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If a major bull or bear market develops, how is your CTA performing? Can the CTA trade a trendless market? By recalculating the BA on a monthly basis and charting it on an index that reflects the CTA’s portfolio, you’ll know. You may want to switch location of your funds between CTAs depending on the long-term trend of the market.

Note also that the BA does away with the arbitrary 10 percent added to the denominator of the Sterling ratio. This does not discriminate against conservative and consistent CTAs. With the BA approach, a CTA with large drawdowns cannot hide them in an average. For example, let’s go back to the CTAwith 0, 0, and 60 percent drawdowns over a 3-year period. Using the Sterling ratio, these averaged to 20 percent. With the BA, you would use the 60 percent loss.