Blinded by Bias: The Effects of Hindsight and Survivorship Bias in Managed Futures.

This article examines how likely it is that past superior performance with CTAs can effectively be used to identify future high performers. We have observed that CTA managers and portfolios that excel historically do not guarantee ongoing superior performance in the future. CTA portfolios that have outperformed the index in backtests do not consistently maintain this outperformance in out-of-sample evaluations. Relying on past performance as the main criterion for choosing CTAs risks hindsight bias and appears to be an unsatisfactory manager selection strategy that may lead to underperformance. We also demonstrate the mortality rates of CTAs are significant, even among the largest and best performing managers. This highlights how critical it is to diversify among CTAs in order to reduce the risk of poor manager selection. The goal of this article is to increase awareness among CTA investors about some potential pitfalls and, in turn, help them make better decisions that enhance their experience with the CTA asset class. [ABSTRACT FROM AUTHOR]