Trend Trading, Part 2: Turtle Trading and Trend Following


Trend Trading, Part 2: Turtle Trading and Trend Following

Turtle Trading: More Guts, More Glory

Part 2 of our Investment U White Paper Report
By Eric Roseman, Investment Director, The Sovereign Society

Tass Management, located in London, conducted an independent study of trend following CTAs, in 1996. The survey detailed the returns and risk measures of trend traders (including Turtle Trading) versus their conventional counterparts, non-Turtle CTAs (Commodity Trend Advisors).

Trend Trading: Two Decades of World-Beating Performance With No Market Correlation
Although the Turtle Trading Advisors have a higher risk measure at 5.79 versus 2.55 for non-Turtle CTAs, the incremental rate of return over this period clearly supports taking on slightly more risk for substantially greater returns.

Versus stocks, the trend traders have clearly outpaced the index for the period covering 1985 to 1996. In fact, this overperformance is quite considerable, almost three times greater than stocks.

The average CTA performed well against stocks over the same period, but 50% less than the returns achieved by the Turtles.

More than any other alternative trading program, the Turtles demonstrated their consistent long-term profitability in the trend following market over the years with just 36% more risk than common stocks.

The study, however, examines two fundamental questions often asked by investors: “How have the Turtles fared amid steep stock market declines and bear markets?” As well as: “Are they really worth the extra risk compared to stocks?”

Stock Market Corrections and Crashes The tacit test for any CTA is absolute performance in a bear market or severe stock market correction. The Turtles have significantly outpaced the average CTA not only during positive years for stocks, but even more so during stock market meltdowns.To illustrate this we’ll examine four periods since 1987 when the average CTA and our leading Turtles earned spectacular returns in a market blowout.

Year S&P 500 Index CTA Index Dunn
1987 +5.20% +17.53 +94.90%
October -21.59% +0.68 +22.50%

One of the oldest Turtle trading groups still available to high-net-worth investors is
Dunn Capital Management. We’ll review Dunn’s great long-term track record plus another formidable trend following group, Chesapeake.

Later, we’ll review each of the leading Turtles and their long-term performance records versus the average CTA program.

Crash-Proof: Turtle Trading Performance in 1987 and 1998

The worst single month for stocks since October 1929 was in October 1987 when the S&P 500 Index plunged 21.6%.

Although not many Turtles were actively trading back in 1987, several high-profile managers were quite profitable, including top guns, Dunn Capital Management and Chesapeake.

In the table shown below, Turtles earned staggering returns throughout 1987, as well as in October when the floor fell out under the stock market. The average CTA gained an impressive 17.5% in 1987 with Dunn – the top Turtle since 1974 – soaring 95% that year. In October 1987, conventional stock funds and index funds were hammered while the average CTA held its ground.

August 1998 Crash

Sparked by Russia’s ruble devaluation on August 17, 1998, world markets suffered a severe correction, which ultimately led to the U.S. stock market plunge on August 31. That month the S&P 500 fell 17%, and the MSCI World Index plunged 15.5%.

Treasury bonds did manage to gain in August while the dollar and just about every commodity collapsed. The average stock fund tanked over 15%, and most emerging markets lost over 25%. The average CTA, however, gained 4.9% in August 1998 as short-sale trends emerged from international stock indexes, the dollar, interest rates and commodities.

Other trend following CTAs have earned more than 400% since 1996, including massive bear market profits since 2000.

That’s the beauty of managed futures. You don’t need a rising bull market trend to make money. The more difficult the environment for traditional asset classes, the better the trend followers tend to perform.

Turtle Trading Advisor 1990 Bear Market Return
Chesapeake +43.12%
Dunn Capital +46.60%
CTA Index +27.29%
S&P 500 Index -3.10%
MSCI World Index -17.00%

Although certainly never a guarantee that Commodity Trend Advisors will generate a net profit during a market correction, a prolonged bear market with easily identifiable trends will almost surely result in blistering profits for the program. Judging by market history back in 1987, 1990 and the August 1998 global crash, CTAs did the job and protected traditional portfolios from the large losses incurred from equities.

When World Events Dictate Trend Traders Thrive: The First Gulf War

In August 1990, the United States and its NATO allies began a massive coordinated airlift to the Gulf.

Within hours of the announcement on August 2, the price of oil skyrocketed while most other commodities declined sharply. The trend in other assets, such as stocks, declined viciously, resulting in the worst year for U.S. and international markets since 1974.

Several months prior to the August Gulf crisis, the U.S. economy began slowing along with its trading partners in Europe and Japan. Trends in currencies, bonds, interest rates, commodities and stocks were clearly apparent from a trend-follower’s perspective.

Virtually all global stock markets cracked, taking the dollar south, followed by tumbling resource prices and a soaring bond market. These trends were so protracted during the third quarter of 1990 that most CTAs earned huge returns, while the best CTAs logged spectacular profits in only weeks.

The CTAs placed net shorts on virtually every asset class, except bonds. And yet, with the Treasury market surging, CTAs also went long in 1990, earning additional returns.

In short, CTAs seized the vast array of market opportunities in 1990, while the average stock fund declined. In a bear market, a stock fund manager has nowhere to go but cash or stocks.

In the futures business, the trend followers can capture any trend – whether rising or declining – in order to maximize market profits.

The previous chart shows just how formidable the returns were for Chesapeake and Dunn. Each of these Turtle Trading advisors far outpaced the average CTA with far less risk, employing the trend following system pioneered by Richard Dennis.

The Ultimate Test: Bull and Bear Extremes: 1996-2003

By far the most volatile period for investors, the 1996 to 2003 stretch includes a soaring stock market (1996 to 1999) and the worst bear market in a generation (2000-2003).

The table below clearly illustrates how some of the top-performing CTAs blasted benchmark indexes over this highly volatile period.

With the ability to short or go long global asset classes using futures and options, CTAs provide a higher margin of safety than stocks during severe economic and political circumstances:

2000 to 2004

Dunn Capital WMA       +82.5%
JWH Financial & Metals      +74.0%
Nasdaq Composite         -25.0%
Dow Jones Industrials      -8.5%
S&P 500 Index         -10.5%
Sources: ENR Asset Management, Inc., The Wall Street Journal, Dunn Capital Management, John W.

Turtle Correlation Analysis: Comparing Turtle Managers

Although the Turtles trading program provides one of the few classic diversification benefits versus stocks and bonds, individual funds do tend to closely follow each other since they trade most of the same trends.

This may seem trivial for most investors since they strive for absolute negative correlations to stocks; but what benefit, if any, would an investor derive from investing in two or three Turtle traders?

After all, most investors don’t buy just one stock mutual fundMany investors prefer to hold several managers for diversification and style characteristics. But does this same virtue apply to Turtles?

We decided to test this question by comparing correlations between Chesapeake, Dunn and Rabar. These three Turtles are exceptionally well managed.

They do tend to trade in sequence, however, offering little portfolio diversification unless utilized separately in a traditional portfolio. Please note that a correlation factor of 1.00 implies perfect, or 100% correlation. A negative factor, or -0.01 or greater, implies negative correlation.

The lowest degree of correlation among the above traders lies with Dunn and Chesapeake at 0.83. The highest correlation is between Dunn and Rabar at 0.88.

Although these numbers were taken from a time period of only seven months, the trends are long enough to produce a telling story since all four advisors trade the same markets, using the same style.

The Turtles, therefore, do not provide any diversification benefits within the same family or asset class. Rather, they are best served in a traditional portfolio of stocks and bonds to mitigate market downturns.

The Top Performing Trend Following CTAs: A Decade of Dominance

Looking at a 10-year study from 1989 to 1998, the best-performing managed futures traders were dominated by the Turtles. The top Turtle Trading Advisor was William Eckhardt, who gained a cumulative 1,599%, compared to only 365.7% for the S&P 500 Index.

America’s most aggressive Turtle, Dunn Capital Management, has earned 24.5% per annum since 1974. That equates to turning an original $100,000 in October 1974 into over $26 million by January 1, 2004. That’s truly an incredible figure for any long-term, trend following investor in a well-managed Turtles program.

Another legendary trader, John W. Henry, has amassed a fortune for investors since 1984 through his flagship Financial & Metals Portfolio.

An original $100,000 investment back in October 1984 would now be worth over $15.4 million.

Chesapeake Capital Corporation ranks as one of the few top original Turtles with the lowest standard deviation (or risk measure) since its inception in 1988.

For the more conservative, first-time Turtle investor, I recommend Chesapeake. Dunn may have staggering long-term numbers, but its drawdowns – defined as periodic declines in excess of 10% – tend to be erratic and lengthy.

Chesapeake, on the other hand, has not suffered a substantial drawdown in more than five years, and over the last 12 months, has declined only 2% versus a 25% loss for Dunn.

Drawdowns and the Turtle Investor

Drawdowns are a regular part of Turtles, or managed futures investing. It is not uncommon for some of the leading traders to lose 20% or more in a drawdown cycle before recovering. This is why investors must accept this volatility and invest accordingly.

The Oxford Club recommends that you invest no more than 5% of your diversified portfolio in any managed futures or turtle trading program.

These funds are highly volatile and should be purchased in accordance with one’s risk tolerance and proper asset allocation requirements.

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Turtle Traders: Performance History

The following Turtles represent “the elite class” of traders available in the United States. (Although Turtles and second-generation Turtles number more than 100 today, only a handful of organizations fit our criteria for size, long-term performance history and experience).
The oldest Turtle, Dunn Capital Management, has earned an outstanding 24% compound rate of return since 1974. Although sporting very high volatility, Dunn has logged superb profits over the years, especially when the traditional investor needed it most – during bear markets and crashes.
Principles William Dunn and Pierre Tullier are perhaps the oldest and most respected of the Turtle traders with the best long-term track record to date.
Dunn’s D’Best Futures, LP requires a minimum of $500,000 to invest and the prospective investor must be accredited.
Chesapeake Capital Corporation
The most conservative of the Turtles is Chesapeake Capital Corporation. This trend follower is the oldest Turtle from the Turtle school experiment with Richard Dennis in the early 1980s and has achieved remarkable success under its founder and chief trader, Jerry Parker, Jr. Over the last eight years, Chesapeake’s benchmark Diversified Trading Program has seen its volatility decline compared to 1988 and 1989. Over the last 15 years, the Diversified Trading Program has earned 17.3% per annum with no losing years.



Chesapeake’s correlation factor to other Turtles has also decreased markedly since 1992. Amid the ongoing drawdown phase for all CTAs and Turtles since early 2000, Chesapeake ranks as one of the best relative and absolute performers in the trend following market. Like all Turtles, Chesapeake thrives on total chaos in financial markets.
In the next bear market, Chesapeake will earn a fortune from dislocations in global capital markets. This is the best Turtle for all investors and continues to rank ahead of the others based on risk and low standard deviation.
Chesapeake can be accessed by the retail investor through Chesapeake, LP, requiring a $25,000 investment.
How to Invest with a Turtle or Trend Following CTA



Although the Turtle and trend following approaches are the most diversified and time-tested trading strategies, they don’t come without their share of short-term volatility. Therefore, investors should not hold more than 5% of their portfolio with any single advisor.

Fees for managed futures average between 2% and 5% per annum for management fees and round-trades, plus an incentive fee of roughly 15% of net trading profits.

Liquidity features, unlike conventional mutual funds, are generally poor, requiring 30 days’ advance notice for redemptions every month, quarterly or semi-annually. Please keep in mind that these funds, structured as limited partnerships (LPs) offer poor liquidity.

The typical Turtle Fund, or CTA will require at least $100,000 to $1 million to invest, while some others start at lower fees (no-load) through sponsor-affiliated programs.

Accredited Investors

Security laws in the United States also require investors in this asset class to be “Accredited Investors.”

This implies a gross annual salary of at least $200,000 in each of the two previous years or a joint income with the investor’s spouse of $300,000 in each of those two consecutive years, or a net worth of $1 million dollars, including real estate. Many of the Turtle individual programs are also eligible for ERISA plans, including company pension plans, 401(k)s, Keoghs and IRAs.

To invest in Chesapeake, the minimum is high, starting at $10 million dollars. However, individual investors can purchase Chesapeake LP, a Delaware limited partnership sponsored by The Bornhoft Group in Denver. Chesapeake, LP is a proxy for Chesapeake’s Diversified Trading Program and offers a relatively lower investment minimum of $25,000 and monthly liquidity.

Dunn Capital Management has a U.S. limited partnership available at $500,000, no-load and monthly liquidity. Dunn’s limited partnership is called Dunn D’Best LP.

As a compliment to an investor’s long-term growth portfolio, the Turtles and CTAs can mitigate market risk, achieve higher rates of return, and reduce overall portfolio volatility, particularly during down market cycles.

Unlike traditional investments, such as stocks and bonds, Turtles can produce profits regardless of the economic environment. The Turtle program is the best diversified trading program for those wishing to either trade futures themselves or through a registered CTA. The long-term results speak for themselves.

Considering the ultra-high valuations accorded to the stock market today, a diversified investment in a well-managed Turtle program is an excellent vehicle to potentially offset future declines ahead of the next bear market. For more information on the Turtles trading program, visit

Good investing,

Eric Roseman

P.S. If you’re looking for growth-oriented investments and a safe approach to building long-lasting wealth, The Oxford Club is one of the best vehicles around. In the past five years, as recently confirmed by The Hulbert Financial Digest, the Club’s portfolios have generated an 85% return. The Wilshire 5000 Total Market Index gained 24% over the same period.

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