stronger recent performance helping drive the surge.
In 2024, the SG CTA Index, which tracks 20 hedge funds employing similar strategies, returned 2.4%, while managed futures ETFs delivered an average return of 7.3%, benefiting from a more simplified investment approach.
The rise of managed futures ETFs is part of a broader trend of democratising institutional strategies. In recent years, ETFs replicating private equity and private credit investments have gained traction, offering retail investors access to previously exclusive markets.
While these ETFs remain more expensive than traditional passive stock index funds, they are significantly cheaper than hedge funds. The three largest managed futures ETFs have an average expense ratio of 0.84%, compared to hedge fund CTAs, which charge an average 1.3% management fee and 13.9% on performance, according to Societe Generale.
Hedge fund CTAs often justify their higher costs with claims of complexity and sophistication. However, some investors argue that simplified strategies can be just as effective.
Although ETFs offer lower fees and transparency, they come with limitations. Unlike hedge funds, which can trade hundreds of markets and adjust strategies dynamically, ETFs must remain highly liquid and transparent, often trading a smaller selection of assets. A managed futures ETF sub-advised by Man AHL, for example, trades just 26 markets — far fewer than its hedge fund counterpart.
In 2024, some of the largest hedge fund CTAs focusing on exotic markets suffered significant losses. Man AHL Evolution and Systematica Alternative Markets Fund both declined by about 6%, while Florin Court Capital dropped 11%. Meanwhile, ETFs tracking simpler strategies outperformed.
