The Growth Of The CTA Industry & Capacity Of Futures Markets: Addendum by Winton Capital Management

Abstract:

We provide updates to two research briefs written at the start of 2014, ‘The Growth of the CTA Industry’ and ‘Capacity of Managed Futures’, showing how managed futures’ assets under management and market volumes have developed since then. We find that neither the assets managed by CTAs nor the total dollar volumes in futures markets have changed significantly, leaving the conclusions from earlier research unchanged.

The Growth of the CTA Industry

In the Figure below we update our estimate for the CTA industry size by amending estimates calculated by BarclayHedge. As before, our main adjustment to the BarclayHedge estimate is to only include part of the Bridgewater fund in the CTA total. Since the start of 2014, there have been net outflows from the industry, but recent good performance by CTAs has resulted in net inflows towards the end of 2014.

CTA industry

Capacity of Futures Markets

The dramatic growth of the CTA industry often leads to concerns about whether there is enough capacity in futures markets. Here we provide an update on how the open interest and volumes within futures markets have changed over the previous year. In the next figure, we plot the dollar value of open interest and volume aggregated across 107 futures markets. In our original brief, we found that the open interest in futures was gradually recovering from the market crash in 2008 and over the past year we see a continuation of that trend with values similar to before the crash. The daily traded volume recovered quite quickly after the crash but has fluctuated around the same level since 2011.

CTA industry

As explained in our original brief, an alternative way of measuring the open interest and volume is to measure the dollar risk represented by the open interest and volume within each market. Below we show an update on the open interest measured by dollar volatility. In this case, both the open interest and volume show a gradual decrease from pre-crash levels continuing the trend we identified last year.

CTA industry

In conclusion, assets in managed futures have remained fairly static. Volumes and open interest have stayed constant on a dollar basis but have fallen in risk terms due to the corresponding drop in the overall volatility of futures markets.