Trading Advisor Selection System: A Comprehensive Guide to Managed Futures

Managed futures trading involves investing in futures contracts, which are agreements to buy or sell a commodity or asset at a predetermined price on a specific date. This type of trading can be highly profitable, but it also comes with a high level of risk.

To mitigate this risk, it's essential to work with a reputable trading advisor who has a proven track record of success. A good trading advisor can help you navigate the complexities of managed futures trading and make informed investment decisions.

A trading advisor's performance can be measured by their track record, which includes metrics such as profit factor, Sharpe ratio, and maximum drawdown. These metrics can give you an idea of an advisor's risk management skills and ability to generate consistent returns.

By considering these metrics and doing thorough research, you can make an informed decision about which trading advisor is right for you.

Quantitative trading strategies can be a powerful tool for traders. Quantpedia has analyzed tens of thousands of financial research papers.

The sheer volume of data they've worked with is impressive, and has led to the identification of over 700 attractive trading systems.

Optimus Futures assists clients with selecting a Commodity Trading Advisor (CTA).

We spare no effort in finding CTA's that we feel offers the potential for good returns while also employing good risk management strategies.

Our brokers conduct a one on one session to help you select a CTA or portfolio of CTA's tailored to your personal investor profile.

We use very specific criteria when recommending Commodity Trading Advisors, including a disciplined investment approach and a positive track record.

Our brokers will show you our entire list of approved CTA's, their track records and present a portfolio selection giving a full explanation of the strategies used and the risks and potential rewards involved.

Managed futures can be used in several account types including individual, joint, and corporate and partnership accounts, as well as in a variety of retirement plans including IRAs, trusts and pensions.

Managed futures are an industry of professional money managers known as commodity trading advisors (CTAs) who manage client assets on a discretionary basis using global futures markets.

These trading advisors can participate in more than 150 global markets, including grains, gold, currencies, and stock indices.

By broadly diversifying across markets, managed futures may simultaneously profit from price changes in different markets.

Many funds further diversify by using several trading advisors with different trading approaches.

The long-short diversified portfolio is a strategy that involves taking both long and short positions across various asset types. It achieved a cumulative abnormal return of 2.86%, with a higher volatility of 7.66% compared to the long-only counterpart.

The Sharpe ratio of 0.37 indicates that the portfolio's return may not be adequately compensating for the higher risk. This suggests that the strategy may not be providing sufficient returns to justify the increased volatility.

The maximum drawdown of -19.45% signals increased vulnerability. This is a significant concern, as it indicates that the portfolio may experience substantial losses during adverse market conditions.

Breaking down the long-short diversified portfolio into individual groups, we can see that the Stocks sub-strategy exhibits notable volatility (13.21%) and a substantial drawdown (-25.93%), but leads in terms of cumulative abnormal return (4.13%). This indicates that the Stocks sub-strategy is contributing positively to the overall performance of the CTA ETF proxy strategy.

Here's a summary of the long-short diversified portfolio's performance:

The Commodities sub-strategy exhibits high volatility (12.21%) and a substantial drawdown (-34.36%), but still provides a positive cumulative abnormal return (3.67%). The Bonds+FX sub-strategy appears to be the least risky, with lower volatility (3.96%) and a milder drawdown (-8.34%).

Quantpedia is a valuable resource for traders, boasting an impressive collection of quantitative trading strategies. They've analyzed tens of thousands of financial research papers.

Their dedication to identifying effective trading systems has led to the discovery of over 700 attractive trading systems, along with hundreds of related academic papers.

We constructed a Commodity Trading Advisor (CTA) proxy using Exchange-Traded Funds (ETFs) to capture the essence of CTA strategies while overcoming practical challenges associated with trading futures contracts.

Our model computes the daily performance of all ETFs in our dataset, serving as the foundation for subsequent analyses. We then calculate their performance over various time horizons, specifically examining the 3-month, 6-month, 9-month, and 12-month lookback periods.

These time horizons allow us to determine the average performance over four distinct timeframes, providing a consolidated measure of each ETF’s medium to long-term trends. The next stage involves deriving trend-following signals based on the monthly signal of each ETF.

A positive momentum at the end of a given month generates a positive signal, and conversely, a negative momentum generates a negative signal. We then group ETFs into the 4 groups (stocks, bonds+fx, commodities) and weight ETFs inversely in each group based on their past 20-day volatility.

This weighting methodology ensures a constant risk contribution from each ETF and asset class, allowing us to analyze the individual sub-strategies within the diversified CTA proxy.

Funds provide industry operating metrics that are used to measure fund performance and compare it to peers. This content is essential for investment performance analysts with a specific industry focus.

Lipper's proprietary methodologies create relevant and market-driven Lipper Classifications and indices that allow you to generate meaningful peer groups for selecting, comparing, and benchmarking investment funds.

Lipper Leaders help guide investors and their advisors in selecting funds that suit individual investment styles and goals. These ratings provide an instant measure of a fund's success against specific key metrics.

Here's a breakdown of the Lipper Leaders metrics:

Lipper Global Fund Flows provide industry-leading sales and redemptions content and analysis, offering insight into current and historical market sentiment.

The CTA universe consists of 13 ETFs traded between April 10th, 2006, and February 28th, 2023, spanning diverse asset classes. These ETFs include 6 stock ETFs, 3 bond ETFs, 3 commodities ETFs, and 1 currency ETF.

Price data for these ETFs were obtained from Yahoo Finance, utilizing the Adjusted Close Price for each ETF. This metric reflects a stock's closing price adjusted for stock splits, dividend distributions, and other relevant events that could affect stock's value.

The selection of stock ETFs includes well-known entities such as the SPDR S&P 500 ETF Trust (SPY) and the iShares Russell 2000 ETF (IWM) for small-cap exposure.

Our bond ETF category features iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD), iShares 7-10 Year Treasury Bond ETF (IEF), and iShares TIPS Bond ETF (TIP).

Within the realm of commodities ETFs, we encompass PDR Gold Shares (GLD), United States Oil Fund, LP (USO), and Invesco DB Commodity Index Tracking Fund (DBC).

The currency ETFs include Invesco CurrencyShares Euro Currency Trust (FXE), designed to mirror the euro's price.