AI, Risk, and the Future of Systematic Investing | Systematic Investor | Ep.387

Summary

• AI: Extensive discussion on AI's rapid evolution, its disruptive potential, and how it will reshape asset management workflows and market behavior.
• Managed Futures: Strong case for trend-following/CTA strategies amid macro change, emphasizing their ability to capture early, contrarian moves in gold and non‑US equities.
• Precious Metals: Gold and silver were highlighted as major drivers in 2025 and into 2026, with focus on risk sizing, volatility management, and trend sustainability.
• Commodities: Broader commodity strength continued from prior years, with mentions of softs, precious metals, and improved opportunities in natural gas.
• Non-US Equities: A rotation away from US assets was emphasized, with notable trends across indices like Nikkei, KOSPI, OMX, and IBEX, reflecting shifting global risk premia.
• De-dollarization: A weakening US dollar and changing perceptions of US risk for non‑US investors were discussed as catalysts for reallocations and performance dispersion.
• Market Signals: Alphabet/Google’s 100‑year bond issuance was flagged as an intriguing indicator of interest rate expectations and corporate financing confidence.
• Product Design: Critical take on liquid alts product quality and alignment, contrasting sales-driven launches with investor‑centric, cost‑efficient exposure to diversifying returns.

Transcript

Imagine [music] spending an hour with the world's greatest traders. Imagine learning from their experiences, their successes, and their [music] failures. Imagine no more. Welcome to Top Traders Unplugged, [music] the place where you can learn from the best hedge fund managers in the world, so you can take your manager due diligence or investment career to the next level. Before we begin today's conversation, [music] remember to keep two things in mind. All the discussion we will have about investment performance is about the past and past performance does not guarantee or even infer [music] anything about future performance. Also understand that there's a significant risk of financial loss with all [music] investment strategies and you need to request and understand the specific risks from the investment manager about their product before you make investment decisions. Here's your host, veteran [music] hedge fund manager Neil's Krup Larson. Welcome or welcome back to this week's edition of the systematic investor series with Andrew Beer and Tom Roble and myself Nils Castell Lassen where each week we take the pulse of the global markets through the lens of a rules-based investor. [snorts] Andrew and Tom, it's great to have you both here. Um it's been a while. Um but how are you doing? [snorts] >> Tom, I'll start with you. I know you were traveling last night, so you must uh you must >> Yeah, very well. Thanks, Neils. Very well. I was in uh I was in Sweden and it was interesting to see how uh how attitudes to hedge funds seem to be slowly shifting maybe there. >> I'm sure we'll talk about that. And yourself, Andrew, how are you doing? >> Things are good. Things are good. Excuse me. Sorry. We [clears throat] had a great year end um you know multi- person session and it'll be very interesting to talk about things that have happened in just the past six weeks which seems like it's been about six months of activity. >> I know. I know. It's crazy. [snorts] Anyway, we got actually pretty uh strong lineup of various topics as you said. Some of that will be inspired from what we talked about at the in the group conversations and maybe also some new stuff that we normally don't talk so much about in this specific series. But of course uh as we always do, I'm always curious to know kind of what's uh been on your radar, what's caught your attention the last uh few weeks. Um I'm going to kick it off with you, Andrew. Anything in particular that you uh you've been noticing? Well, I mean, I think that look, it's not an original topic at all. I'm totally fascinated with AI and how the narrative around it is shifting. Uh the [clears throat] um you know, I mean, some recent things and and um just in terms of both the power of it, but also the the pace at which things are changing. I'm not an expert at all. And I I'm sort of realizing that um you know part of what I need to be thinking about more actively in terms of um uh myself and our our strategy as a business um is is really where AI fits into it as it's evolving. Now fortunately I have a couple of partners who are extraordinarily capable at it. Um, so it's not that we're not we're not focused on it, but um but there's something interesting that happened recently where um our PR firm uh usually I I'm very very involved in anything that we do that goes out into the public domain and while I was very distracted on other things in December, uh they basically took podcasts of mine as well as material that we had done and did a killer two-minute video that is well I'll released in the next day or two that basically but it's my voice but it's my AI generated voice it's the content is incredible but by people who really are not experts in this field so it just for me it was just it it sort of encapsulated that there's something this there's something very very profound in this um and uh so you know watching what's happening the markets and how people are trying to figure this out I think it's it's going to be disruption galore and I believe that that is actually going to be very very positive for for for trend falling we need real economic change to to make money >> as long as you promise there's always going to be the real Andrew that shows up on the uh on the podcast and not AI Andrew. >> So So my my my theory is that is it actually um that that people who actually have human connections to other people in this like the asset management business is is a people business. Um I don't think asset allocators are going to say uh you know what let's have AI pick the next hedge fund for me. I think it's too risky and it honestly it takes all the fun out of the business. Um, so I think that but I think understanding the ways in which it can be leveraged. Um, and uh, I I just I think this is what everyone's going to be thinking about for the next 20 years and and seeing it happen in real time. It's just, you know, endlessly fascinating. >> It's interesting. Just before we hit record, I asked Tom if he was going to the eye connections conference in Miami in a couple of weeks. Um, and both Tom and I will be there. So of course if anybody's listening and they have a lot of money to allocate they should definitely reach out uh to us in the app. But having said that it kind of is interesting to with what you say because here you have probably the largest conference where you put together 5,000 people or whatever the number is in in one convention center for for two or three days. And uh so you can either say AI is going to um uh either completely change that and nobody really needs to go to these events or it's going to strengthen it and say no as you say Andrew no we do need the personal connections we do need to sit down uh physically and talk uh and so on and so forth. Very hard to tell at this stage. Yeah, I look I think I mean one of one of my favorite investors um uh that be something they done last night where they basically used AI to do a whole asset allocation analysis and and like he said it took him about 15 minutes and the results are pretty astonishing and and one thing that was actually kind of encouraging about it is that it actually did say all right if you want to achieve these investment objectives it it you know it brought managed futures as one of the core um elements of doing that. So you know so there there's a way in which the promulgation of this kind of technology and knowledge will also um uh you know help the average alligator to be more sophisticated about this space to cut through a lot of the noise in the space which is what you know I think you and your your guests do incredibly well. Um and so uh so I mean >> look everything's going to be the what what's the uh uh you know the only constant is change and um and and seeing how it how it plays out in all the various manifestations. I think it's just going to be incredibly interesting. So >> I don't think it's the same investor, but I have a client as well who's AI savvy and he sent me something uh like a couple of months ago where he had given uh three two or three different AI platforms uh kind of a a question about asset allocation for the next five seven years, you know, based on the fact that he was based in Switzerland and this is what he was looking for. And as you say, not necessarily specifically mentioning any strategies as far I remember. And that also came back with a fairly large allocation to to uh trend following. Uh so um so yeah, so the information must be out there since they're picking up on it. Um so that's interesting. >> My my my my oneline response after reading his analysis was super intelligence is here because I like the conclusion. [laughter] >> Anyways, Tom, um I mentioned that you'd been traveling. Not sure that that's what's really been on your radar, but what has been on your radar the last few weeks? >> Yeah, it's really been many discussions with with investors and managers around the shift away from from the US dollar and from the US in general. I think uh global markets really did change in 2025 and the perception as investors is that the period of US exceptionalism is is maybe over. M >> I mean uh in April liberation day really hit markets uh but we did end up with a fantastic recovery in 2025. The S&P ended up 16%. But was the conclusion that the US has won at capitalism? I think for a US investor based in US dollars that's a fair enough conclusion but for the rest of the world um you can't go back to the same state where America where you know American assets are all that matters. Um I think the risk in the US is perceived as as potentially higher than it was previously. Um and the rest of the world is now clearly looking at the country's markets through an entirely different lens. You know, normally you have non-American investors can rely on the US dollar to rise in times of stress and the US dollar has enjoyed the status of being a safe haven currency for assets. But for non you non-domemestic investors in 2025 the weakening of the US dollar meant that actually a euro investor uh with the same S&P 500 investment was up just 2 and a half% last year >> uh and actually potentially negative for other indices. So I don't think investors are necessarily looking to sell American investments or avoid them entirely. It's just a rethinking of what assets investors are holding and and a real kind of analysis of US risk and how they choose to engage with that risk. >> It's a completely selfish observation. Uh here in Switzerland uh the Swiss National Bank distributes some of its profits every year I think to all the Cantons and of course it is well known for having huge investments in US tech stocks and so on and so forth. So, I I hope someone um you know is listening and and maybe reconsidering that strategy if if you're right, Tom. >> Well, there's two things to think about. I mean, I think there's a very valid argument that global equity markets don't have the capacity for a wholesale shift in in investor assets away from the US. But there's definitely a thought about outside of tech, what am I, you know, what is the sort of asset that that we're accessing in the US and can we get it elsewhere? >> Yeah. Well, we're going to talk a little bit about that. I know Andrew has some some topics on that. Um, but I um on my radar a few things that caught my attention, but the first thing is more a question for you and that is of course we are in the middle of the Winter Olympics. So, I'm curious to know if you have like a favorite sport that you're watching or that you want to make sure you are going to watch uh in the next uh couple of weeks. >> So, I I mean I So, I I've gotten very down on the Olympics um uh in that uh you know, one is I I don't think you should have 37 sports like per I mean 37 events per sport. Um uh you know it like I sort of grew up in an era when the Olympics was special because you had people who were you know toiling as waiters in at ski lodges and that yet were finding six hours a day to ski and and to kind of compete at the at the international level. There was something very like this was their moment right every four years you had this opportunity to become a Mark Spitz or a Bruce Jenner or somebody who goes from total obscurity to becoming kind of a national hero. uh you know the American hockey team in 1980 and you know it's a little bit like in in US sports where they've added more and more playoffs because they're very very hygienerative and here and here I was I was at the gym this morning and watching I can't some snowboarding competition but it could be snowboarding you know/v1 you know whatever whatever like like sub some some subset and then also with the the barrage of promotion around individual athletes and and and the elevation of them I just it's to me It's just lost a lot of its its the special quality to it. But that's that's going to make me sound incredibly old and and >> [clears throat] >> uh and and and and cranky. >> What about you, Tom? >> In the UK, we don't have many uh many snowy mountains or frozen lakes. So, for us, it still has that special element, I think. Um I'm definitely following the curling. The curling is is quite interesting. All the curling stones are still made in Scotland, so it's very exciting. Um and uh and we we seem to be very very good at the um the luge and the the sliding events. So we definitely following that. But you're right, Andrew, there's never been a time for interest in niche sports as as around an Olympics. >> I hate to break it to you, but actually one of the things that caught my attention that I'm really looking forward to is actually one of the new sports at the Winter Olympics. Um they they they call it skio, but it's actually ski mountaineering where they first have to climb the mountain before they ski down. I'm very excited to see what that is going to be like. That that seems like a fun uh fun thing to do. But in general, I kind of know what you're getting at uh Andrew in terms of too many things doing the same. Anyways, more um interesting from a financial point of view, something that caught my attention. I don't know if you saw this, but Google has issued a 100red-year bonds, I think, this week. I thought that's kind of interesting. I I don't know what that tells us about their expectation to uh interest rates if they're issuing a 100red-year bonds at these levels. Um but that apparently has not happened since 1997 where Motorola issued a 100red-year bond. So, that is pretty rare. And then the other thing um that caught my attention, I kind of quickly shared it uh with you a little bit unfair because it was with short notice, but it's just this um email um that I received from uh Dan Rasmusen uh over at Verdat. And I don't know Dan uh at all, but I know he's involved in kind of the private equity uh world. But he was written writing an artic or a a an email about sort of some of the differences uh between hedge funds and private equity. And the heading was why hedge funds got better while private equity just got bigger. And I think there is some interesting aspects to that um observation for sure. Uh my key takeaway uh and feel free to um to weigh in here, but my key takeaway was um if I remember correctly that hedge funds in his view simply had to improve because of the competition and the attention that private equity was given um by by investors for so long. Um and to a large extent um maybe operating in liquid markets with mark tom market and all of those things that we do in in the liquid all space for sure [snorts] basically meant that they became better um better managers better structures better processes etc etc and I think that's kind of an interesting uh observation I don't know if you agree with it or have another take and >> oh I okay I think from our side I think we we see renewed interest in hedge funds kind of across the board. Um and part of it is people got out over their skis to use an Olympic analogy um uh in their exposure to private equity and the way people often would do it was that they would overcommit to it with the expectation that they would get money back in a certain period of time. And so the fact that kind of the the money coming back didn't really materialize while they still had the commitment outstanding meant a lot of allocators were simply had too much exposure to it. And that's also driven kind of the secondaries market. Um, you know, I think I think when you're in a persistently long bull market, also the fact that and and look, Dan has done great research on the return characteristic of private equity essentially being some version of leverage equity with, you know, the wonderful feature that, you know, you could pretend that there's you don't have to mark things to market. Um and uh but I think I think now when you're when people are thinking about all right where equity market valuations are and what the expected returns over the next 10 years and leverage on top of it and being you know up to their gills and things like software stocks that could be disrupted. Um you know maybe having long-term leverage long equity exposure is not as attractive as it used to be. And in a world where the macro environment is shifting back to to to Tom's point about this migration, I I wouldn't say it's a m like a wholesale migration out of US assets, I would say that the the attitude used to be FOMO about the US markets and now has has has come to people saying like, well, wait a second, like like you know, this used to be the the global bastion of of of rule of law around business activity in terms of predictability and and clearly things have changed. Um and so um you know so I think in the context of that you think who has the ability to make money on a going forward basis and then you know you point to the hedge fun industry which has done I mean pretty I mean certain hedge funds have done astonishingly well in this environment and so that's drawing attention back to it which ultimately I think will be good for all of us. >> Yeah. Do you come across private equity a lot Tom? >> It's it's it's something we come across as discussions with investors because it's part of their alternatives portfolio. It's part of the it's part of the portfolio allocation and I think you're right it's become a a big part of what investors do but we we've been in an unbelievable environment for 15 years more than 15 years and is that environment going to persist for equities we we don't know but it I think when I was last on the podcast we were talking about the macro environment for let's just sort of call it sort of global macro hedge funds so a hedge fund that can go into any asset class deploy assets long short in a relative value kind of perspective and take advantage of any kind of inefficiency. We are, you know, that that environment for hedge funds is is only gotten better. We've got stubborn inflation. We've got geopolitical dislocations and tensions. We've got commodities bursting back onto the seam and asset class which has been underappreciated with compressed volatility for a long long time. Um, and we've got interest rates still relatively low but higher than they've been for a long period. And it it just looks like a very interesting time for tactical trading strategies that can deploy assets across markets long and short. >> Yeah. No, we'll we'll dig into that some more. Let me just quickly run through where we are on the scoreboard, so to speak. Uh my own trend barometer finished yesterday at 50 and that's still a pretty productive environment for trend following. Um and it has more importantly been very consistent the last few weeks as data also uh will be supporting. Uh these numbers are as of Tuesday of this week. Um and the beta 50 is up 1.48 in February, up 6.58 for uh the year. The sock gen index up one and a quarter for the month and up uh 6% or so um for the year. Stocken trend index up 1.65% uh for the month, up 6.43% for the year. and the stockchain short-term traders index up about half a percent uh so far in February up 2.78% uh so far this year and in the traditional world MEI world up 94 basis points in February up 3.22% to 2% so far this year. The uh S&P US aggregate bond index up 41 basis points uh in Feb and up [snorts] 60 basis points in uh 2026. And finally S&P 500 is pretty flat for Feb up 1 and a half% so far this year. [music] I was wondering before we go a step back a little bit and maybe we talk a little bit about your uh your own review Tom that you put out uh in the last day or two um this more comprehensive uh look at 2025 but I I wanted to also ask you a little bit and and of course Andrew you can jump in as well about [snorts] uh the first uh six seven weeks so far this year um obviously been very constructive uh clearly continuing where we left off in 2025 Is there something uh about the uh the new year that you're noticing, Tom, that you find particularly interesting or um anything? >> Well, I think understanding 2025 performance and the second half of the year in particular does help us understand what the beginning of 2026 looks like. Because one of the conclusions we came to when we were writing and analyzing what happened last year was that um performance and opportun opportunities for trend following came from a real really kind of diverse number of markets. Um, we obviously saw standout performance from metals and precious metals again this year have been a key performance driver, but it wasn't just metals. And it's interesting hearing about your trend barometer because we run a similar exercise where we calculate breakout models over um almost I think uh 200 or 5 500 different parameters from very short-term to super long-term across all different markets that are sort of potentially tradable by CTAs. And on average last year the zed scores so the opportunity sets is similar to your kind of barometer I think uh was pretty poor. So last year your selection of asset classes and the way you allocated risk and managed risk was really really important because there weren't opportunities broadly across all equity markets and all on all and all currencies and all bonds. In fact you bonds was really poor last year. So what we've seen, I think this year is a continuation of that theme where we've got really important market trends. And if you're not trading those markets, you're going to be missing out on something. So I think last year, for the second year in a row, commodities was one of the key performance drivers. And 2024 was very similar, but it wasn't coming from the same place. In 2024, we saw trends in the soft commodities, so cocoa, coffee, as well as precious metals. in 2025, it's really been the precious metals that have been the key performance drivers. Um, and if you weren't trading them, as I said, then that wasn't available to you. But also, you know, there were some really, really strong trends in other markets. Um, and that's again continued this year. So, for this year, we're in our trend indicator, we're seeing really good trending markets in Cosby, Niki, the Swedish OMX, and IBEX 35. So these are sort of lesser smaller European equity indices often that aren't necessarily the go-to financial markets that people are looking at. >> It's funny you say this thing about yeah if you weren't trading all these market like the softs and some of the other medals you would be missing out but but not if your name is Andrew because he does not trade them but he did not miss out last year. That's all I can say. Um but uh let's let's stay with with this year and then we'll maybe dive a little bit deeper into the your your report Tom. But any any thoughts from your side Andrew for this year? >> CTAs generate alpha when they're early contrarian and right. Okay. The second half of last year they were dialing up equity risk after liberation day. They were holding their gold position. and they were you know so basically I mean from our perspective if you look at last year it's golden equities and predominantly non- US equities um and uh and it was it was and it was you know either maintaining that exposure after liberation day now now human strategists after liberation day were really rattled and really wrong in that we were you know the inflation is going to come soaring back we're going to go to a deep recession I think use the term self-inflicted you know nuclear economic annihilation or something like that I mean it was it was people really thought and and and this is again the enormous advantage of CPAs is they don't care if if you know as long as they see it kind of bouncing off the lows and and however they end up measuring it um or or continuing a trend and I think that's continued into this year. I think it's it's you know I think there's an arbitrary end date as of at December 31 but it's been look we started talking about a rotation to non- US equities. You know we've been people have been talking about a fundamentally driven rotation into non- US equities for 15 years and it hasn't worked. Um it's consistently underperformed US equities but it's been it's been happening for the past couple of years and I think it goes back to the risk premium issue that we talked about. Um and uh and on gold, you know, gold was a failed trade for a decade and a half. You know, it was it worked really well for a period of time. You had a lot of very very smart people in 2010 expecting this proflegate monetary policy to drive up gold. It didn't for a very very long time. And and you know, while most people had essentially abandoned the trade, um look, in 2022, gold didn't go up, right? I mean, this that was the moment everyone was waiting for in gold. inflation's going to come back and gold is going to pay off and gold didn't go up in 2022 and then it starts soaring in 2024 for very very different reasons. So, so I I don't think it's complicated. I think it's non- US equities. I think it's an emerging markets versus US equities and and and I think it's gold which encapsulates the whole metals complex. So, >> yeah, I mean it's been interesting for me to see uh for example and I know this is early days, right? But um clearly the uh the momentum in some of the key markets from 2025 spilled over to 2026. So in January definitely the same themes uh in terms of leaders and of course precious medals uh despite a massive selloff the last day of the month uh still came out ahead for most managers I'm sure but the leadership has changed a little bit in February. It's not so much medals uh anymore. Um we seem to be shifting more towards uh equities in certain parts of the world as as you rightly pointed out. Uh net gas has been more productive for sure. Um and even some of the currencies are starting to uh to to to support um which it doesn't happen that often. Um but but uh yeah, so that's been kind of interesting for me to to to see. Now Tom, I wanted to give you the chance to uh if there were more because it's a pretty comprehensive paper you you uh just published. So if you want to dig out some more of those uh things that you felt was really important. Um I know we will talk about some of the topics uh as well because we will dive into uh I think Andrew had sort of specifically gold, silver uh you know uh and and some specific markets to talk about. Is there anything that stood out when you wrote the report, you thought, "Wow, that actually did surprise me a bit because and let me frame that if you if you missed the last couple of episodes of this uh podcast, Tom. What I what I've said to to uh people when I've been speaking with them uh in the first few weeks of this year was that in many respect, I think we can all agree that last year was very unusual. We can say that about almost every year. But last year was another um unexpected set of events that we saw. Yet from a trend following perspective, it was a very familiar year. Few markets did all the heavy lifting. Then you had a few markets that lost a little bit of money and you had a lot that didn't move much either or. So from a trend following perspective, I mean, if you didn't know what took place during the year, you would just say, yeah, just another trend following year. Maybe a little bit on the on the low side. Uh okay, fair. But but um yeah >> I completely agree and I think that's why the conclusion that we came to of the allocation of risk was so important. You know, normally we see some sort of speed factor and I think Katy Kaminsky's done some really interesting analysis on the speed factor in previous years and we normally see a much stronger preference for longerterm models outperforming. But it's the classic sort of uh contradiction about how you marry your investors who maybe can't always look at the performance with such a long-term lens versus the the performance of models there where you can sort of show systematically that being longer term and into longerterm trends does pay off. So it's really the allocation of risk last year that was the key thing and how you managed that risk. Um and then you know we were monitoring performance this year as those trends continued. I think the trend index peaked at 7% is as you correctly said it's now at 6 12%. But the range of the individual manager returns is still pretty same same. So I think the best trend followers are up about nearly 15% and still there are some up nearly that that amount. I think that's on a slightly higher volatility target than many, but we still got many managers in that 10 to 15% range. Um, and and many just hovering just below the 10% in sort of eight 8 or 9%. So, CTAs have definitely allocated risk and managed risk very well. If you want to see what an unriskmanaged approach to trend following looks like, please ask us for the data on the SG trend indicator, which is our hypothetical model-based portfolio, which with with very limited u risk management, and you'll see some very interesting swings in the precious metals markets, but I think you know in general a couple of weeks ago, many CTAs were down a small amount, but they had a laser focus on on risk. So not only allocation of risk but managing of of positions is silver has caught a lot of headlines but it's not as big a market as gold and so maybe the allocation of risk to that market wasn't as big as many people might assume and there was definitely a close monitoring of what the risk looks like in that market. So we've had CTAs kind of building proprietary models over the years to help them work out when trends are overextended, when trends are reversing. Um, and I really think there was a looking at trend strength and looking at is the are these trend are these breakouts really supportable? Uh, and I don't think CTAs has had as much risk to precious metals as as you might think. I I looked at a CTA report today and there was a much bigger allocation of VAR to equities and FX. >> Yeah. No, I mean we can dive into that. I know there was one of uh Andrew's topics actually. We can jump around a little bit if you want to stay on on sort of the theme of of gold and silver and how these were traded. Um I know you had some some um questions about this. Uh Andrew. Well, so yeah, I mean I mean I Tom, I think sort of answered the point about about So look, I mean, you look at 2025, right? And gold is up 60%. Right? I mean I mean this should have been a banner year for the space, right? Equities were up a lot, right? So you had very very very distinct trends and it's continued into this year obviously and yet the space was flat, right? and and and in Tom's analysis which mirrors what Nick Baltus was talking about um in year end and Katie has has um you know talked similarly was was you know short-term models really detracted from performance last year and and Tom's report which everyone should read has a great analysis basically on a factor by factor and you know using his his trend indicator but you know you're up 20% or something in in in long-term trend according to that and you're down you know 12, 13, 14, 15 and short-term trend. You know, again, as as we've looked at the space and we've looked at the shorter term models, we just don't see really positive sharp ratios in it. They sound great, right? They but our view is they're a riskmanagement tool and they're often a costly risk management tool. If you're going to allocate a meaningful amount of money to something that has a zero sharp ratio over time, uh drives up your trading cost, it creates all sorts of sorts of other issues. So um so I think I think that's sort of the hard the hard narrative part about the space right now is is it feels like things are trending like crazy. So why isn't the space doing better? This year they are. But last year it was also getting you know it was making money in in our side it was making money in gold and non- US equities um was about about half the performance each and then you got whipsaw and and hope you didn't lose too much money in in rates and currencies. I mean, I think last year, if we just stick with that for for a little bit, you're absolutely right. When people look at the year, they will say, "Well, hang on. Equities were up a lot, so why didn't trend followers make more money in equities?" It was very select equities that we could make money in because it really was all about the April uh deleveraging thanks to liberation day. So, if you were if you are, you know, obviously you execute once a week, so you have a different way of of interpreting what happened. uh managers who are much more frequent of course uh we have a different way of interpreting. So I do think that for sure the fact that we had to delever the equity long side uh for a while and I think maybe some managers even uh got short uh at that stage that obviously would have cost uh some so I agree with that. Um but people obviously need to understand the the way we got to the to the strong equity year wasn't in a straight line. uh whether it was in a straight line as you rightly said is in the medals and I think most people made all all of their most of their profits in medals or some select equities um a couple of them also in the say short JTBs uh and so on and so forth what what is most puzzling to me and this may not be very popular with some of my friends but but I I'll I'll venture into it anyways in a sense you're kind of right because we have the discussion about being a classic trend follower where you don't adjust your position and being kind of maybe a more modern trend follower, we do adjust our positions all the time. And so last year, uh, which may come as a surprise to people, even though we made most money in in precious metals, we were selling precious metals all year, right? So our largest exposure was a long time ago in precious metals. And then you could say, well, that's not great when when the trend is so strong. You should just have stayed with it. You would have made a killing. And there were one or two that probably did exactly that. But of course, we also know they kind of had a a huge um surprise on the last day of January. Um and had that day for example continued on the Monday with the same velocity instead of a rebound some of those managers could have been in real trouble in my estimation of how it took place because some managers will when you get a big draw down like you in silver and and gold prices uh on Friday the 29th or 30s whenever it was you may trigger your signal you may trigger your stop but you may not execute that trade until the next day. So had the next day been down another 20%, things would have been different. But for the larger managers who don't um have static position size, you know, we were just basically reducing our risk along with volatility expanding. So yes, you could say it's a little bit of a shame when you have two or three markets that really move strongly that we didn't make more money. But on the other hand, from what I can tell, and this is by no means any criticism, it's just an observation. But I do see many managers who or not many but there is a handful of managers who talk about this. Oh, you should never touch your position size. You should just stick with it and that's how you really capture these big outliers. But the problem is they their performance was not in any way, shape or form better last year. And why is that? And I think it has to do with the fact that they often trade three four 500 markets. And therefore any one market even if you don't touch your position size becomes a very small risk allocation in reality. And that's always been my view that there not it's not a wrong or right. It's just a difference. But if you really want to have punchy returns and make those 50 60 80% returns yeah then you actually have to have a fairly small set of markets but then be very gutsy about your um risk allocation and stick with it. But that opens up another set of uh risk issues. >> Yeah, there's a there's a London CTA manager who is uh very committed to trend following, very committed to commodities and trading a small number of markets and letting risk run. I think we all know who it is, but it's it's the end product something that's palatable to investors um when they have these pressures on them from an investment committee and they have strategic asset allocations that they have to follow. I think I think you end up creating something which is difficult to sell to investors when you have something like that. >> Yeah. I mean you don't need many investors. I mean frankly so so so you know we and I think that's what I like about the space is in a sense that if you have a certain profile you want to express then you can probably find enough investors who will um who will want to join you it's just a different set of investors but I I agree with you uh on that topic >> it's something that comes up and it came up this week about the role that your hedge fund or your CTA is playing in the portfolio and it's something that we've heard about this we have as our core risk asset equity risk and we're trying to diversify that. >> These large asymmetric returns are really good and trend following is really good at diversifying that and so the investors sort of continued fascination with multistrat isn't necessarily meeting the requirements or the objective that uh CTCTA maybe does when you get these large moves and you want to have these asymmetric portfolio diversification. Yeah. Any thoughts, Andrew? >> Again, I think about the space very differently than than than than most people in that I view it as an allocator, right? And that's originally we got into the space as an allocator trying to figure out how do we we love the signal of the space, but how do we access that in the most efficient, straightforward, you know, liquid way that we can. Um I mean to me the de the alpha in the space um is like like I think about I remember the moment in September of 2020 when we started shorting treasuries right I remember the moment when we were starting buying gold um and you know we're buying gold well below 3,000 uh when we started shorting the yen around 105 106 or something like that like like those were really contrarian really early calls and and and you because again I sort of straddle this world and the world of people who are trying to make these judgments um on a regular basis. I also again I started a commodity firm called Pinnacle Asset Management back in the 2000s and and it was a fundamentally driven commodity firm where you had guys who knew more about the you know somebody like John Arnold knew more about the fixed price natural gas swap market than anybody ever in the history of planet earth, you know, then or now. Um and and and the way that they viewed CTAs was they waited for the day when CTAs when some signal went off somewhere and CTAs were selling because they were in effect they were kind of straddling between being market makers and trying to think about you know sort of the fundamental supply demand characteristics of the markets. And so I to me when I think about alpha in the CTA space as an allocator, what I care about is when they pick up something that whether as I said, you know, early contrarian and right and it's big and you can make money in it. Like how does that happen? Right? So you've got an asset that's worth around 10. Let's say just just assume it's sort of a basic model. There's a lot of noise around it, right? So just based upon sentiment or whatever whatever it'll go up to 11 and then back down to 9 and then back up to 11 back down to 9. And so the basic model is that when you have people with local knowledge of that market who are maybe sitting on trading desks or high frequency traders, whatever you want to want to call them, you know, it generally the smart money selling at 11, buying at 9, selling at 11, buying at 9 and and and the kind of the sentiment is driving these prices around but with no change in fundamental value. The valuable trends for CTAs are when it's something's at 10, fair market value is 10, and then the information changes. Something in the world changes and fair market goes to 11. And the people with local knowledge like it more at 11 than they liked it at 10:00 and and then it goes from 10 to 11 to 12. And the smart money likes it more at 12 than they liked it more more at 11. that's means the world is changing and that they know something about it. They have some special insight that that the world is slowly adapting to this information and they think it's going to play out. And so when I think about what happened in you know 2020 24 25 and and this year and I think about longer term versus shorter term models in a sense the shorter term models are the ones that are going to get whipssawed violently when you have these changes in sentiment like we had last year but there's no real change in in the state of the world right whereas the longer term models are the ones that say you know what this shift from I I know I get it you know everybody with their investment committees basically has been talking about a shift out of US assets and out of US equities for a long time, but we can see it in the prices and we can see people people moving their money at the margin and and so we're going to get behind it regardless of what we've what we thought about things 6 months ago. So by that definition of alpha, short-term models detract value. It's not it's not the exposure that I would want. And and I think and I think I think people have conflated risk management with um if you're going to introduce something into your into your portfolio and allocate a lot of risk to something with a zero sharp ratio, no thanks. Not for me. >> I don't know if you remember, Andrew, did you manage to keep because obviously you do things completely differently to an underlying manager. Did you manage to keep a fairly static allocation to goal last year? >> No, it bounced it bounced around. You know, when we think about the variation between us and the the hedge funds, um, you know, there are kind of four drivers of variation and we t we tended to get all right, all of them right last year. You know, in 2023, they all went against us and we underperformed by 500 basis points. It's the only it can happen, but it's it's, you know, it's the only time it's ever happened to us. We outperformed a lot in 2024 and 2025. Um, Sloan has helped us last year, right? And and if you look at our performance um you know so one is our performance around liberation day was much better than the index and it was better for two things is one I think your position 297 when you're VA is spiking and you're d-risking after liberation day I think you are making somebody's P&L in that local market I think you are the amateur outsiders who somebody has pressed a button to sell it and and you're not executing at at you know there the liquidity dries up in that market because they can see you coming. That's why you have all these things on zero hedge about what CTAs are doing. Now translate that into a market where you've built your career for the past 25 years trading that market every single day. Um Charlie Charlie Maggar actually from uh uh who runs Altus which is the subadvisor to simplified CTA hedge fund used to run the metals desk at Goldman and he's talked a lot about this that when you have that kind of local knowledge and you have systematic traders coming into the market it's it's you know that's your P&L right there. So, so, so see, so I I think this diversification into a lot of excess positions, you know, non increasingly non-core positions, I think it hurt people after liberation day. It exacerbated the draw downs. I think that's a market structure problem that that you know, when you're building these models, you have to make certain assumptions about implementation costs and I don't think most people factor in um uh getting taken advantage of by local traders. Um and and then the second was we still had some risk on. we were slow to derisk and and balanced when Trump Trump changed his mind. So, so that kind of blows up the idea that actually having and now I mean in in in Tom's data interestingly uh really short-term models were fine during that you know they actually they they actually preserved capital much better than longerterm guys um uh during that initial period. It was actually later when when uh when they started to get get get chopped up. But again, so look, I think of as an allocator and I think I think you know back to the point that you and Tom have made that investor preferences are often to live in paralyzing fear about what a bad lipsaw looks like and as you say whether there's a bad Friday turns into a horrible Monday, which is what happened with SVB, right? You know, and and so so it can happen. I just don't think you're paid for as an allocator. you lose too much. Like it's it's like saying, "Well, let's do a long-term trend model and then and then buy out of the money puts on equities because that's what we're afraid of." Fine. You're just not going to have a business after 5 years. >> We got a few different topics mainly from you, Andrew. So, I'm going to kind of um defer to you uh which one you'd like to uh to bring up. We talked about the gold and the silver. We tried to get into kind of a little bit more the nitty-gritty about how uh managers probably uh were different and how they handled uh this. Where do you where would you like to go next? >> Well, since I'm on a rant about about product design, [laughter] how let's talk about the liquid alternative space. Okay. So, so the broader liquid alternative space, which means, you know, hedge fund strategy since we're talking and we're talking about Dan's article. Um uh so hedge fund strategies in mutual funds and ETFs and now increasing sorry mutual funds and and usage funds and increasingly in ETFs it has been an astonishingly bad category like the ratio between intelligent people and serious firms who've launched products relative to this the the total utter lack of success from an investor perspective is is pretty astonishing. You're talking about hundreds of products that have been launched. Each one when they get launched is somebody sitting there saying, you know, we've got some great way of doing equity long short or market neutral or or or this or that. The returns over 15 years according to Wilshire's data is between two and 3%. And the fee structures on average is about 200 basis points in a in a period of time when equity markets have gone up 14%. Uh a year over that period of time. So this is worse than throwing darts, right? I mean, if this was a sports team, you would be asking, "Are you throwing the game on purpose? It's horrendous." And and I think I had this sort of epiphany last year as I was thinking about it. Um because we've only done a very very small number of products over time because and we and we because we've always had a view that like like for us, if we launch a bad product, something that doesn't work, it's our reputation. It it it's a huge percentage of our time gets allocated to it. In fact, we ended up shutting products that we didn't we didn't think were scalable, even though they did fine from a performance perspective. But a typical firm has a huge distribution infrastructure to support and they have no view on which is the best product that they're going to launch. There's no one who approaches this from an investment perspective. what would I want to own over the next five years and how am I going to get that in the most efficient way actually with with actually one exception which SEI hired us 10 years ago with that mandate to help them build a usage fund where they basically said can you find a way to construct a a a a an absolute return product with a beta point2 cash plus 5 gross and you know all- in expense ratio less than 100 basis points and no asset liability mismatch um and and you know you figure out how to kind of kind of build it. But I think I think the problem on the product development side is that most products that are developed in the space are developed by sales people who think they can sell it over the next year or two. It's a hot area and they're going to launch something that they where they think there might be incremental demand. And and I compare that to the hedge fund industry if I looked at Dan's article is that generally when hedge funds launch new products because there's a great investment opportunity. You know, they're going to buy real estate in Greenland something else like >> don't do that. [laughter] denominated in Bitcoin like I mean you know but they they they think there's something real there and they're going to put their own money behind it and they want to do it in it's completely backwards in the liquid alts world and that the guys who are building the products are the equivalent of the salesman on the showroom floor you know like designing a a car for you because he thinks you'll buy it and if it's a lousy car in three years it's not his issue um and so I it kind of dubtales with this thing about should CTA managers be making changes to their portfolio models to maximize their risk adjusted returns over the next 5 years things that they have high conviction in or should they be responding to fears about clients about that you know that that that once a year whipsaw that everyone runs into. I mean, I have my my I have I have some thoughts, but I want to I want to hear Tom first. But, by the way, I will I will say um I I have noticed uh on your LinkedIn post, Andrew, that you are you're certainly not shy of calling out some of your uh competitors. Let's put it that way. But I'm I'm going to defer >> someone asked you for God's sakes. >> I I'm going to defer to Tom first. >> Well, we live in a world where Simpsons episodes seem to have predicted most of modern life. And Andrew, I think uh I think there is a Simpsons episode where Homer designs a car from the showroom which then bankrupts the company. So I think your analogy is quite interesting and quite correct. The definitely seems to be some sort of disconnect. My worry in the liquid alts data is and it was something that I came across yesterday in a discussion was the classification is is the key thing and are we talking about real hedge funds in that data or are we talking about quasi alternatives that's that live in this uh semi-alternative world where it's kind of multi-asset but being described because it's a bit of a hot topic or sexy as multistrass or macro when actually it's just a kind of a GTA kind of tactical asset allocation across multiple different asset classes. The conversation I had yesterday was with someone who was interested in quant multistrap us funds and was telling me that there was a universe of a hundred of these funds and I struggled to name even even two. Um so I think there's a disconnect in what liquid alternatives is. Um, and what may be represented there isn't necessarily hedge fund strategies all all the time. But I think you're definitely right. There's there's definitely a mismatch or a misalignment between what hedge funds are creating as product um, and what an investor can satisfy their investment committee with. It goes back to what we were talking about earlier about, you know, has the hedge fund industry improved? you're always going to get this sort of different areas within the hedge fund industry where you've got strategies that become scalable that form part of a larger longer term tactical asset allocation that you want to have as a core holding like a CTA and then pure alpha where you're going to have strategies that come in and out of vogue um maybe it's multistrat at the moment huge amount of interest in commodity hedge funds at the moment these were fun these you know commodities was was nowhere 5 to 10 years ago. Um, but now suddenly it's very very interesting. So there seems to be this sort of split in two within the hedge fund industry of as I sort of said this sort of niche alphas and things that form part of a larger tactical assass allocation which obviously are going to then have costs come down and they're going to be periods when they underperform. Um, but you got to remember we're living through an unbelievable equity bull cycle which shows no sign of of of abating. Oh, okay. I mean I mean to to address your point. So on the data side, the you can look at the data in a lot of different ways. It sucks. Okay. I mean, the performance across the board is terrible. And and this is one of those areas where they ended up alienating a lot a lot of people because people make money um on on products that scale up to a couple billion dollars and then they've got to, you know, get you you have five products, one of them has a couple good years of returns. You send an army of sales people out to sell it. It scales up to three billion and then it just kind of whittleles down over time and and clients end up end up often not making money. Um uh so I mean look you can look at the multistrand um the multi-manager uh mutual fund and ETF so mutual fund and uh and usage category like even Blackstone gave up on that you know I mean Newberg Burman shut down their fault like it was a failed business model that is um now there some funds in it like Blackstone's BBX which has done a bit better but again that's more of kind of a a quant multi-stat product. I mean it was interesting. I mean I was at um I went to a speak at EQ derivatives um a couple of weeks ago was the whole QIS versus premium space and and one of the observations that I had about it is is that people really don't talk much about returners. They talk about modeling and research and and you know and data and innovations and all these other things. And I kept asking these questions like what's the realized sharp ratio of the strategy for over what period of time and what do you think it's going to be be going forward and why? But going back to the point about that is a different example on the product development side where products are created there because there's an audience that wants to hear you know wants a pitch around engineering. A a guy who I know is quite serious uh quite a serious allocator. He said look if if I had to rank the single most successful allocator to the CTA space over the past 10 years it's you. It's DBI. but and and not by investing in funds and not by picking managers but by by saying what's the signal here what is it we're really trying to get and how do we do that as efficiently as possible and I look I and and so I think the challenge is for or you know the the the test for people on the allocation side is to get very very clear about what you're expecting a product to do and how you're expecting to achieve to achieve it and to understand how to evaluate that and and and the realistic how realistic it is for them to achieve those goals. And so, back to Neil's point, I often call out people where I think they don't have a strong view as to whether this is a good idea or not, but they sure but they sure have a good idea that it's good for them to launch a new product and I just I just think it's bad for investors. So, you know, obviously thing I feel strongly about. >> No, I mean, this this is a great thing about this. We can have these uh pretty frank discussions. I mean I I think we could probably say with with uh most firms when you when you launch a product, you know, a certain narrative goes with it. I certainly remember your narrative, Andrew, when when you launched your product, right? Um focused on kind of the costsaving in in order to get exposure to CTA returns. But when I look at it, if I'm being very uh frank about it, I I look at your product actually the more I look at it, the more I look at it differently that it's actually not about the cost savings. Um because I feel at least that the tracking error to the index that it's trying to mirror is too large for that. So I see it more as an alternative data strategy where you just use a different data set input and and it it has worked really well uh in that sense. Um but of course you know even five or 10 years worth of data we we don't know what the next 10 or 20 years is going to be like and there may and I and I completely agree with you by the way that there is a lot of products that really shouldn't be launched and it's uh and it's not good for investors to come out there right um but I also you know from having seen this space from the inside for quite a few decades some of these things would just go in and out of favor and Even if you have 5 years of underperformance doesn't mean the next 5 years, the next 10 years won't you know you're going to be the highest performer. It's really hard to tell. >> But I mean thing things that I try to highlight are when it's predictable on the front end, right? So standard life GAR. Okay. I I I learned about standard life in 2015 for the first time. They were out telling everybody that a uh largely a long only but also with derivatives built into it multi-asset portfolio could generate could could deliver a a beta of 0.2 to equities and cash plus 5. Okay, that's a top quartortile maybe a top decile hedge fund portfolio over time. Okay, it's not realistic. Okay, it was never realistic. It was we have we happened to have done that because we flipped heads or or and but again it went to $90 billion this thing. It was bigger than Bridgewater at its peak. And so I talked about it at the time and I said you're kidding yourself if you're going to do a beta like once you start talking about a beta point. too. Unless you start bringing in things that are quite interesting like CTAs and CTAs before fees um then or you know before or reducing your trading costs unless you can bring in something like that getting once you the reduction to beta.2 is also going to kill your return profile um the same thing with a multi-manager funds. I wrote a paper in 2013 basically saying a mutual fund that tries to pick six underlying hedge fund managers and hires them in managed accounts is not going to achieve the return objectives that people were talking about at the time. Um uh you know I said the same thing about risk premia in 2014. G10 currency carry does not have a long-term sharp ratio 1.2. I'm sorry that's that's a back test. Okay. And now I think people have realized the drop off between the ins the the the back tested numbers and and the live numbers is something like 75% or something. Um uh you know I mean equity long short as a as a category if you have a beta of 0.5 or point4 to equities it it's not going to the amount of stock selection alpha and other things you need to do to be able to overcome even the cost of a mutual fund doing it is is you're likely not to generate much alpha. So I I think there is I think the the allocator community is getting smarter every year about a lot of these points. Um but I think that there is I think I think there is a there are things that work better on it and and and the structural problem that you have is most alternative liquid alternative products are sold not bought. um they the the alloc you know capital tends to go to the largest firms with the largest salespeople who already have people who are invested in multiple products under the same umbrella and it's it's an incremental addition to their portfolio. Um uh and the the typical allocator does not like again going back to this being a human exercise doesn't want to ask the kinds of questions that I'm known for asking. It's, you know, I I just did a post on somebody who launched a a CTA product with a team of people who, as far as I can tell, have never run a CTA program. Okay, so that is taking a flyer. They put there had basically $300 million of their client capital go into it. Now, if it works, if they get lucky, it's great. They have a $300 million product that's done really, really well. If it goes badly, it's their client issue and they won't talk about it and three years from now, maybe they'll shut it down or something like that. Like I so look I mean I'm it's I'm going to keep calling out things on this in this industry where I think that um people who are standing there waving a a fiduciary flag are not are not acting in the best interest of their clients. It's interesting you say do you think these products are sold and not bought? I was I was just looking at my screen trying to see if I can get the flow information on DBMF because I'd be interested to know how do you have do you have clients actively coming in and out or is it of your funds or is it more of a long you know very long-term allocation part of the portfolio >> um the the vast I I can't really talk about DBMF for for compliance reasons but I'll give you sort of generalizations and purposes. So I I I I wrote the business plan for ABF in 2016 and what it was based on were conversations with allocators who were looking for ways to get exposure to this space u but had had two issues three issues that they were dealing with. One was a line item constraint. So if I talk to Cambridge Associates or Mercer or somebody else they can populate an institutional portfolio with four funds and get some measure of diversification. The the reason AQR went to 14 billion in assets in their mutual fund was because a lot of allocators were basically saying it's AQR a it's AQR what can go wrong and B I want to do a 5% allocation space I guess it's the easiest thing is just to give it to AQR okay that was a catastrophically bad decision not because I mean AQR is an absolutely staggeringly incredible firm but they were taking idiosyncratic manager risk without understanding it So what what I thought was that there was a there would be demand for something that would allow a model allocator who's not the fund selector who who wants to be in the business of deciding whether it it's Neil's or you know or or or somebody else um and and how to assemble that portfolio but rather for the alle somebody overlooking the whole portfolio saying give me as consistent and straightforward exposure as you can to this area in a reasonably priced way. So 85 basis points for you know ETFs was about half of what the mutual funds were at the time and also and and ETFs were were were a a growing vehicle in terms of popularity. Um and so that was so again we built it on the basis of feedback from people who were the decision makers to how to make it better. So back to your point, um the vast majority of the capital are model allocators who there there is somebody there who is who has a series of models for high net worth clients um or mass affluent clients who is trying to it's usually not a single allocation but usually it's a core allocation or a within within within within within that bucket. Um so it's not actively very few of them uh very few allocators actively trade which they should I tell them if you're going to actively trade you you find something else to trade. It's not it's >> you know SG has a very very active and a very diverse and comprehensive QIS business. Um and I feel that the way those products are used and the way those products are approached by clients is is fund is probably more in line with how you describe your client journey about it's a client engaging and trying to get exposure to a specific asset class or strategy or or theme. So there seems to be very sort of thematic use of these QIS and I was I was actually really surprised to hear that often we have global macro hedge funds who want to access some sort of curve steepener or some sort of thematic play for a finite period of time who will use the QIS as a um a much simpler implementation of a of a of a macro theme. No, I I'm a huge fan of QIS when you know what you're doing, right? When when you when you are trying to articulate a bet and you are outsourcing execution and financing and everything else to uh to to somebody who's in most cases is better situated to do it than you know if you're not two sigma or dehaw or something who who can do it themselves presently. Um, no, it's just it's it's rather I mean what I was referring to is back in 2013 was that the space was being marketed as having these liquid strategies that that you know as having strategies that were sharp ratios that were unrealistic. Um, and I and I think look even even in the US the the use of indices within ETFs and structure and and mutual funds and and and and usage funds. This is going to be it's going to be a hot bed of innovation not just for capital efficiency not for just for trading efficiency but also because it opens a different category of investors who is not going to buy a 150 or 160 basis point single manager mutual fund in what they do because they have you know lowcost ETF model portfolios that that that require things that are look and feel more betalike. Um so so I mean you know the product innovation is there. I just it's it's my my criticism is that there are there are a lot of landmines in the space that have been predictable and honest I've been talking about it for 15 years right like it's and and so um so I think uh I am hoping that as again you know in terms of the investors that I talk to they're really smart like I tell you I started talking about an AI story about an allocator who really knows what he's doing and his and his clients are much better off for it. Um uh and and the allocator base will continue to get more sophisticated the same way the QS allocators are much more sophisticated than than than they were 12 or 13 years ago when I first talked to them about about the space. >> I don't know if this is completely hitting sort of this mark, but I'll venture it anyways. I mean, of course, we're going to have product innovation. I mean, you Andrew have been definitely part of that revolution and disrupting the space. And what I what I my concerns with things like QIS is that yes, we know it's there. We know it's huge. We have no transparency. We have no idea what the returns actually are. Uh compared to uh quote unquote, if they're trying to replicate trend following or replicate CTAs or whatever, but we don't really know how they're doing because they don't publish their returns or or anything like that. I guess my concern and and I will and I do know this sounds really old-fashioned when I say it right but it's great with innovation but I am still concerned that when you come at the problem when you come at something and say yeah we can we can give you that right we can give you the CTA returns or we can give you trend following you know low cost and we'll do it completely differently but when but often over time when you do things really differently why would you expect to be able to deliver the same outcome. Um, and maybe we have not seen it yet, right? Maybe the way markets have behaved, um, I noticed both Katie and and, uh, and Nick had some analysis where the environment for managers had been in a certain way the last 10 years, but it was completely opposite almost uh, in the first 10 years of of um, this millennium. And so all I'm just saying is I'm open to surprise both ways in a sense that yes, there's going to be periods where these innovative structures uh outperform um and do really well. And it it kind of looks like, oh, we've solved it. There's another easy way um to uh to do trend following without you having to do all the nitty-gritty stuff that that we do and have done in the last 50 years. But hey, at some point maybe we realize that okay, it works but it doesn't work all the time. And that's just my expectation to this space. Um but I do agree that um firms should not knowingly move into this space uh without uh the right experience and and just if they can put investors into products that that uh you know are are not um you know as they build as they should. >> Can I can I come? So, so one of the the >> um when I first looked at trend following models um back in and these were the bank trend following models and and it's it's there are it is easier to get the information now that it used to be um when I first looked at the space um I was asking questions that other people were asking which was okay when did you actually launch this index right if you if you launched the index three weeks ago then have you launched other indices that look like this how did those do right So these were the d the these are normal due diligence questions. U I mean the fascinating thing about it was that I think a lot of allocators just sort of suspended belief and decided not to ask those questions because they were under so much pressure to find liquid investable ways of getting things that had had low correlations to equities but that's that's that's a different story. Um the my my issue also was calling it a risk premia, right? So labeling trend a risk premia like as Tom knows their trend indicator can look very different than the stock CTA index can look very different than the soen CTA trend index can. And and so risk premium implies that if the three of us design it, it's going to look the same. like maybe it's not the S&P 500 but it's a little it's going to be within kind of and and I think that's been a that's been a narrative I mean you know the narrative history behind that was after the quants almost blew up in 2007 and before that they were saying you know basically we're quantitative long short order based lock boxes and we're going to generate alpha from scratch and and it was like oh my god this is almost long-term capital you know second time and so you know with starting with AQR others the narrative on the space shifted to no no we're just harvesting risk premia that have been around for 70 years and these are permanent features of the market and and so you know black rockck and aqr and others who jumped into this space talked about this as it's not risky these are just permanent features of the market and we're just going to help you to access it in an efficient way that I think was wrong so when I wrote about the trend and I I wrote a paper on on the trend products it's it's we know that manager risk as we talk about is very very high in this space. You know the three of us design a model a long-term trend model we're you know we may have a correlation of point8 we can still be 20 points apart at the end of the year right the the um uh but it was the characterization of it as risk premia implied that xyz bank's solution would would would be the easy one-stop solution. Now the way sophisticated allocators have adapted to this is not only by going underneath the hood on all these products to a great degree. Um but also thinking about okay so this is your flavor you know this is another bank's flavor and this is another bank's flavor how as an investor how how is an allocator do I want to put these together into a package thereby becoming almost like an outsourced uh uh portfolio manager and and again I think that's a that's an enormous improvement relative to where where we were 12 or 15 years ago but um but then people can make their then make they can make calls and do we think the team here who has 37 other quant projects that they're working on. Do we think these are the people that we really want to invest in to to you know to be able to build this particular product or do we want specialized expertise? >> Yeah, I mean with all models whether it's GTA models, replication models or whatever I mean there is a model risk somewhere uh or an execution risk or whatever that might be but but uh yeah this was great. Um we certainly got around today. Uh Tom, any and Andrew, any final thoughts before we uh wrap up? >> I hope this is the trendiest year we've ever seen. >> So do I. [laughter] What about you, Tom? >> Well, yeah, it's it's something that seems to happen here. We touched on the the global kind of conferences and uh it's every year we seem to enter the first half of the year seems to go off with a bang and you know, I agree with Andrew, we want those trends to persist and we want to have good volatility but not bad volatility. Yeah, I mean I think we we didn't even touch that much on it, but we had written it down that we would talk a little bit more about global macro and all of that stuff, but I think we can all agree that there are a lot of things going on in the world right now. So if you are um you know if you are engaged with strategies that essentially not trying to predict uh too much about where things going to go but do enjoy change uh as a as um as a you know um return driver then yeah maybe this could be a good year for us. Um anyways Tom I look forward to seeing you in Miami in a couple of weeks. Andrew I look forward to seeing you in a few weeks back virtually here. Um, now for those listening, um, if you want to show your appreciation, uh, for Tom and Andrew for all the work they put in in these, uh, conversations, go to your favorite podcast platform and leave a rating and review. It does really help us, and it's nice to show um, you know, some appreciation for all the co-hosts who uh, put a lot of time into producing these uh, episodes. Next week, Alan will take over hosting for a couple of weeks while I travel. Uh, he's going to be joined by Mark one week, he's going to be joined by Jim another week. Uh, so please make sure to send uh your questions to info@toptradersplot.com and I'll make sure that Alan gets a hold of them. From Andrew, Tom and me, thanks ever so much for listening. We look forward to being back with you next week. And in the meantime, as always, take care of yourself and take care of each other. Thanks for listening to Top [music] Traders Unplugged. If you feel you learned something of value from today's episode, the best way to stay updated is to go on over to iTunes and subscribe [music] to the show so that you'll be sure to get all the new episodes as they're released. We have some amazing [music] guests lined up for you. And to ensure our show continues to grow, please leave us an honest rating and review in iTunes. It only takes a minute and it's the best way to [music] show us you love the podcast. We'll see you next time on Top Traders Unplugged.