Even more than most hedge funds, trend-followers were hit in the early April moves across financial markets. The benchmark index that tracks this industry has stabilized since then but has not recovered. As of April 18th, the Soc. Gen. (SG) CTA Index was down 5.3% in April and down 7.7% for 2025. A subsegment the SG Trend Index has performed even worse down 5.9% in April and down 10.2% for 2025. Trend following indexes

But what’s the big deal? After all, “liberation-day” was a seismic event for all market participants and lots of sharp trend reversals could be seen.

Here’s the thing. This came on the back of already weak industry returns lagging other alternative investment types. In the first half of 2022, when Russia invaded Ukraine and inflation rose sharply, trend-followers had their best period in almost a decade. The SG CTA Index rose around 20%. But the industry has struggled since then with the index now back to levels seen in March 2022 - so flat over 3 years.

I first came across the trend-following hedge fund space in 2003. I was an equity analyst covering Man Group. More on this later.

In this piece, I look at the history of the trend-following industry:

• what are trend-following hedge funds,

• the early pioneers like John Henry,

• how it’s AHL’s world,

• industry growth, lower returns, and diversification

  Thanks for reading Rupak's Substack! This post is public so feel free to share it

  Share

What are trend-following hedge funds?

What’s in a name?

Humans have always been obsessed with trends in prices. The frictional cost of chasing these price trends across multiple markets came substantially down with the growth of futures exchanges. Here not only could investors chase trends they could do so in a capital-efficient way by only posting a small amount of margin.

The trend-following hedge fund category is often used interchangeably with managed futures and CTAs. The former is because most trend-following hedge fund activity occurs mostly in futures albeit spot and forwards markets are occasionally used where their liquidity is superior. The latter is baked in history. The initial futures markets were in commodities and through the 1970s and 1980s these were the main markets for trend-following hedge funds hence the term CTAs (Commodity Trading Advisors). Despite diversifying across a wide range of financial futures (e.g., equity indexes, foreign exchange, and interest rates), the term CTAs stuck. This brings me to systematic macro funds. Although macro trading creates visions of George Soros and other early hedge fund giants, the word “systematic” implies a rules-based approach.

Why is this an attractive investment?

Superior returns are always the core tenet of investing. Not just in absolute terms but reflecting the level of volatility, risk, leverage, and correlation to market levels i.e. risk-adjusted and alpha rather than market beta. Unlike the booming pod shop space, these trend followers see high levels of volatility in returns and are not necessarily market-neutral. But a crucial similarity with pod shops is the fact that returns were uncorrelated to market levels. Moreover, trend followers show the lowest level of correlation to other hedge funds. This has made them particularly attractive to institutional investors.

In a higher interest rate environment, trend followers are also attractive because they only use a small portion of their money to put up margin, with the majority of client cash earning interest by sitting in the bank or being invested in government bonds and other interest-earning instruments.

Trend-following hedge funds are amongst the best-performing in market meltdowns (dot com collapse, Global Financial Crisis, Covid-19 crisis) at a time when other hedge funds may be struggling. Moreover, they have the highest level of transparency and liquidity out of all hedge fund styles.

Are all CTAs the same?

Trend following hedge funds and CTAs including a wide range of rules-based and algorithmically executed trading strategies. Some mix trend-following with other systematic strategies like statistical arbitrage, or relative value trades e.g. basis trades between cash and futures or calendar spread trades between different durations. Some may also mix this computer-based trend following with human-led macro trending.

Although the core premise of trend following would suggest a high degree of correlation between these hedge funds, different risk tolerances, asset class allocations, different views on how quickly to build a new position and de-leverage a position, different time horizons for trends as well as a multitude of other factors means that there is a high degree of return dispersion across the sector.

The early pioneers

The early pioneers that provided the intellectual foundations for trend-following particularly in commodity futures markets started well before the era of complex algorithms. Strategies evolved over the decades in terms of sophistication and technology to implement these but most of them looked for breakouts in price action or comparing differences between two moving averages to determine signals.

The first CTA was Richard Donchian who created the concept of trend-following in commodities markets using a rules-based approach. Donchian launched the first managed futures fund in 1949.

One of the earliest to develop a primitive computerized trading system for commodities trend-following was Ed Seykota in the early seventies. Seykota’s fame increased when he was featured alongside another pioneer of the trend-following industry Richard Dennis and many macro trading legends in Jack Schwager’s 1989 book Market Wizards. I recall getting a copy of this as part of my graduate training program in the late nineties. Dennis made a fortune trading commodity futures and together with his business partner William Eckhardt were key players in the development of the Chicago commodity futures landscape. In an almost Trading Places type bet, Dennis was convinced that any novice could be a successful trader if they were trained to use trend-following momentum strategies. Eckhardt disagreed and thought Dennis’ success was owing to his talent i.e. nature vs nurture. This began the famous “Turtle experiment” where Dennis trained a group of trading novices for several weeks and let them lose on the markets with some capital. The returns were said to be outstanding albeit when back-tested later the strategies had one fantastic year or two and then hardly made any money in the following decades.

One of the earliest CTAs to manage money that is still going 50 years later is Dunn Capital. It manages around $1 billion in money for its principals and a small group of clients. Founder Bill Dunn passed away a few weeks ago at the age of 90.

The largest early CTA that is over 50 years old is Campbell which was founded by another one of the pioneers of managed futures Keith Campbell in the early seventies. The current management has pivoted this business further away from its CTA roots and it is best described as a systematic multi-strategy firm with equity market neutral and macro relative value now making up a large part of its $5bn plus of assets under management (AUM). A diversified quant shop. Campbell multi-strat

John Henry has become a household name at Anfield and Fenway Park over the last 20 years but 99% of people have no idea how he made his money, or at least the first billion dollars. They know him as the owner of Liverpool Football Club, and the Boston Red Sox baseball team. Having researched the area through the late seventies, John Henry launched in 1982. It became a storied name in the industry. It had two decades of splendid returns and growth. This included being up 40% in 2002 when the Nasdaq was collapsing. He inspired and lost out to the next generation of trend-followers that still dominate the industry today two decades later. At its peak, John Henry was managing around $2.5bn in 2006. But performance started to drift and in a CTA industry known for high annualized volatility of returns, John Henry had levels of annualized volatility off the charts - several times higher than its peers. AUM had shrunk to $150m by 2007. The fund eventually closed in 2012, but its founder had already transitioned to his new life. John Henry

It’s AHL’s world

Man Group changes the game

Another pioneer of the US CTA industry was Larry Hite who founded Mint Investments in 1981. Hite featured in the same Jack Schwager book Market Wizards. In 1983, UK-based commodities broker ED&F Man acquired 50% of Mint and started distributing capital-guaranteed structured products including Mint through their global network of commodity brokers. When the market crashed in 1987 all CTAs rode the rebound up strongly, but Mint led the pack with blockbuster returns of 60%+. By 1988 Mint had delivered 30%+ returns in its first 7 years and would go on to be one of the largest hedge funds in the world with around $1 billion in client assets. Hite Institutional Investor Magazine tells the story of how the Man Group product structuring and marketing machine emerged. Man Group 2002

But not happy to have all their eggs in one basket, Man Group also found another CTA, AHL. In 1983 Martin Lueck and his Oxford University friend Michael Adam started investing in commodity markets building a systematic portfolio investing in cocoa, coffee, sugar, aluminium, copper, and zinc. A few years later they met a Cambridge graduate David Harding and together they set up AHL in 1987.

Unlike the US CTA industry, which has its roots in commodities traders who looked to apply rules using their experience of markets trending, the AHL founders came from the perspective of scientists and mathematicians. In this way, early AHL and the London CTAs had similarities to the approach taken by the most famous quant fund in history Jim Simons and Renaissance

In 1989, AHL which only had $30m of AUM sold a stake to Man Group. By the time Man Group IPOed and bought out the rest of AHL in 1994, AHL’s AUM was $300m. AHL founder Lueck tells the story In Conversation with Martin Lueck – Aspect Capital of how Mint despite having AUM several times higher and large amounts of revenues had run very lean in terms of headcount while AHL had a large team of researchers and technologists. They were also more aggressive than other CTAs at expanding beyond trends in commodity markets. Eventually, this investment started to pay off and while Mint’s returns struggled in the nineties, AHL took off and Man Group gradually replaced Mint with AHL in its private client structured products. By 2002 AHL had $5.6bn of AUM and its almost 20-year track record was an enviable 20% returns net of the very high fees charged to clients.

Over the next few years AHL continued to thrive and so did the Man Group structuring and marketing machine - right up to the Global Financial Crisis. Originally focused on structuring to reflect the individual requirements of different onshore European markets, Man Group and AHL’s client footprint became more and more dependent on Asia.

Man Group realized that the potential customer base for a very volatile black box fund with a limited brand would be small. But CTAs usually have lots of unused client cash given they trade futures and only need to put down the margin required. Offering clients a capital guarantee by locking up that spare cash in zero coupon bonds was a masterful marketing tactic. A fund giving a 100% capital guarantee but only after 10 years doesn’t sound like much but East Asian clients in Japan, Hong Kong, and Singapore loved it. Man Group built a network of dozens of banks that helped create these structured products and hundreds of intermediaries including private banks and local brokerage firms.

Man Group’s share price rose by 12x in the decade to June 2008. It made revenues of $2.8bn and profits of around $2bn in the year ending March 2008, making it one of the most profitable hedge fund groups in the world. The majority of revenues came from AHL-driven structured products. For every hundred dollars of client cash, these would charge $6 of management fees plus performance fees. I wrote about this last year in Burning Man

The AHL Cubs

Marque hedge funds tend to create a legacy through other funds that key alpha-generating staff go on to set up. The most famous example is of course Julian Robertson’s Tiger Management. AHL’s founders left to set up other CTA’s shortly after selling out fully to Man Group. Whereas AHL stayed focused largely on the structured products and the private client base where fees were highest, the AHL founders’ new ventures looked at a broader client base including institutional investors such as pension funds and university endowments. But since the Global Financial Crisis, they have taken increasingly divergent strategies.

AHL co-founder David Harding founded Winton in 1997, and the group saw stellar returns in line with AHL including 21% in 2008. Winton’s AUM peaked at over $30bn over a decade ago. But as there was increased competition in the trend-following space and the era of zero interest rates and government intervention dragged on reducing trends and volatility, Winton pivoted. Harding stopped describing the firm as a CTA, expanded aggressively in other systematic quant strategies and Winton’s correlation to stock markets increased. By 2020, only a small part of Winton’s flagship fund was in traditional trend-following. When the CTA industry did well, Winton did poorly and was more correlated to equity hedge fund performance. By 2019 Winton’s AUM declined to $20bn. It troughed at $7.5bn in 2020. It has since recovered to $13bn.

AHL co-founder Martin Lueck and AHL colleague Anthony Todd set up Aspect Capital in the same year that Winton was founded. For most of its existence, it lagged AHL and Winton in terms of returns and volatility of returns. When I met Anthony Todd, just after the Global Financial Crisis (GFC) they were much smaller than AHL and Winton. Aspect Capital had performed strongly in 2008 (up 25%) and better than AHL in the immediate aftermath but its long-term annual returns of 10% per annum over its first 15 years were a lot lower than the likes of AHL. Despite suffering like their peers during the CTA lost decade (2009-2019), Aspect diverged from Winton in terms of strategy. Aspect stuck to its focus as a pure play CTA. It was rewarded with a 40%+ year in 2020 and has closed some of the gap with Winton. Aspect Capital today manages over $9bn.

A new world

Industry growth and declining returns

The trend-following hedge fund industry expanded from a cottage industry of only $25bn in 2000 to $100bn by 2008. As the rest of the hedge fund industry struggled to deliver alpha, the double success of stellar returns during the dot com and GFC crashes meant that the trend-following industry had an enviable track record to market to both private clients and the institutional client base. According to HFR statistics the industry AUM trebled to $300bn by 2017.

But behind the scenes, increased competition from quant giants like AQR as well as the tougher macro environment meant that returns for the industry had already been struggling for more than 5 years. It was not until Covid-19 that returns for the industry would outperform again. But an industry that averaged mid-teens returns from 1990 to 2010 struggled to generate more than mid-single returns from 2009 to 2019.

Once the Real Madrid of the industry, AHL’s 20%+ long-term returns for its first 25 years have been eroded over the last decade. AHL’s oldest funds are up 9% per annum since the mid-nineties, flat over the last 5 years, and down 4% per annum over the last 3 years. Man Group has diversified into other systematic quant strategies including long-only but revenues from these are a fraction of what AHL made in its heyday.

The need to diversify

Earlier in this piece, I outlined how one of the earliest players in the CTA space Campbell no longer considers themselves a trend-follower but a multi-strategy quant firm. David Harding from Winton has been evangelical about the need for CTAs to move to a broader product set and he no longer believes it is differentiated enough alone. We also highlighted how not everyone agrees. Winton’s struggle to sustain itself and Aspect Capital’s recovery illustrates that it is not always an easy transition.

Moreover, we need to be careful about marketing hype. As a public company, Man Group provides us with more financial disclosure than their private peer group. This illustrates an expanding set of AHL and AHL adjacent products has not come with the same economics. AHL in its heyday had economics that only today’s top pod shops like Citadel and Millennium can match.

But looking at the broader group of leading CTAs it is clear that the ones that are flourishing are the ones that are no longer pure CTAs.

One of the oldest competitors to AHL, dating back to 1991 is Dutch firm Transtrend. It has stayed a one-product company. A pure play CTA with a heavy bias to traditional CTA markets like commodities. Transtrend AUM at less than $5bn has lagged peers. Since then the fund has fallen 15% in 2025 and returns since inception have now dipped to just below 10% per annum since 1995.

Another storied name in the CTA space is Graham Capital Management, which was founded in 1994 by Kenneth Graham Tropin, former CEO of John Henry. With backing from Paul Tudor Jones, Graham followed the playbook of great macro traders that had their founders’ middle name as the firm’s name! Graham was a pure CTA for its first 4 years but has diversified and today the pure CTA is only $4.5bn of the firm’s $20bn of AUM. Graham argues that having a systematic macro/CTA side and discretionary macro human portfolio manager side under the same roof with the sharing of data and technology as well as funds that mix allocations to both is a point of differentiation. But around half of Graham’s AUM, or $10bn is also in other systematic and quant strategies illustrating the shift away from pure play firms.

One of the fastest-growing firms within the CTA space is Leda Braga’s Geneva-based Systematica. In 2001, Braga left JP Morgan and joined former colleague Mike Platt’s BlueCrest to set up a CTA. Her fund had stellar returns before the GFC and in 2015 when BlueTrend spun out of BlueCrest under the new name Systematica it had almost $9bn of AUM. The new firm expanding from trend-following into other quant strategies reached $13bn by 2022 and $17bn by the end of 2024. Systematica has been in the news in recent days as its BlueTrend fund has been one of the worst-hit in the recent CTA blood bath but that is only one of a series of funds that Systematica manages.

The latest competitor to the hedge fund trend-followers is lower-cost ETFs entering the space. Historically these have been run by niche boutiques but now large traditional asset managers with huge ETF platforms like Fidelity (Geode), Invesco, and Blackrock are expanding in the space. Their products may be crude by comparison but if the trend-following returns of the last few years continue more money may start to flow out of trend-following hedge funds.