A Tale of Two CTAs
Michael McClain | Alternative Investment Research Analyst and Due Diligence
Last Updated: August 12, 2026
Depending on the lookback period, it very well can be the best or worst of times. While the majority of the commodity trading advisor (CTA) industry does feature characteristics of medium-term trading programs; managed futures is still just an umbrella term for a group of strategies that differ mainly along a single dimension — how long a position is held.
The Societe Generale (SG) Trend Index, which tracks the 10 largest institutional trend-following CTAs and is representative of this medium-term group, entered August up 7.9%, above the 3.2% gain of the SG Short-Term Traders Index, which is defined as CTAs and macro managers with sub-10-day average holding periods. That nearly inverts 2025, when the faster/shorter-term cohort was the leader during the volatility following Liberation Day. Through April 2025, the SG Trend Index was down 9.3% on the year, while the SG Short-Term Traders Index was down just 0.9%. Same investment class, distinct outcomes, roughly a year apart, with the difference being speed/time lookback.
The Difference
The two strategies share the same asset universe, liquid, exchange-traded futures across equity, bonds, currencies, and commodity indexes and often share a risk framework built on a target level of volatility.
Medium Trend
- Signal construction: The classic implementations are moving-average crossovers and channel breakouts. A crossover model goes long when a faster average of price crosses above a slower one; a breakout model goes long when price exceeds its highest close of the prior 50, 100, or 200 days. Most programs run an ensemble of speeds rather than a single rule, such as a group of paired lookbacks that might span 20 days at the fast end to 250 days at the slow end and average the resulting signals. Another style, time-series momentum, simply takes the sign of the trailing 6- or 12-month return.
- Holding period and turnover: Weeks to months. A typical program turns over each market a handful of times per year, and a position that works can be held for six months or longer.
- Entry: Signals are usually scaled in over several sessions rather than executed in a single entry, both to reduce market impact and to avoid being fully committed to a signal that fails immediately. Position size is set by inverse volatility; a market whose realized volatility has doubled receives roughly half the notional investment and then adjusts for correlations.
- Exit: There are several mechanisms that generate exits. If the signal reverses, a trailing stop is hit (commonly a multiple of the average true range) or the volatility-targeting overlay cuts the position as vol expands. What is often absent is a profit target, thus allowing profitable trades to continue. Because of the strength of some trends, the strategy can be successful with only a few very strong trades.
- Payoff profile: Low hit rate, high win/loss ratio. Something in the range of 35–40% of trades are profitable, with average winners two to three times average losers. The return stream is positively skewed and behaves like a long option position; many small premiums paid and occasional large payoffs. Costs are less of a consideration and capacity is high. Investors may experience frequent losing trades and potentially long stretches of underperformance before a small number of large winning trades drive overall returns.
Short-Term
- Signal construction: Even within the same sub-strategy, the investment process for short-term trading is distinct and often not trend at all. This group blends short-horizon momentum (breakouts measured in hours or a few days), mean reversion (shorting stretched moves back to a short moving average), intraday patterns, order-flow signals, event and seasonality effects, and increasingly machine-learning models trained on high-frequency features. There is significantly less correlation between short-term managers than in the medium-term space.
- Holding period and turnover: The SG index defines the group at an average holding period of under 10 days; many programs sit at one to three days, and some are flat overnight by design.
- Entry: Often completely passive, with resting limit orders that earn the spread rather than pay it. With such high turnover, execution quality is incredibly important. Faster managers also focus on the most liquid investment contracts (S&P futures, Treasuries, crude, gold, major FX) where execution slippage is tolerable.
- Exit: Opposite of medium trend, as programs often use specific profit targets, tight stops, and time stops, meaning positions are exited regardless of performance on the view that the opportunity decays.
- Payoff profile: Higher hit rate, lower win/loss ratio. Roughly 50–60% of trades win, with winners and losers of comparable size. Skew is closer to flat and can be negative where mean-reversion components dominate. Costs consume a large share of gross return, and capacity is genuinely constrained, as many of the best short-term programs are hard-closed in the low billions. Performance can suffer when markets trend strongly in one direction, as the strategy may keep betting on a reversal that takes longer than expected to occur.
Short-Term vs. Medium-Term Portfolio Construction
|
FEATURE |
MEDIUM/LONG-TERM TREND |
SHORT-TERM |
| Typical hold | Weeks to months | Hours to ~10 days |
| Signal lookback | 20-250 days | Intraday to ~10 days |
| Trades per market/year | Low single digits | Dozens to hundreds |
| Entry style | Scaled in, signal-confirmed | Often passive/limit, opportunistic |
| Exit style | Signal reversal, trailing stop, vol cut | Profit target, tight stop, time stop |
| Profit targets | No | Yes |
| Hit rate | ~35-40% | ~50-60% |
| Win/loss ratio | 2-3x | ~1.0-1.3x |
| Skew | Positive (option-like) | Flat to negative |
| Cost sensitivity | Low | Very high |
| Capacity | Tens of billions | Low-single-digit billions |
| Needs | Persistence | Movement |
LPL Research Takeaway
The first seven months of 2026 delivered direction and sustained moves in energy, currencies, and equities. This has allowed medium- and longer-term models time to initiate and hold profitable positions. For example, a move that runs for eight weeks is worth far more to a 100-day breakout model than to a program that will have exited and re-entered twenty times over the same span.
For investors, there are several takeaways. Over the long-term there are no superior trend-following programs that will always work, rather unique features that thrive in different environments. As a whole, both act as a source of diversification from long equity and bond holdings. However, in choppier, less persistent markets, the classic medium-term trend is expected to outperform. For a smoother return profile, exposure to both types will reduce drawdowns, however, limit the potential for crisis alpha during severe market volatility. Either way, it’s important to understand that these are not one-size-fits-all products, but rather, products that can be tailored to individual investors’ goals.
Additional disclosures: Managed futures are speculative, use significant leverage, may carry substantial charges, and should only be considered suitable for the risk capital portion of an investor’s portfolio. A trend-following investment strategy relies on quantitative, technical, or systematic indicators designed to identify market trends. Such strategies may generate frequent trading activity and can underperform during periods when markets lack clear direction or experience sudden reversals. Signals may be delayed, resulting in missed opportunities or losses. There can be no assurance that the strategy will achieve its investment objective or provide positive returns. Diversification does not guarantee a profit or protect against loss. Past performance does not guarantee future results.
Important Disclosures
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors. To determine which investment(s) may be appropriate for you, please consult your financial professional prior to investing.
Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk.
Indexes are unmanaged and cannot be invested into directly. Index performance is not indicative of the performance of any investment and does not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.
This material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
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