The Case for Proprietary Trading Style CTAs

| | Commodity Trading Advisor

IASG asked NFA registered CTA: Breakout Funds to explain (in their words) what gives them an edge over other CTA managers.  Their diverse backgrounds rooted in proprietary trading help them to adapt in these changing market conditions.

The CTA space has struggled mightily over the past 10 years.  The industry has been rooted in trend following that worked well many years ago, but in recent years has been choppy at best.  The introduction of automated systems for a period of time provided profits.  But again, these were in general, based in trend following and / or back tested on data that is no longer relevant in present markets.

We feel that it is essential to have a manager that knows how to take risk in modern markets.  To blindly follow a trend or follow an automated signal at best does not take advantage of opportunity, and at worst leads to blow-out risk.

Proprietary traders, by nature must be expert in extracting profits and managing risk.  Adaptation is key.  These markets have changed immensely over the past 15 years, and to survive those changes as a trader you must evolve.   Whether it was the advent of algorithms, the financial crisis, HFT, the introduction of QE, or political affects, traders had to adapt.  With all these changes new skills are honed and trading style moves forward.

Traditional trend following or automated systems may work for a period of time given the proper market condition but cannot recognize change or adapt style, which is required by modern markets. The result has been choppy to negative returns in the CTA space.

We believe a CTA manager with a proprietary trading skill set, proven over time throughout various market regimes, is the necessary future of the industry.  Trading proprietary firm capital under an SMA structure can have multiple benefits.  This way, firms do not have the overhead and headache of bringing on a new trading team.  Both parties are free to focus on what they do best; trading and managing risk.

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Breakout Funds is an independent proprietary style trading shop operating as a CTA.  The two founders, Matt Laviolette and Aaron Larkin began trading at a proprietary trading firm, Black Diamond Capital, in 2003.  After three years Aaron traded his own book, and Matt remained as Partner.  In 2015 we rejoined each other to run a fund based in Ohio.  Having successfully managed the fund for three years, in 2017, they left to launch Breakout Funds on our own.

Our strategies are Global Macro Opportunity based.  Using our skillset built over 15 years of proprietary trading, proven through quantitative research, we have developed scalable strategies.  We want to identify when high-risk reward opportunities exist, and even more importantly when they do not.  From there we drill down on an intraday basis to identify the best risk reward entry.  Entering in this manner we can scale a position aggressively, while keeping risk tight.   Our roots in proprietary trading, we feel, gives us an edge that other CTAs do not have.