Market insights and analysis

By William Hubbard

Bull runs can breed complacency. Bear markets can breed despair. Yet, the spaces in between—when prices drift, headlines whipsaw sentiment, and markets grope for direction—often set the stage for the next big move. It’s also the environment we expect nontraditional management styles like managed futures and commodity trading advisors (CTAs) to perform well. 

A quick review of CTAs

CTAs are systematic trading strategies that originated in commodity markets to help farmers hedge price risks. Today, they use quantitative methods to trade across global markets, including equities, bonds, currencies, and commodities.

What makes CTAs unique is their flexibility to profit in both rising and falling markets. This adaptability makes them valuable for portfolio diversification, as they have historically traded independently of traditional stock and bond markets.

For more on how CTAs work and their role in navigating uncertainty, check out my recent articles: “Will investors make 2025 the year of the CTA?” and “From sticky notes to CTAs: Finding opportunity in the unexpected.”

Plenty of noise—no clear signal

If you’ve followed the headlines (and our recent Weekly Update articles), you’ll see that CTAs look down and out. Year to date, the SocGen CTA Index (a key benchmark for CTA performance) is down about 8%, and many trend-following strategies have taken the brunt of every dip while missing each rebound. One month, they’re long equities, and the market slips; the next month, they abandon the asset class right before a snap rally back to all-time highs. It’s frustrating for an investment style that sells itself as persistent.

Here’s the thing: CTA performance has been disappointing, but they’re not totally failing. They’re just not getting strong signals. Those signals have been drowned out by a relentless wave of short-term noise: tariff tweets, billionaire skirmishes, central-bank sound bites, and commodity rumors. The models aren’t broken—the market just hasn’t picked a lane.

History says frustration can precede payoff

This pattern isn’t new. And CTAs often have their best returns following these frustrating periods.

For example, CTAs broadly returned nothing in 2013, then gained nearly 16% in 2014. They slogged through the mid-2010s before delivering during the pandemic in 2020, followed by their best year in more than a decade when rates jumped and stocks and bonds dropped in 2022.

The common thread is transition. During these “in-between markets” where traditional strategies struggle, flexible, rules-based systems can tactically position based on the signals within the noise.

Building an edge in real time

These transition periods are when CTAs and other quantitative systems quietly build their edge by establishing a baseline of new information.

CTAs and other trend-following strategies don’t rely on delayed or sometimes engineered data, like corporate earnings or valuation assumptions. They only require movement and direction—up or down. Whether the driver is a bond-market meltdown, a currency dislocation, or geopolitical stress, CTAs and trend followers simply wait for conviction and move when it appears.

Tailwinds for CTAs

Two structural tailwinds favor CTAs today:

• Positive collateral yield: With interest rates higher, collateral posted against futures now actually earns a yield, which is a sharp contrast to the zero-rate world of the last decade.
• Increased access: Access to these types of investments has also improved a lot since the global financial crisis. What once required hedge-fund minimums is now available in daily-liquid mutual funds and ETFs, widening the pool of people who can use CTAs for diversification. (To see how FPI incorporates specialized mutual funds offering exposure to alternative asset classes into accessible investment solutions, read Jerry Wagner’s piece: “FPI brings Eckhardt’s elite trading strategies to your portfolio.”)

Act before the next storm

The real question isn’t if the next crisis will come—it’s when. Do you add diversifiers only after markets crack, or do you position ahead of time, accepting some short-term disappointment for long-term protection?

In my view, this restless “in-between” period rewards process, patience, and preparation. CTAs haven’t been 2025’s star, but they are designed to lead when little else works. For now, they’re simply collecting data for their next run.  

Think about whether you want to be on the train before it leaves the station—or sprinting to catch the last car.