Stoxx, a leading index provider, has announced the launch of the iSTOXX Efficient Capital Managed Futures 20 Index, a new index based on research provided by Efficient Capital Management, a global leader in the Managed Futures industry.

The new index tracks 20 of the world’s largest CTAs.

The new index is comprised of 20 of the largest Commodity Trading Advisors (CTAs) by assets under management.

The index measures the composite performance of some of the world’s largest CTAs on a daily basis. It can also be used as a benchmark against a single CTA or pool of CTAs, or as an underlying for financial products such as synthetically-replicated exchange-traded funds (ETFs).

CTAs invest across listed financial futures markets such as commodities, equity indices, fixed income and foreign exchange, as well as into interbank FX. This broad exposure ultimately leads to a well diversified index.

“Today’s launch of the iSTOXX Efficient Capital Managed Futures 20 Index marks another step of Stoxx’s quest to bring innovative concepts to the market, which are highly sophisticated but at the same time completely rules-based and transparent,” said Hartmut Graf, chief executive officer, Stoxx.

He added: “By including Efficient Capital Management’s data in our index, we can offer market participants access to a well-diversified pool of some of the world’s largest CTAs; which are a rapidly growing part of the hedge fund industry.”

The index universe is made up of some of the largest CTAs globally, which are identified by Efficient Capital Management’s screening processes. These CTAs are ranked by assets under management (AUM), and the top twenty that meet certain eligibility criteria (such as minimum assets and track record) are selected as index constituents.

The index constituents are weighted equally when adjusted for risk as measured by the trailing 36-month volatility. The index will be reconstituted annually and rebalanced on a monthly basis.

Despite their niche status, CTA strategies are covered by a number of indices including the HFRX Macro/CTA Index, the Newedge CTA Index, the Barclay CTA Index and the RBS CTA Index. The wider Managed Futures industry is also well served, with indices such as the Dow Jones Credit Suisse Managed Futures Index and the Altegris 40 Index.

CTA returns are typically uncorrelated with traditional asset classes such as equities and bonds. This makes them highly appealing portfolio components as their inclusion can improve the overall risk-adjusted performance of a portfolio. However, most CTAs operate under the radar and maintain minimum investment requirements, making them inaccessible to the average investor.

Fortunately, thanks to the creativity of ETF providers, investors are able to gain exposure to these strategies via index-linked swap-backed ETFs. The two products most easily accessible to UK and European investors are the UBS-ETF HFRX Macro CTA Index SF (UIQ5) and the RBS Market Access CTA Index ETF (M9S3), which are summarised below.

UBS-ETF HFRX Macro CTA Index SF (UIQ5)
Referenced to the HFRX Macro CTA Index, a sub-component of the widely followed HFRX Global Hedge Fund Index, the index tracks hedge funds categorised as Macro CTA. Hedge funds in this category typically take into account key economic indicators and consider their impact on equity, bond, currency and commodity markets. In selecting individual instruments, Macro CTA fund managers perform discretionary as well as systematic analysis, use top-down and bottom-up techniques based on both qualitative and fundamental approaches. Managers can go long and short. Listed on the Deutsche Börse and registered for distribution in Germany and the UK. TER 1.50%.

RBS Market Access CTA Index ETF (M9S3)
Referenced to the RBS CTA Index, which is comprised of an equally weighted allocation to the RBS Systematic CTA Index and the RBS Discretionary CTA Index, the index provides exposure to the full range of CTA strategies. The index replicates the performance of a diversified manager universe, including some of the world’s largest CTAs together with market specialists and smaller managers that offer a different return profile. The allocation to each manager within the indices is determined by a ranking based on historical return, correlation and volatility. Listed on the Deutsche Börse and registered for distribution in the UK, Germany, Luxembourg, Austria, Italy and the Netherlands. TER 0.75%.

Funds available to North American investors include the NYSE-listed WisdomTree Managed Futures Strategy ETF (WDTI), and the Toronto-listed iShares Managed Futures Index (CMF) and Horizons Auspice Managed Futures Index ETF (HMF).