The Amazing Performance of Mulvaney CTA
It's a mystery to me
It may be a mystery to me, but that does not mean anything other than that I cannot explain the amazing performance of the Mulvaney Global Markets Fund in the last four years based on what I know about systematic trend-following.
Below is the CTA introduction on the IASF website:
Mulvaney’s proprietary trading program invests in futures contracts linked to commodities and financial assets listed on regulated exchanges around the world. The program invests in over 45 markets. The program takes a long-term approach to capturing trends and holds positions, on average, for six months. This long-term perspective reduces the likelihood of being shaken out of long-term trends by short-term price fluctuations. The trading is systematic and driven by objective market price data. It is designed to generate returns in all market conditions by taking long or short positions across a diversified range of futures.
In the last four years, the Mulvaney CTA has generated an annualized return of 45.7% or a total return of 280% after fees! The AUM surged in that period, from about $135 million to around $300 million. It is reasonable that more investors want to allocate to a CTA with this spectacular performance in the last four years. However, in prior years, the fund had a bumpy ride.
Despite two good years in 2013 and 2014 with returns of 43.11% and 67.38%, respectively, from 2009 to 2019, the annualized return was about 3.3%, with two drawdowns of 45% in 2011 and 2018. But after 2019, there was a significant turnaround and spectacular returns. Discipline, dedication, and research paid off.
Now, why is this a mystery to me? Systematic trend-following has a huge optimization space. See this article for more details. I wrote in another article about the Mulvaney CTA:
I have been running a few powerful computers to see if some cross-section of the huge optimization space can replicate the performance of the Mulvaney Global Markets Fund. So far, I have been unable to find any. The top CTA in the last three years probably has a secret sauce.
I ran millions of optimizations, and I was not able to replicate the performance of the fund in the last four years. This implies that Mulvaney probably has some other technical advantage that traditional trend-following models cannot account for. I suspect part of the edge may be a fancy algorithm for scaling in/out of profitable/unprofitable positions. Please take note that increased leverage or risk cannot account for the spectacular performance in the last four years.
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