This research note provides a quantitative comparison of the performance drivers and structural characteristics of trend-following CTA strategies focused on alternative markets versus those focused on traditional markets over the period from January 2015 to June 2025.

Over this timeframe, a hypothetical, generic medium-term trend-following strategy applied to a representative universe of 120 less liquid, harder-to-access “Alternative” CTA markets delivered a hypothetical net return of 8.5% p.a. – broadly in line with the net performance of leading Alternative CTA specialists over the same period. For comparison, the annualized return achieved by the SG Trend Index, a widely recognized proxy for the performance of the largest trend-following CTA managers operating in traditional markets, was at 2.2% p.a. over the same period. This substantial outperformance is largely attributable to the exceptional 2015 – 2022 period. During that time, our estimates indicate that over 40% of the performance differential can be attributed to one single commodity sub- sector – Gas & Power – highlighting the outsized impact that idiosyncratic tailwinds may have in driving excess returns of trend-following.

From January 2023 to June 2025, the performance of Alternative Markets CTAs reversed sharply, as reflected by the hypothetical cumulative return of -15.2% generated by our generic strategy – exceeding the -11.4% cumulative negative performance recorded by the SG Trend Index over the same period. Crucially, this underperformance was broad-based, with no single sector driving the decline. Instead, we believe it reflects a widespread deterioration in trend persistence across the alternative markets universe, a left-tail outcome that while severe, remains well within the range of statistical model expectations.

According to our generic trend-following model we find that alternative markets are unlikely to exhibit superior expected long-term per-instrument risk-adjusted trend- following returns once realistic transaction costs are incorporated. From 2015–2025, the median per-instrument hypothetical net Sharpe ratio was 0.11 across 120 alternative markets, compared to 0.13 across 50 traditional markets, based on the realistic assumption of materially higher implementation costs in alternative markets. In fact, we estimate an average overall strategy implementation cost drag of around 0.20 Sharpe ratio points for alternative markets versus approximately 0.06 for traditional markets.

However, alternative markets stand apart in the significantly lower average pairwise correlations between their trend- following return streams – around 0.05 compared with 0.10 in traditional markets. Incorporating these inputs, a basic theoretical framework suggests that Alternative Markets CTAs could still, over the long term, deliver a portfolio-level Sharpe ratio approximately 0.2 points higher than Traditional Markets CTAs. These excess returns would compensate investors for the increased complexity and reduced liquidity and capacity of Alternative Markets CTAs. The overall benefits are primarily driven by greater universe breadth and stronger internal diversification, rather than superior trends in individual alternative markets. However, these results remain dependent on assumptions about implementation costs and capacity constraints which are much harder to assess for Alternative than Traditional Markets CTAs.

We therefore view the exceptional outperformance of Alternative Markets CTAs over the past decade as exceeding their sustainable long-term return expectation. Nonetheless, the findings reaffirm the strategic rationale for including alternative markets within diversified trend- following portfolios – not for stronger individual market trends, but for the persistent, structural diversification benefits they provide. Realizing these benefits requires tight management and control of implementation costs – supported by robust operational and trading infrastructure – and disciplined investment capacity management that preserves diversification rather than diluting it in pursuit of larger assets under management.