The J8 CTA Index represents the most common practices in the Commodity Trading Advisors and Managed Futures Industry. They are used to construct this index bottom-up and are derived from survey findings. The index construction is not optimised. The survey findings and index methodology have been published in peer reviewed journals.
The J8 CTA Index is an investible and intuitive representation of the CTA industry by using the industry's most popular markets and management techniques. Is offers beta-exposure to CTA-like returns. |
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We conducted global surveys to find out how CTAs generate returns. To validate the survey findings, we derived a simple index model from these survey responses. We found that this index, the J8 CTA Index, moves in similar patterns as popular CTA benchmark indices. It offers an intuitive and easy to understand explanation of how the CTA and managed futures industry generates returns.
The J8 CTA Index may serve as a liquid and investable benchmark index for the CTA and managed futures industry and for investors seeking exposure to CTA-like returns.
The Index methodology is published in a handbook and is replicable. The Index uses following survey-led parameterisation:
The Index offers to investors a core allocation to "systematic".
The Index serves investors as benchmark for what returns to expect from a CTA investment.
The Index serves managers as a benchmark for their own trading methodology.
The J8 CTA Index may serve as a liquid and investable benchmark index for the CTA and managed futures industry and for investors seeking exposure to CTA-like returns.
The Index methodology is published in a handbook and is replicable. The Index uses following survey-led parameterisation:
- It uses the most popular markets which are traded by CTAs: S&P500, EURO FX, 10yr US T-Note, WTI Crude Oil, Gold, and Copper.
- It uses momentum, the most popular signal CTAs use to decide whether to go long or short a specific market.
- It uses a risk-weighted asset allocation, the most popular method CTAs use to decide how to allocate their assets to specific markets.
- It uses a target volatility mechanism, the most popular method CTAs use to control risk.
- It applies a 2/20 fee structure, which is most common fee structure in the CTA industry.
The Index offers to investors a core allocation to "systematic".
The Index serves investors as benchmark for what returns to expect from a CTA investment.
The Index serves managers as a benchmark for their own trading methodology.
The index methodology was finalized and the Index launched in November 2015.
Investor benefits
The J8 CTA Index explains CTA properties to investors. They include:
All weather absolute return
The Index may act as portfolio insurance and may profit from trading long as well as short positions. The index returns are scaled to a target volatility, allowing for consistent return contribution over time.
Investment portfolio diversification
The J8 CTAI may contribute to portfolio diversification. The index has low or negative correlations with traditional and alternative asset classes. Allocation to the J8 CTAI may improve the efficient frontier of most investment portfolios.
Highly diversified investment
The underlying markets which are included in the index calculation are well diversified and show low correlations with each other.
Highly liquid investment
The J8 CTAI is highly liquid because the underlying markets are highly liquid. This allows for daily liquidity and intraday market making in the index.
Systematic investment returns
The investment methodology is 100% systematic. Human behaviour is entirely excluded from the investment process. While human emotions may influence investment decisions, a systematic investment process follows pre-set rules regardless of the environment it is trading in.
Scientific index development
Scientific index development allows reducing complexity by searching for the simplest possible explanation of complex market phenomena. We used index parameters derived from empirical survey findings to explain the complex and diverse CTA and managed futures industry. We also stress tested the survey index parameters separately. The statistical analysis of the long data history of over 25 years increases the confidence in the robustness of the index development.
Transparent index documentation
The documentation and publication of the index methodology allows any market participant to replicate and verify the results of the J8 CTAI. The disclosure of the index methodology turns the black-box into a glass-box. It offers transparency into the return generation of the CTA industry. Replicating the index for trading purposes requires licensing from J8.
Commoditizing the CTA industry
For any single investor, it is nearly impossible to analyse the entire CTA and managed futures industry with over 1,500 individual funds and programs. Naturally, investors new to the industry rather allocate with established rather than smaller firms.
The J8 CTAI offers an alternative. It offers the opportunity for investors to gain exposure to CTA-like returns without having to analyse the entire industry first, having the risk to allocate to crowded trades with large managers, or to assemble a portfolio of managers which may require considerable investment amounts. With the J8 CTAI investors can cover their core allocation to “systematic”. The J8 CTAI allows the CTA industry to be “commoditized”, to become an easily accessible source of returns for investors. The J8 CTA Index provides easy access to CTA-like returns for a vast number of investors who otherwise might not have the skill, expertise, or resources to allocate to systematic managers but seek an allocation to systematic returns.
All weather absolute return
The Index may act as portfolio insurance and may profit from trading long as well as short positions. The index returns are scaled to a target volatility, allowing for consistent return contribution over time.
Investment portfolio diversification
The J8 CTAI may contribute to portfolio diversification. The index has low or negative correlations with traditional and alternative asset classes. Allocation to the J8 CTAI may improve the efficient frontier of most investment portfolios.
Highly diversified investment
The underlying markets which are included in the index calculation are well diversified and show low correlations with each other.
Highly liquid investment
The J8 CTAI is highly liquid because the underlying markets are highly liquid. This allows for daily liquidity and intraday market making in the index.
Systematic investment returns
The investment methodology is 100% systematic. Human behaviour is entirely excluded from the investment process. While human emotions may influence investment decisions, a systematic investment process follows pre-set rules regardless of the environment it is trading in.
Scientific index development
Scientific index development allows reducing complexity by searching for the simplest possible explanation of complex market phenomena. We used index parameters derived from empirical survey findings to explain the complex and diverse CTA and managed futures industry. We also stress tested the survey index parameters separately. The statistical analysis of the long data history of over 25 years increases the confidence in the robustness of the index development.
Transparent index documentation
The documentation and publication of the index methodology allows any market participant to replicate and verify the results of the J8 CTAI. The disclosure of the index methodology turns the black-box into a glass-box. It offers transparency into the return generation of the CTA industry. Replicating the index for trading purposes requires licensing from J8.
Commoditizing the CTA industry
For any single investor, it is nearly impossible to analyse the entire CTA and managed futures industry with over 1,500 individual funds and programs. Naturally, investors new to the industry rather allocate with established rather than smaller firms.
The J8 CTAI offers an alternative. It offers the opportunity for investors to gain exposure to CTA-like returns without having to analyse the entire industry first, having the risk to allocate to crowded trades with large managers, or to assemble a portfolio of managers which may require considerable investment amounts. With the J8 CTAI investors can cover their core allocation to “systematic”. The J8 CTAI allows the CTA industry to be “commoditized”, to become an easily accessible source of returns for investors. The J8 CTA Index provides easy access to CTA-like returns for a vast number of investors who otherwise might not have the skill, expertise, or resources to allocate to systematic managers but seek an allocation to systematic returns.
Manager benefits
The J8 CTAI offers benefits to CTA managers and other industry participants.
Strategy development
When a CTA manager develops a trading strategy, the J8 CTAI may serve as a base-case because of its simplicity, clear return profile, and transparent construction. The manager can dissect the index and ask “ceteris paribus, does my own model beat the J8 CTAI, and if so, why and how? Where does my alpha come from? How do the model components compare?”
Performance benchmark
A CTA manager can benchmark his or her own performance against the J8 CTAI. The index is representative of the most common trading techniques used in the industry, wrapped in an index model. It offers a fair representation of the industry practices and an alternative to conventional CTA indices which only track managers and are not investible.
Replication
Participants of the financial industry may offer exposure to the J8 CTA Index to investors. Investment vehicles may include Managed Accounts, Investment Funds, Exchange Traded Products, Swaps, Options, or other structured products. Replicating the J8 CTAI for trading purpose requires licensing from J8.
Strategy development
When a CTA manager develops a trading strategy, the J8 CTAI may serve as a base-case because of its simplicity, clear return profile, and transparent construction. The manager can dissect the index and ask “ceteris paribus, does my own model beat the J8 CTAI, and if so, why and how? Where does my alpha come from? How do the model components compare?”
Performance benchmark
A CTA manager can benchmark his or her own performance against the J8 CTAI. The index is representative of the most common trading techniques used in the industry, wrapped in an index model. It offers a fair representation of the industry practices and an alternative to conventional CTA indices which only track managers and are not investible.
Replication
Participants of the financial industry may offer exposure to the J8 CTA Index to investors. Investment vehicles may include Managed Accounts, Investment Funds, Exchange Traded Products, Swaps, Options, or other structured products. Replicating the J8 CTAI for trading purpose requires licensing from J8.
The methodology of the J8 CTA Index is published in the Index Handbook.
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J8 Capital Management LLP fully owns all rights to the Intellectual Property of the Index.
Exposure to the Index may only be offered to investors by broker dealers, investment managers, or other entities or managers, who have entered into a license agreement with J8 Capital Management LLP.
We can deliver the J8 CTA Index or an enhanced version of it by way of managed accounts, sub funds, managed index, licensed index, or other 3rd party products.
Please enquire with us directly at [email protected].
Exposure to the Index may only be offered to investors by broker dealers, investment managers, or other entities or managers, who have entered into a license agreement with J8 Capital Management LLP.
We can deliver the J8 CTA Index or an enhanced version of it by way of managed accounts, sub funds, managed index, licensed index, or other 3rd party products.
Please enquire with us directly at [email protected].
J8 Capital Management LLP and Prof. Robert Tiong from the Nanyang Technological University in Singapore have conducted extensive research that led to the development of the J8 CTA Index.
We publish our findings in international journals and magazines. Please visit our publications section for supporting literature. |
Summary presentation
The risk of loss in commodity interest trading can be substantial.