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Trend Following Performance Report — January, 2023

Trend Following Performance Report — January, 2023


Here we are in January 2023 and a new year is upon us. Of course, the question on our lips is whether the uncertainty of 2022 will prevail through 2023. We would like to think that it will, however despite our desires, we understand that the markets may have a different regime up their sleeve. Will we see a transition towards a soft or hard economic landing in 2023 or neither?

Who knows, but fortunately our rules based systematic process prevents our opinions from interfering with our investment method. This allows our minds to wander considering ‘what if’ scenarios without impeding the way our systems navigate these markets. It is such a relief to have a process that simply consistently applies trading rules again and again when the brain during uncertain times wants to create monsters from the shadows of price.

Of course, the new year brings change to many of the Indexes and processes we have outlined in this monthly report. January is the time for rebalancing the SG Trend Index, the SG CTA Index and some of our inhouse Indexes such as our Serenity selection for 2023 and the Top 10 Ensemble Blend of Trend Followers.

Here we say goodbye to some of the underperformers for 2022 and say hello to some new entrants into our processes.

Now it is worthwhile at this point to talk about our new series on Top Traders Unplugged where we interview some of the heavyweights of our industry that are included in some of our Indices such as the BTOP50 Index and the SG Trend Index. We include the performance results of many of these long-standing top performers in our monthly report. The Managers represented in the series are those featured in the SG CTA Index which we don’t cover in this report as some of the Managers are not strictly focussing on trend, but a number of them are also present in the trend following indexes we do cover in this report.

Now while their track record tells their performance story, there is no better substitute to understanding their philosophy and gaining insight into what is under the hood of their models than taking some time to listen to these amazing interviews.

There is significant nuanced differences in each Manager’s approach which allows us to understand the possible reasons for the dispersion of performance returns between these industry heavyweights, but common to most of these Managers is their deep passion for all things ‘Trend Following’.

So far we have heard from the following Managers, and we encourage you to take the time to listen to these deep “Trend Following” thinkers, and stay tuned because there is more to come:

• TTU122: Introduction to New Amazing CTA and Managed Futures Series;
• TTU123: Russell Korgaonkar, CIO at Man AHL;
• TTU124: Harold de Boer. Head of R&D and Managing Director at Transtrend;
• TTU125: Michael Pomada, President and CEO of Crabel Capital Management;
• TTU126: Kevin Cole, CEO and CIO at Campbell & Co;
• TTU127: Ryan O’Grady, CEO & Co-Founder of ROW Asset Management;
• TTU128: Marty Bergin, Owner & President of DUNN Capital Management;
• TTU129: Svante Bergstrom, CEO & Founding Partner of LYNX Asset Management;
• TTU130: Marty Lueck, Co-Founder of Aspect Capital; and
• TTU132: Dr Edward Tricker, CIO of Quantitative Strategies at Graham Capital Management.

And all of the conversations can be found right here.

January 2023 Trend Index Performance

January saw a slight decline for the Trend Following Indexes.

The TTU TF Index experienced a decline of -1.17%, the BTOP 50 Index declined by -0.03% and the SG Trend Index declined by -1.37%.

To understand the slight differences between the performance results of these indexes we need to take a quick detour to understand how they are constructed.

SG Trend Index

The SG Trend Index is designed to track the 10 largest trend following CTA’s of the managed futures space.

Criteria for inclusion in the Index as determined by Society Generale is as follows:
• Must trade primarily futures (including FX forwards);
• Must be broadly diversified across asset classes;
• Must be an industry recognized trend follower;
• Must exhibit significant correlation to trend following peers;
• Must be open the new investment; and
• Must report returns on a daily basis (net of fees).

The index currently is:
• Equally weighted;
• Calculated in base currency;
• Has an inception date of 1st January 2000;
• Rebalanced annually on 1st January; and
• Reconstituted annually on 1st January based on eligibility criteria.

There was a slight modification to the Index from January 2013 to present. Previously the Programs needed to be a constituent of the SG CTA Index and the 10 largest Managers was not a requirement.

The listing of the 10 eligible programs in the Index for 2022 were as follows:

Following the rebalance on 1st January 2023, we have had a slight change to the composition of the Index. AQR leaves the Index and PIMCO enters the fray.

The performance of the SG Trend Index since 1st January 2000 to the end of last month is seen in Chart 1 below:

Chart 1 – SG Trend Index Performance

You will notice how the SG Trend Index is highly correlated with the BTOP50 Index and the TTU TF Index and uncorrelated with the S&P500TR Index.

Despite the high correlation between the various trend following Indexes, the long-term performance of these three Trend Following Indexes in terms of CAGR is different. The SG Trend Index plots between the BTOP50 Index and the TTU TF Index.

BTOP 50 Index

The BTOP50 Index seeks to replicate the overall composition of the managed futures industry with regards to trading style and overall market exposure. Unlike the SG Trend Index and the TTU TF Index, the BTOP50 is not strictly a trend following Index and is more broadly representative of the entire managed futures segment of which a dominant style is trend following. We like to think of the BTOP 50 as a ‘quasi trend following Index’ as opposed to a pure trend following Index.

Like the SG Trend Index, the BTOP50 Index is designed to track the performance of the largest Programs by AUM, however the Programs included may not be all Trend Following Programs. Criteria for inclusion in the Index as determined by Barclay Hedge is as follows:

Criteria for inclusion in the Index as determined by BarclayHedge is as follows:
• Must be a Program represented in the Barclay CTA Universe;
• In each Calendar year, the Programs selected must in aggregate be no less than 50% of the investable assets of the Barclay CTA Universe;
• The Programs must be open for investment;
• The Manager must be willing to provide Barclay Hedge with daily return performance;
• The Program must have at least two years of trading activity; and
• The Program’s advisor must have at least three years of operating history.

The index currently is:
• Equally weighted;
• Rebalanced annually on 1st January; and
• Reconstituted annually on 1st January based on eligibility criteria.

Despite the ’50’ tag in the BTOP 50 description, for 2022 there were 20 constituents and for 2023 there are now 21 funds in the Index.

For 2022 the listing was as follows.

For 2023 the listing is as follows with three new entrants (blue) and two leaving the listing (red).

The performance of the BTOP 50 Index since 1st January 2000 to to the end of last month is seen in Chart 2 below:

Chart 2 – BTOP 50 Index Performance

The BTOP 50 Index is highly correlated with the trend following Indexes of the SG Trend Index and the TTU TF Index, however its long-term performance is the lowest of the 3 Trend Following Indexes. While there is a significant representation of Trend Following Programs within the Index, the non-trend following Programs contribute to this diluted long-term performance.

TTU TF Index

The TTU TF Index has been developed by Top Traders Unplugged to provide a performance measure of the trend following programs with a long-term track record.

At TTU, we recognise the importance of a robust trading approach to these uncertain markets and feel that AUM is not a good robustness measure when it comes to assessing performance of the Trend Following industry. It is our strong opinion that the ultimate selection measure to apply in constituting a Trend Following Index is not AUM or a proxy risk metric such as the Sharpe, Sortino, MAR ratio, Ulcer Index or Serenity ratio. The superior metric to assess long-term performance is the long-term validated track record itself.

We have therefore developed a different method for constructing our TTU TF Index. The criteria for inclusion into our Index is as follows:

The criteria for inclusion into the TTU TF Index is as follows:
• Monthly performance results need to be captured in the Nilsson Hedge CTA database;
• Must be geographically diversified across asset classes;
• Must be fully systematic in nature using quantitative rules for entry and exit;
• Must possess at least a 15-year unbroken track record to the current reporting month;
• Must adopt trend following as their dominant investment strategy;
• Are currently active programs; and
• Must report performance monthly (net of fees).

The Index:
• Is Equally weighted;
• Is Rebalanced monthly;
• Is Reconstituted monthly;
• Has an inception date of 1st January 2000

As of 31st January 2023, the TTU TF Index at the date of writing this report for the month of January 2023 included the results of 50 Programs. The monthly return for the Index is calculated using the average return produced from those Programs who have reported for the month.

The total listing is now 58 active Programs.

The Programs which have not reported for the month at the date of this report are highlighted in the Table below.

Note: Programs highlighted in yellow in the Table above have not currently reported for the month.

The performance of the TTU TF Index since 1st January 2000 to to to the end of last month is as follows:

Chart 3 – TTU TF Index Performance

Now you might be intrigued by the performance result of the TTU TF Index. While it is highly correlated with the BTOP 50 Index and the SG Trend Index, we can see that long term performance of the TTU TF Index clearly outstrips alternative Index measures.

The dominant contributor of this outperformance is the requirement for any participating Program in the Index to have a long-term track record. You see, using AUM as a criterion for inclusion is not necessarily a useful selection criteria. While AUM reflects ‘market appeal’, it does not imply that this ‘market appeal’ is strongly correlated with ‘long term performance’.

Our process of Index construction gives us an insight into how any diversified ensemble of trend following Programs with a long-term track record approaches an optimal portfolio as we increase the number of Programs in the Index. Simply by diversifying into a large ensemble of Trend Following Programs with a long-term track record, we magically improve the Index result. CAGR is increased and our drawdowns are reduced.

Of course, we already know this ‘diversification’ principle of Trend Following. As we increase our diversification efforts, we obtain improvement both in terms of the maximum drawdown and in the CAGR generated by the ensemble. This is why we seek to strive for maximum market and system diversification within our individual programs. The TTU TF Index just takes this diversification one step further and diversifies across many different TF Programs to deliver a superior risk-adjusted result.

TTU TF Index Performance

For the period from 1st January 2000 to 31st January 2023, the TTU TF Index has produced a Compound Annual Growth Rate of 8.18% with a Maximum Drawdown of 18.04% (Refer to Chart 3 above). This compares very favourably against the performance of the S&P500 Total Return Index (includes dividends) which has produced a Compound Average Growth Rate of 6.43% with a Maximum Drawdown of 50.95% over the same period (Refer to Chart 4 below).

Chart 4 – S&P500TR Index Performance

TTU Trend Barometer

The TTU Trend Barometer is currently reading 34 and has declined from its more favourable trend reading of 45 last month. This is also reflected by the subdued performance of the Trend Following Indexes for the month.

Chart 5 – TTU Trend Barometer

The Trend Barometer is a proprietary tool we use at TTU to assess the trend strength of a diversified portfolio consisting of 44 markets across all sectors. We firstly subdivide the trend strength of each market of a hypothetical diverse portfolio into five ranges from strong up, medium up, neutral, medium down and strong down. We then aggregate these results into a single portfolio number which we use to describe the overall trend strength across a hypothetical Program portfolio.

We then arbitrarily divide this percentage range into 3 where a value of 0-30 is considered a very unfavourable market regime for trend following Programs, a range between 30 to 55 is a somewhat neutral environment for Trend Following Programs (but not an environment where you could expect consistent performance) and values more than 55 are considered to be a favourable regime towards Trend Following Programs, where they should see good performance.

This method is surprisingly powerful in describing CTA monthly performance and can be used to connect market trading environments to resultant Manager performance.

January 2023 Macro Environment

For a blow-by-blow macro wrap for the month, we recommend you listen to our weekly systematic investor series by clicking on the links below. It is also worthwhile listening to our past catalogue as it provides you with an understanding of how these markets can shape the emotions of a Trader and why it is therefore essential that Trend Followers adopt systematic rules-based processes to keep these emotions in check.

You can find all of our weekly conversations by clicking this link.

Top Traders Unplugged Trend Following Program (TTU TF Program)

You may have noticed that in the Systematic Investor Series I have have been mentioning from time to time my proprietary system which I traded before my involvement with DUNN.  I have taken my listeners under the hood to better understand the thinking behind the design process of this trend following model in the following episodes:

The TTU Trend Following Program is also a kind of experiment for me, as I decided not to make any changes to the design or parameters in the program since about 2013, to see how a medium-term trend following strategy would perform without any new research and improvements.

We have continued to track the performance of this trend following model on an ‘after fee’ NAV basis simply to provide a context for my listeners to understand how the performance of this classic trend following model (albeit not as long-term as others) performs against other, perhaps more recent Trend Following Programs whose methods have ‘drifted’ away from the traditional Trend Following roots.

Despite a difficult drawdown period between May 2015 to Feb 2019, the TTU Trend Following model continues to perform during market regimes that are more volatile and uncertain, although in 2022, its shorter-term models (Group 3), have had a difficult time.

January 2023 saw the TTU Trend Following Program post a good start to the year with an increase of 3.87% reducing the current Drawdown to 14.69% (Refer to Chart 6 and Table 1).

Chart 6 – TTU TF Program Performance
Table 1 – TTU TF Program Monthly Returns

Blend of the Month (Top 10 Trend Following Ensemble)

The ‘Blend of the Month’ showcases the optimal ensemble of 10 Trend Following Programs in terms of Risk Adjusted Return (using MAR) which is selected from our TTU TF Index using data from 1st January 2000 to the reporting month.

We use an algorithm to iterate through the monthly performance results of each Program in the Index over the long-term and collate the optimal blend.

Without further ado, the Blend of the Month for the period 1st January 2000 to 31st January 2023 is as follows.

Top 10 Blend of the Month
Top 10 Blend of the Month

This Blend of the month is simply used to illustrate how an ensemble of 10 Trend Following Programs with a long-term track record could theoretically be chosen using the benefit of hindsight to produce stunning performance results with little volatility.

In practice however we do not have the benefit of hindsight when selecting the Programs we wish to compile for an uncertain future.

We do however have a process that can be adopted which does not use hindsight bias and selects a compilation of 10 Programs each year which configures an optimal risk adjusted solution through an iteration process using historical long-term performance data.

The intent of this exercise is to demonstrate that while we lack the benefit of hindsight in selecting optimal candidates for a Trend Following Portfolio, we can get close to achieving similar performance results over the long term as the hypothetical blend detailed above.

The selection of contributing Programs for this powerful blend which we adopt each year is as follows up to 31st December 2022.

Blend of the Month Selection Overview

Now unfortunately the receipt of Program performance is inevitably delayed. We receive December 2022 results in late January 2023. So, using our process we actually include the performance results of the 2022 selection from 1st February 2022 to 31st January 2023.
The consolidated performance results of this selection process are as follows:

Top 10 Blend of the Month Consolidated Performance

While overall performance results are marginally inferior to the hypothetical ‘Blend of the Month’ with slightly lower CAGR of 7.26% compared to 8.56% over the same reporting period and higher Drawdowns of 11.54% versus 7.71%, we can see how the overall performance metrics of the “non-cherry picked” blend converges towards (approaches) the ‘optimal’ portfolio solution in terms of risk adjusted performance.

The selection we will be using for 2023 from 1st February 2023 through to 31st January 2024 is as follows:

Top 10 Lists

We have prepared the following Top 10 lists (excluding non-reporting Programs) for various performance categories based on monthly performance returns for a 15-year period commencing 1st January 2007 to 31st December 2022.

Top 10 Listing – by Compound Annual Growth Rate

Top 10 Listing – by Risk Adjusted Return (Serenity Ratio)

Top 10 Listing – by Last 12 months Performance

Performance Results for the TTU Top 5 by Serenity Ratio

In a recent research project, we undertook at TTU, we examined three different allocation methods that could be deployed by an investor seeking to optimally allocate investment funds towards 5 of the Top ranked Globally Diversified Systematic Trend Following Programs with a long-term track record.

These three methods adopted 3 different forms of performance metric, namely:

  1. Top 5 Performers by Compound Annual Growth Rate (CAGR) using a rolling lookback of 15 years.
  2. Top 5 Performers by MAR ratio (CAGR/Max Draw%) using a rolling lookback of 15 years.
  3. Top 5 Performers by Serenity Ratio using a rolling lookback of 15 years.

The findings of our project can be obtained by clicking on this link.

Our research determined that the optimal selection method was the Serenity Ratio method.

The Performance for the month of January 2023 of our Top 5 Selection Method using the Serenity Ratio was a decrease of -1.36% (Refer to Chart 7).

Cracks have been showing in two the Programs used for this year’s Serenity selection. Despite a long history of powerful serenity performance, the Fort Program’s that are included in the selection are either at or approaching their Maximum Drawdowns. Fortunately, the balance of Programs selected in the listing are managing to stem the Drawdown impact on the entire ensemble.

Despite the unfavourable performance of the Fort Programs in our serenity allocation, our process of selection demands that we continue to stick with the selection for 2022 until the rebalance at the end of the 12-month review process. In this case due to delays in receiving Program performance data, the rebalance occurs on 1st February 2023.

When the rebalance occurs, the deterioration in the Serenity ratio for the Fort Programs means that it will be unlikely that they will meet the selection criteria for next year. Our process allows for the adaptive evolution of our listing over time where weak performers are dropped from the listing over time as new performance data is received.

Despite the setback arising from poor recent performance from Fort Programs, the ‘Serenity’ selection method continues to perform well from a risk-adjusted perspective. For the entire reporting period, this selection method boasts a CAGR of 4.89% with a Maximum Drawdown of only 14.44% and effectively a “zero” correlation to the S&P500TR Index (-0.07).

Chart 7 – Performance Results of the Top 5 Allocation Method (Serenity Ratio)

The current selection of Top 5 Funds that have been recommended by this research for the investment period between 1st February 2022 and 31st January 2023 are as follows:

  • Man AHL: AHL Evolution;
  • Fort LP: Global Contrarian;
  • Fort LP: Global Trend
  • Salus Alpha Capital: Directional Markets (DMX); and
  • Man AHL: Alpha

We already know the Program’s that will be selected for 2023 whose performance will be included from 1st February 2023 through to 31st January 2024.
The candidates for 2023 will be as follows:

  • Man AHL: AHL Evolution;
  • Salus Alpha Capital: Directional Markets (DMX);
  • Man AHL: AHL Alpha;
  • DUNN Capital Management: WMA Program; and
  • Quantica Capital AG: Managed Futures Program.

Individual Performance Results for these 5 Programs used for the Serenity allocation as of 31st January 2023 using the 2022 listing are as follows (next month we will show the 2023 selection):

Performance Results for the Alternative 60/40 portfolio using the TTU Top 5 by Serenity Ratio

In our “How to Invest with the Best” blog post, we also highlighted the significant improved risk-adjusted performance results that could be achieved by replacing the 40% allocation to Bonds in the traditional 60/40 portfolio with an allocation of 40% towards the TTU Top 5 by Serenity ratio.

The evaluation compared the performance of a traditional 60% Equity/40% Bond portfolio against a 60% Equity/40% Serenity portfolio to highlight the uncorrelated historical nature of this Alternative 60/40 portfolio and demonstrate the benefits that a sizeable allocation towards the Serenity portfolio would bring to an investor if equity and bond markets go back to their historic relationship and become more positively correlated in the future. There is no guarantee that correlations remain static over time and it is possible that bond markets and equity markets may lose their uncorrelated relationship that has existed in the last 20 years or so. It is far less likely that the TF managers within the Serenity Grouping will ever be strongly positively correlated to the Equities market, over the long run, given the extensive global diversification and ability to go long and short, that is present within the constituents of the Serenity Grouping.

Chart 8 below showcases the comparative performance results for the period 1 January 2000 to the end of last month:

  1. A 100% investment in the S&P500TR portfolio;
  2. A 100% investment in the VBMFX which is a proxy for the bond market;
  3. A 100% investment in the VBIAX which is a suitable proxy for the classic 60% Equity/40% Bond portfolio;
  4. A 100% investment in a 60% S&P500TR 40% Serenity portfolio; and
  5. A 100% investment in the Serenity Portfolio.
Chart 8 – Comparative Performance Results of Various Portfolio Allocations

The comparison of alternative portfolio allocations above highlights the strong historic risk adjusted returns that have been enjoyed by 60% S&P500TR / 40% Serenity Composite Portfolio.

A more detailed assessment of this powerful 60/40 investment option is reflected in Chart 9 below.

Chart 9 – Performance Results for the 60% S&P500TR/ 40% Serenity Composite

Important Disclaimers

This document is directly solely to Accredited Investors, Qualified Eligible Participants, Qualified Clients and Qualified Purchasers. No investment decision should be made until prospective investors have read the detailed information in the fund offering documents of any manager mentioned in this document. This document is furnished on a confidential basis only for the use of the recipient and only for discussion purposes and is subject to amendment This document is neither advice nor a recommendation to enter into any transaction. This document is not an offer to buy or sell, nor a solicitation of an offer to buy or sell, any security or other financial instrument. This presentation is based on information obtained from sources that TopTradersUnplugged (“TTU”) (“considers to be reliable however, TTU makes no representation as to, and accepts no responsibility or liability for, the accuracy or completeness of the information. TTU has not independently verified third party manager or benchmark information, does not represent it as accurate, true or complete, makes no warranty, express or implied regarding it and shall not be liable for any losses, damages, costs or expenses relating to its adequacy, accuracy, truth, completeness or use.

All projections, valuations, and statistical analyses are provided to assist the recipient in the evaluation of the matters described herein. Such projections, valuations and analyses may be based on subjective assessments and assumptions and may use one among many alternative methodologies that produce different results accordingly, such projections, valuations and statistical analyses should not be viewed as facts and should not be relied upon as an accurate prediction of future events. There is no guarantee that any targeted performance will be achieved Commodity trading involves substantial risk of loss and may not be suitable for everyone

TTU is not and does not purport to be an advisor as to legal, taxation, accounting, financial or regulatory matters in any jurisdiction. The recipient should independently evaluate and judge the matters referred to herein. TTU does not provide advice or recommendations regarding an investor’s decision to allocate to funds or accounts managed by any manager (“or to maintain or sell investments in funds or accounts managed by any manager, and no fiduciary relationship under ERISA is created by the investor investing in funds or accounts managed by any manager, or through any communication between TTU and the investor

In reviewing this document, it should be understood that the past performance results of any asset class, or any investment or trading program set forth herein, are not necessarily indicative of any future results that may be achieved in connection with any transaction. Any persons subscribing for an investment must be able to bear the risks involved and must meet the suitability requirements relating to such investment. Some or all alternative investment programs discussed herein may not be suitable for certain investors This document is directed only to persons having professional experience in matters relating to investments. Any investment or investment activity to which this document relates is available only to such investment professionals. Persons who do not have professional experience in matters relating to investments should not rely upon this document.

This document and its contents are proprietary information of TTU and may not be reproduced or otherwise disseminated in whole or in part without TTU’s prior written consent.



There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all of which can adversely affect actual trading results. No representation is being made that any investment will or is likely to achieve profits or losses similar to those being shown.