Little knowledge question 6: CTA strategy

Small knowledge of financial management: CTA strategy

CTA strategy is commodity trading consultant strategy, also called management futures strategy.

Through commodity trading consultants, predict the trend of investment targets such as commodities, and operate futures options and other products in two directions.

For investors, there are profit opportunities in the bull and bear market to obtain returns other than traditional investment products such as stocks and bonds.

Real example

Entrepreneur Mr. Liu attaches great importance to the preservation and appreciation of assets. His portfolio has covered many asset classes such as stocks, bonds and real estate cash, but he is still worried about what to do if there is a big bear market and asset prices fall.

So I consulted Tang Xiao, an investment consultant. Tang Xiao suggested that some CTA strategic funds could be allocated, covering commodities such as metals, energy, agricultural products, etc., which have low correlation with traditional financial assets such as stocks and bonds, and can also invest in foreign exchange, interest rates, stock index futures, etc.

The real diversification is realized because CTA strategic funds can be long or short with the help of derivatives trading tools such as futures and options, so they can also achieve steady performance when the market is in turmoil.

For example, after the Spring Festival of 20021,the global core assets plummeted, but most CTA funds achieved positive returns.

At that time, one year after the COVID-19 epidemic, the expectation of global economic recovery was strengthened, inflation expectation was rising, the yield of 10-year US bonds was rising, and the risk-free rate of return rose, which led to the collapse of the valuation system of growth stocks, and the share price of global core assets fell sharply.

On the contrary, based on the same economic fundamentals, the logic of commodities is: economic recovery and flood of liquidity will bring huge output gap, commodity prices will rise sharply, and CTA strategy will show its ability to capture "crisis alpha".