By Jerry Parker, Founder and CEO of Chesapeake Capital: The growth of CTA and trend following ETFs has expanded access to systematic strategies, but it has also revealed meaningful differences in implementation. Some ETFs rely on narrower market sets or simplified models, while others now reflect a more complete version of trend following. These differences shape the opportunity set, diversification, and behavior of returns.
A central question in evaluating trend following ETFs is how completely they represent the strategy. While the ETF wrapper has broadened access, implementations vary widely—particularly in terms of market breadth, system design, and portfolio construction.
Historically, many trend following ETF approaches have focused on a relatively limited subset of liquid futures markets. More recently, however, a different approach has emerged—one that expands the opportunity set beyond a narrow set of traditional futures. Today, it is possible to access, within an ETF, a diversified portfolio spanning foreign exchange, commodities, equities, and fixed income, alongside additional exposures implemented through fixed income ETFs—such as corporate bonds, municipal bonds, high yield bonds, inflation-protected securities, mortgage-backed securities, convertible bonds, and preferred stocks—that are not directly available through traditional futures markets, as well as digital assets.
“Historically, many trend following ETF approaches have focused on a relatively limited subset of liquid futures markets. More recently, however, a different approach has emerged—one that expands the opportunity set beyond a narrow set of traditional futures.”
These markets are global in nature, spanning North and South America, Europe, Asia—including Southeast Asia—and the Asia-Pacific region. This geographic diversification expands the opportunity set beyond any single economic region, increasing the likelihood of capturing trends wherever they emerge.
This expansion reflects a broader shift. As noted in recent research, “the performance of publicly traded funds has evolved to increasingly resemble that of private institutional funds.”¹ What was once mostly a simplified and constrained format is, in some cases, becoming a more complete representation of the strategy.
A defining feature of traditional CTA programs is the breadth of markets traded. Institutional strategies often span dozens—and in many cases hundreds—of markets across commodities, foreign exchange, fixed income, and equities. This breadth is not incidental; it is central to how trend following works. A larger opportunity set increases the number of independent return streams and improves the probability of capturing sustained trends across different environments.
By contrast, many trend following ETF implementations and replication-based approaches operate with a much smaller universe, often limited to one or two dozen markets. As noted in the literature, “Flagship mutual funds or LP offerings of prominent managers in the space often feature dozens or even hundreds of markets. Replication strategies, on the other hand, more commonly feature only one or two dozen markets across the core asset classes. A highly differentiated opportunity set is a potential source of alpha.”¹ A more limited universe can increase reliance on specific sectors or macro conditions, while reducing exposure to less correlated trends.
Equities provide a particularly important point of differentiation. Many systematic strategies gain exposure through index futures, which can concentrate risk in a limited number of large constituents. Some ETF implementations, however, extend beyond indices to trade individual equities on both the long and short side, effectively replacing index futures with single-stock exposures. This creates a materially broader and more diversified opportunity set, as trends in individual companies often develop independently of broader market indices. In practice, relatively few trend following programs—particularly in ETF format—operate at this level of granularity.
“Some ETF implementations, however, extend beyond indices to trade individual equities on both the long and short side, effectively replacing index futures with single-stock exposures.”
Alongside market breadth, the structure of the trading system itself is equally important. Traditional CTA programs reflect decades of research and experience, combining multiple models, time horizons, and risk frameworks into a unified portfolio. This layered approach improves robustness and allows the strategy to adapt across different market regimes.
Within the ETF landscape, implementation again varies. Some strategies employ a more limited subset of systems and instruments relative to their private fund counterparts, often resulting in a simplified representation of the strategy or a more concentrated portfolio. Others now seek to incorporate a broader range of these established models within the ETF structure itself, aligning more closely with the full design of their institutional programs. A more limited set of markets and systems may also result in return characteristics that differ from those of private fund implementations.
“Others now seek to incorporate a broader range of these established models within the ETF structure itself, aligning more closely with the full design of their institutional programs.”
These differences are closely tied to one of the defining characteristics of trend following: its reliance on outlier trades. Over time, a significant portion of returns is typically driven by a relatively small number of large, sustained trends. Expanding the number of markets and instruments increases the likelihood of capturing these events, while reducing dependence on any single sector or environment. A more limited and concentrated portfolio, by comparison, may be more sensitive to whether trends emerge within a narrower set of markets.
Taken together, these elements point to a broader conclusion: the ETF wrapper no longer implies a simplified version of trend following. In some cases, a more complete representation of the strategy—across markets, systems, and instruments—is now available in a liquid format. The distinction lies not in the structure itself, but in how fully the underlying strategy is implemented.
“Taken together, these elements point to a broader conclusion: the ETF wrapper no longer implies a simplified version of trend following. In some cases, a more complete representation of the strategy—across markets, systems, and instruments—is now available in a liquid format.”
This has an important implication. The ETF wrapper no longer requires a partial or reduced version of the strategy. In some cases, the same breadth of markets, system architecture, and portfolio construction frameworks that have historically been available only in private funds and managed accounts can now be implemented within an ETF.
This evolution is not only structural but also observable in outcomes. As publicly traded implementations have expanded in scope and sophistication, their return characteristics have, in some cases, become more similar to those of traditional CTA programs. While differences remain across individual strategies, the gap between liquid and private implementations appears to be narrowing—particularly where broader market exposure and more complete system design are present. In this context, performance differences across ETFs are increasingly less about the wrapper itself and more about how fully the underlying strategy is implemented.
A Note on Trading Less-Liquid ETFs
For investors using more specialized ETFs, trading method can matter. Visible exchange volume does not always capture the full liquidity available in the ETF structure, particularly where the underlying portfolio is diversified across global markets and instruments.
Limit orders are generally preferable to market orders. They allow the investor to specify the maximum purchase price, or minimum sale price, and can help avoid unfavorable execution when bid-ask spreads are wider.
Block trades may be appropriate for larger allocations. A block trade is a privately negotiated transaction in a large number of ETF shares, typically arranged through a broker or market maker. Executed away from the open exchange, block trades can reduce market impact and improve execution quality for institutional-sized orders.
NAV trades offer another alternative. In this approach, an investor transacts at the ETF’s official end-of-day net asset value, rather than at an intraday market price. This is typically done through the primary market creation process and can be useful when precise alignment with the portfolio’s closing value is preferred.
These methods do not change the strategy itself, but they can affect how efficiently exposure is implemented.
Conclusion
As the category continues to evolve, a clearer distinction is emerging between simplified implementations and those that seek to deliver the full architecture of trend following within an ETF. In some cases, this now includes the same breadth of markets, diversity of systems, and portfolio construction frameworks traditionally associated with private funds and managed accounts.
“In some cases, this [trend following within an ETF]now includes the same breadth of markets, diversity of systems, and portfolio construction frameworks traditionally associated with private funds and managed accounts.”
For investors, this reduces the historical trade-off between access and completeness. The ETF wrapper no longer necessarily implies a reduced version of the strategy, but rather an alternative method of implementation. As with all systematic strategies, outcomes will vary across implementations and market environments, and will continue to depend on the depth of design, the breadth of opportunity, and the discipline of execution.
ETFs are no longer just access vehicles—they can now represent more complete implementations of trend following. The broader trend appears to be supportive for trend following ETFs.
Footnote: 1 Kaminski, K. M., & Sample, S. M. (2024). The Managed Futures Ecosystem: The Rise of the Managed Futures ETF.
Blueprint Chesapeake Multi-Asset Trend ETF (TFPN)