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2012-11-22 — cnbc.com

So-called managed futures funds, also known as CTAs, are running into their fourth successive year of disappointing returns. The average CTA, which uses complex computer algorithms to spot and ride market trends, has lost more than 7 per cent in the past two years alone, according to Hedge Fund Research.

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The "wrong volatility" in question is the "RoRo" -- risk on, risk off -- phenomenon, involving high correlations across asset classes, usually linked to political announcements or central bank interventions, which has dominated markets in recent years.

CTAs, which typically look for trends in futures markets to spot and ride, are the biggest losers from it.

In the RoRo environment, such trends quickly reverse, causing painful losses. Worse, the prolonged volatility often causes the computers running CTAs automatically to reduce their leverage, meaning that even when they are making money, it is far less than it should be.

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