What makes a futures program great? Obvious answers include excellent performance, low drawdowns, a high Sharpe ratio, or consistent returns. While everyone searches for those qualities, large money managers know that the secret to producing all of those is to build portfolios that target those goals using multiple strategies. After all, high returns and low drawdowns do not come together. Perhaps more importantly, if all your holdings profit in the same environment and lose when it shifts, then your portfolio is a failure. Long-time industry veteran Mark Chapin understands this dilemma better than most. As a founding partner of Revolution Capital Management, he helped create one of the unique programs within the CTA space. Like the Revolution Alpha Program, his Little Komodo offering at Triton Bay Capital aims to deliver the secret sauce that can help all portfolios: non-correlation.
Blueprint of a Resilient CTA Program
My favorite programs often begin within a proprietary environment that the trader builds for their own use. This ensures that the base assumptions begin with risk management and preservation of assets first, resiliency across market cycles second, and returns third. Unlike many companies that start with the end goal of managing hundreds of millions, capacity is often a secondary concern. Only once the product is finished and the owner is confident in the results do they consider adding outside funds. When I speak with an aspiring CTA, I give them a quick overview of what qualities make them investable. These include the length of the track record, manager pedigree, proven success in trading assets, or the uniqueness of the strategy. Those that achieve all of these grow quickly and represent many of the industry stalwarts of today. In this context, Triton Bay is quite interesting.
Why Triton Bay Stands Out
Mark Chapin is a known industry veteran with the proven ability to scale a company. With his shared guidance, Revolution grew from a startup to an $800 million CTA. They reasoned that competing to be a “better” trend follower than the dozens already established did not provide much value. They therefore designed that program to trade “around the trend” to be unique. Triton Bay is designed to accomplish a similar goal. As many programs introduce longer-term trend components to add capacity, Triton Bay does the opposite. By moving to a shorter term, his program can adjust to new environments quickly. The blend of trend, counter-trend, and pattern recognition applied across multiple sectors, including stocks, energy, livestock, grains, and currencies, adds a layer of diversification that produces a return profile unique to them. Despite its lower asset level, Mark built the infrastructure to handle the prospective growth that he believes is coming.
Modern, Lean Operations
Triton Bay is one of many traders utilizing third-party services to a higher degree than at any time in my experience. These roles include accounting, administration, trade reconciliation, technology infrastructure, and more. This is key for new managers who need to be ready for assets but cognizant of getting bogged down by overhead and employee management. Outside firms can provide these services at an institutional level, scale efficiently, and remove distractions from trading. Triton Bay is taking advantage by using Amazon Web Services (AWS) as a key component of its workflow. With over 10,000 round turns per million, automating processes and utilizing Amazon’s institutional infrastructure lets them punch above their weight. As the complexity of their operation grows, AWS can add computing power effortlessly. Real-time tracking of margin through exchange APIs caps usage at 20% ensuring that the cash set aside for Triton will be predictable. Orders get routed through CQG, which connects directly to the exchanges, reducing reliance on FCMs and providing a solid backbone for trade routing across multiple clearing firms.
Performance Snapshot
The results speak for themselves as the Triton Bay Little Komodo Program produced positive returns in all but one year since it began in 2016. Despite a stable to declining VIX environment for much of the past three years, a poor setup for them, the April spike on surprise tariff levies showed their place in a portfolio. Sharp reversals across all markets hammered medium to long-term trend followers while Triton Bay posted an 11.82% return. The ability to quickly take advantage of a market dislocation is the hallmark of a good short-term trader. For those portfolios with longer holding periods, this would have provided tremendous value. Adding programs that can make money when the others are losing is the hallmark of a good investment component.
Bottom Line
If my guide to being investable is accurate, the Triton Bay program will grow quickly. A reliable trader with a great pedigree, long track record with real assets, and a program that exhibits exceptionally high non-correlation could be a welcome addition to many institutional portfolios. With markets at an all-time high, the need for protection increases along with the potential for a spike in the VIX. A great time to consider diversification. When it comes to programs that can do it, the Little Komodo Program stands out.
Illustration created by ChatGPT (OpenAI / DALL·E)