October Market Recap: Missing Data, Strong Equities, and more | Systematic Investor | Ep.374
Summary
Market Outlook: The guest noted trends have reasserted in Q3–Q4, with equities strong, currencies showing a weak-dollar pivot, energies choppy, and fixed income remaining challenging.
Precious Metals: She highlighted gold, silver, platinum, and palladium as standout performers and effective hedges amid uncertainty, citing robust demand and safe-haven dynamics.
Trend Following: Emphasized its diversification and crisis-alpha benefits, performing best in unstable inflation regimes and complementing equity-heavy portfolios.
Managed Futures: Positioned as a core diversifier that reduces drawdowns and improves portfolio resilience, with ongoing research into benefits for target-retirement portfolios.
Alternative Investments: Anticipated growth from private wealth channels via ETFs and model portfolios, with education and access improvements driving broader adoption.
AI/Data Center Infrastructure: Massive data center buildout and power needs were cited (including Microsoft CEO commentary), flagging electricity inflation as a key risk.
Institutional Allocation Shift: Discussion of CalPERS’ potential total-portfolio approach could elevate non-correlated strategies like trend/managed futures within institutional mixes.
Short-Term vs Long-Term CTAs: Short-term strategies struggled with repeated event shocks, while longer-horizon trend systems benefitted from persistent moves and reduced noise.
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 [music] their product before you make investment decisions. Here's your host, veteran hedge fund manager Neil's Krup Larson. [music] Welcome or welcome back to this week's edition of the systematic investor series with Katie Kaminsky and I Neils Castro Larsson where each week we take the polls of the global market through the lens of a rules-based investor. Katie, it is absolutely wonderful to be back with you uh this week. How are you doing? What's going on in Boston? >> Good. I mean it's, you know, we're ticking along here. I mean trends are working well again. So that's exciting. Um and I can't believe we're already so far into the year. I mean, this is amazing. So, time flies. >> I know. I know. Have you had any snow yet? I was uh close to Boston a couple of weeks ago and and I see now that in Montreal, for example, there is snow now. But uh what about you? >> We um missed some of that, but we did have sort of a super cold chill. And ironically, over Veterans Day and you know, the heat was off in our office and I was wearing my park, so I was like, "Oh my gosh, we're here. It's winter." Yeah. So, um, definitely getting ready for the cold here. >> Yeah, absolutely. We've got a, uh, a great lineup, as I always say. So, some, uh, you know, important talking points, uh, no doubt. Um, but before we do that, um, I always ask you about what's been on your radar, and I know you said, well, I don't really have anything specific, but let me mention a few things. Um, and what has been on another person's radar that involves you is that my daughter actually met you in Boston. And she thought you are the coolest and most chill person and very inspiring. So, I just wanted to uh publicly uh acknowledge you for taking time out to uh to see her. >> No, that was awesome. So fun to get to meet your daughter. I've heard so much about her over the years and um she was visiting Boston, which is such a fun place to be when you're um you know, exchange student or whatever. So I mean I was very impressed with her organization and structure on her trip. So she must have inherited that from you Neils. >> Not sure about that but she is very organized. Okay. All right. So what's been on my radar? Um flying around uh uh you know and in the US last week. Uh of course the government shutdown was a little bit on my radar because everything was a bit delayed. Um, but one thing I thought of is despite whatever it was, 40 days of no government data, the markets didn't really seem to be too bothered about that. Um, so the question is, do we really need um economic data all the time to uh to be good investors? Katie, what do you think? >> Oh, that's a really good question. I mean, I think it's been kind of a nuisance in some sense because, you know, we're so used to the routine. Here's non-farm payrolls. Here's this. And, you know, I think people are a little out of sorts. I feel particularly bad for uh the people in the media who are just used to that routine that you know Friday's release and I think that must have been hard for them kind of thinking like how do we structure if we don't have any data >> as I hear you talk about it um it actually reminds me of something we're going to be talking about later because we're going to be talking about diversifying trends and one of those are this economic trend that AQR is doing and I'm kind of thinking wow economic trend no data That's not a great situation to be in. Not that the economic data changes that quickly, but still it kind of shows you a little bit of a weakness. Um, similar to if we did get if we didn't get any uh data from the exchanges uh for for 40 days that would be a little bit of a challenge. >> That's a good point. I mean, and let's start asking the question like what if the data gets, you know, manipulated too, right? I mean that's another thing we can think about is you know we know the head of data for was also fired right so I mean you got to start asking that question as well but I guess the point is you know there's official data and then there's also lots of other sources of data um so I think that that'll be interesting to discuss >> you know I think in our industry Katie we've always talked about that the only truth is the market price because that's where the market is caring and uh maybe that's a good reminder that that you know price data is really um pure and important um in in many ways. I'm sure there's maybe small commodity markets that can be manipulated but um anyways so that was one thing that was on my radar. The other thing that was on my radar is closer to you than it is to me because it's about what's going on on the west coast of the US because next week one of the largest um pension funds in the world I think Kalpers they're going to vote on adopting the total portfolio approach and I'm not an expert in that but my understanding is that if you adopt the total portfolio approach each individual investment kind of you you look at the value it adds to the portfolio as a whole. That's kind of the justification. And I'm thinking that alternative investments and specifically something like trend following which we know objectively, empirically, we know that that is uh you know non-correlated etc etc. You would think that that would move up the um the list so to speak of really valuable components in a portfolio like that. So, and I know this is completely off the cuff of course, but do you think that that these pension funds that are now adopting this that it will have an effect on say uh alternative investments uh percentage allocation in a portfolio, maybe even managed futures allocation in a portfolio? I definitely think so because I mean we've often talked about this this concept of locally optimal versus globally optimal and why you know a trend strategy in general is one of the few strategies that is so complimementaryary in the sense that you end up with total portfolio risk reduction and I think that is not always the case for a lot of other alternative strategies and I think you know we've seen this in the success of risk mitigation strategies and buckets where they've actually tried to create a bucket where you get that total portfolio effect but by creating the bucket they created a list where they could put that because I think the line item problem and sort of this subdivision of labor in the investment management creates this very siloed view from time to time where you know you're optimizing each of your buckets or each of the line items but maybe not able to see sort of the total portfolio view as easily. So I do think um you know philosophically that that's very aligned with how we think about things um in our space. >> Yeah. And it reminds me of a conversation we had with uh Elizabeth Burton who at the time were the head of uh pension fund in Hawaii. Now she's with Goldman Sachs and and she told us that uh they completely stopped using anything to do with buckets. I mean they just looked at things individually and so on and so forth. So uh very interesting indeed. Now the final thing that was on my radar has nothing to do with trend following or portfolio management. It was just an a a a little blog post that came out from a previous guest of ours uh Ed Yadini and um talking about the enormous demand for data centers right with all this AI going on. And you know I was stunned by the increase in he talked about the spending for building the data centers and also the Microsoft uh CEO came out saying that's actually where the shortage is not in getting the chips but actually getting the sensors to put the chips in. um and it had gone up the spending like 400% uh in 2 years which is crazy and then the power uh where uh you know US has by far the most data centers more than 4,100 and it uses about 183 terowatt hours of electricity uh last year but they're expecting that to more than double in the next four or five years and um I think now 26% of total electricity supply in Virginia is consumed by data centers. I mean, these are staggering amounts. And if we don't know where inflation might come from, I would say electricity prices is a good um guess. >> Oh, yeah, definitely. And I mean, there's a lot of other places as well. I mean, I was looking at numbers for US healthcare as well. There was some interesting stats on that. So, there's all these little different places where you're seeing that things have gone up substantially. insurance cost um etc. So I mean I think it's coming you know price increases may not come linearly and we know this with inflation but they do drift. So I think inflation is still a very interesting topic to think about especially over the next few years and I think was it the podcast last week you guys were talking about inflation as well and one of those great papers the um I think yo was talking about that too that >> yeah I think and was talking about it when I was traveling. Yeah. And um you know there what I think is interesting about is we did a very long study of inflation for trend falling and trend falling does really well in high inflation and rising inflation. So you know we might be the only people that might be slightly happy about that. So um because in general it's difficult. >> But talking about that because I do think that's relevant. My non uh detailed analytical view of that is that actually we don't care so much about the level of inflation but we care that it's not stable because when I look at the performance periods over time the worst period for CTAs has been this 2000 to 2019 where we had low but also stable inflation when we had um from 1992 until uh oh maybe was 82 to 20 it's like a long period 17 years. Um, so it must have been 82 to 2000 where we had relatively low inflation but it was not stable. >> And that actually when I look at at Don's track record that was the highest compounding period um so not the highest inflation level that was back in the uh '7s and early 80s but it was just an unstable inflation and I feel that's kind of the environment that I'm expecting. Not so much, you know, that we have 8 8% 10% inflation constantly, but actually just that we can't control it or central banks can't control it. >> That actually makes sense. I mean, because it's more the disruptive nature and sort of the trends that that creates. So, for example, electricity prices might be sort of a pocket where you see the inflation surging um and then you may see inflation dropping in other areas. And I think >> it's that sort of >> turbulence in the inflation sort of changes that probably causes more >> sort of is indicative of price trends because obviously inflation has to do with how much prices move right as well. So there's some uh relationship there as well. >> Yeah. And even in a relatively stable inflation environment we've had the last 18 months I mean bonds where you would think oh there must be a link to that has not been an easy place to operate in as we will talk about I'm sure. Um anyways, let's talk a little bit about trend following. Um October had a couple of days in in in in October. The first couple of days of October was actually a little bit soft and you think okay natural correction but that's really changed. Uh seeing a lot more managers now to be uh well aligned with these uh longerterm trends that have come back in play. Um you know obviously equities seem to be never stopping. Uh, and I was looking at something I picked up and I think this is from Deutsche Bank actually. They had a chart that shows the total equity fund flow in in percentage of assets and it compares this year week by week uh with uh the average or the mean uh or median uh from 2010 to 2024. And it's very interesting to see how much more inflows you've seen this year than the average from 2010 to 2024. So um no doubt that there is a lot of flow behind um the constant uh increase in equities which of course uh works very well with uh trend following as long as there's no politicians that are trying to upset that trend. Precious metals continues to do um really well. Softs doing okay but slightly different direction depending on which commodity you're looking at. and even currencies although not overall for the year has probably not been great but the last month or so starting to to pick up which leaves us as I mentioned before um with fixed income being the the big the big challenge >> yeah that's I mean you summarized it perfectly I think we've seen you know a consistent equity trend move that has been sort of surprising if you think how we felt earlier this year um we had been talking about this idea of you know is the risk really over stimulation at some point, you know, maybe inflation at some point. Um, obviously we've been a little bit at limbo in those narratives without official data coming out. But I think the trends that I'm seeing that have been hard are things like energies that have been back and forth. >> Um, and also fixed income has been a year where you're sort of the market wants cuts, especially for the US, but they're waiting for them. So those trends I've seen less risk in that asset class. Um so that could be something interesting next year perhaps. Currencies um you have seen a little pivot in the sort of weak dollar theme which is >> kind of interesting to me as well. You know is the dollar kind of moving on potential slowdown and rate cuts that people don't expect or is it >> you know kind of has it bottomed out because it moved so far this year. So I think that's an interesting asset class that's a little different right now. Um and of course the best trades for trend this year precious metals right so gold uh silver platinum palladium any of those markets really sort of surging on you know what I think it looks a little bit like a hedge right so >> you know you want the equities but if you're worried you buy the safe asset the dollar doesn't look good so you you know you go for gold and you hold the gold it could also be you know central banks and just people general demand for gold So, um it's definitely an interesting year for precious metals. >> Yeah. No, it is. And I was just looking at it this morning and uh I mean even just we're we're we're not that far into the month of November. Um but um silver is up, you know, 12%. Silver is up 73% this year. Platinum 68% and gold 59%. Um, so hopefully that's a good indication for people to to uh to realize how important it is to trade commodities and not just be stuck with uh the usual suspects in a traditional portfolio. Well, at the same time, orange juice is down 65%. So, there's a little little bit on both sides uh for those who do trade orange juice. Um, but uh but there we are. Now, this environment is also being reflected in my own trend barometer. We're up at 57. That's kind of I don't remember everything that's been going on this year, but it is certainly one of the highest levels I've seen. So, very much in line with recent performance. Um, beta 50 index as of Tuesday the 11th uh closer business is up 93 basis points for the month up now for the year 2.59% which is great. Uh and by the way, people often I think talk down trend following CTA performance, but in the B top 50 in the last five years, it's up four of those five years including this year would be up six years uh or sorry, five of the last six years and the only down year uh was in 2023 where it lost 1.85%. I mean that's not too shabby frankly. Anyways, stockg gen CT index uh up 1.19% for the uh month and uh down only 35 basis points for the year. Stock gen trend index up 1.77% for the month and now positive tip territory up 0.86% for the year. The only real lagard I find which is surprising to me is the short-term traders index down 53 basis points down 4.8% on a volatility adjusted basis. That's a high number actually. And given the it's a year where we've had these short-term corrections uh based on statements and trade policy and all of that, you would kind of logically think, well, that must be great for shortterm because they can react to it. But that's not been the case. I would agree cuz it's interesting is that we would have expected short-term to do better this year as well and we've seen similar results. Um, I think it just has to do the amount of sort of the frequency, right? So, there's been a lot of like big event risk and and a lot of moving around earlier this year that was difficult for short-term. Um, interestingly enough, it seems that having sort of ironically like just a very long-term view this year in some asset classes would have been very helpful. So for example, equities if you had just kind of ignored the noise earlier this year that would have been helpful. Um you know and you may have seen sort of a mismatch in frequency for them. So for example they're kind of seeing a new trend that's moving they're get or you know following new short-term opportunity and then sort of you get a a swap back that you know is at the wrong frequency. And I think that's definitely been the case this year as you've been sort of particularly the first part of the year. Um, right now shorter term movements could also be a little challenging because we've had occasionally little pullbacks, but for a longer term trend falling system, pretty normal. Um, but you know, you've seen pretty big moves in things like gold over a 2 or three day horizon. It's interesting. We'll have to kind of see. It was just definitely a different kind of year. So, I guess short-term wasn't the savior in that scenario. >> Yeah. No, very true. Now, I must be out of my normal routine since I've had two weeks off from doing podcast because I completely forgot to look at the traditional uh markets that are normally also quote, although I can see on my screen here the S&P 500 uh is up about almost 3% for the month and up 16.25% [music] for the year. So, anyways, there we are. >> [music] >> Let's jump to a question before which I normally put in here at this part of the section before we um [music] move on. It's from Justin uh who lives in the US. Uh he he's he's asking about what's the importance in term the importance in terms of performance metric. But you when you replied back to me about it, you actually framed it quite nicely because it's about not just evaluating performance metrics but also kind of the confidence and how robust it is. And I think what Justin was trying to look for is just you know what are the key metrics that you would look for, why those maybe um and and so I would love to hear your thoughts about that. Um >> well this is a good question because um he was kind of asking about how do you determine the best metrics to determine which is the best trading strategy and I think for me you know always the most important thing to think about is sort of outof sample performance and and especially when you think about academic research that's you know kind of very important um in the sense that you know you might have selected a set of parameters and a configuration that works very well in your back test. But it's really sort of the robustness of those parameter choices that matter to me the most in the sense that you know if you choose these five parameters if you per permute them at all. You know how robust are those performance statistics relative to those selection choices are probably my number one criteria. And the reason for this is it's so easy to overfit the past and to find a strategy that worked like in in history. But what's hard is we live in forward in life. And so for me it's about looking at sort of stab stability across your selection criteria. Um and then of course we always look at many of the more classic approaches. You want to look at downside capture, upside capture, you want to look at you know sharp races. I want to look at many different things, but you don't want those things to be very susceptible to some of the decisions you made. And I think that's for me the most important thing about what we do. Um is combining methods that are sort of robust to the selection choices. Um that's that's how I started. >> Let me ask you let me ask you just a few follow-up questions and we'll move on to to the other topics. I think there's a school of thought whereby parameters are changed very rarely. Let's put it that way. There are another school of thought where they change dynamically over time. And there is one school of thought that uses uh more recent data. There's another school of thought that uses the most data you can get to select. There's one school of thought that may have different parameters per market or sector. And there's another school of thought saying, "Well, no, you should trade the same parameters on all markets." Where do you where do you sit in that? >> This is a really good philosophical question and I actually think that you should do a little bit of most of those things. Um, and so let me explain. So you know if you look at a classic trend system like a moving average crossover system that is somewhat unbiased in the sense that you know once you pick your time horizons and how you estimate it you kind of have a predictable response to market moves. >> Now is this particular approach >> going to work the best all the time? Not necessarily. for example, one asset class may move quicker or slower or be more nonlinear. >> Um, so my general view is that you can use more advanced techniques to try and shift how you adjust those parameters over time, things like machine learning, other methods which can sort of cater to some degree um, and add some value over a more classic approach. Now the problem is and you kind of highlighted it the past is not always the same as you know the past and what's happening now things can shift and I mean this is something we've been talking a lot about >> as well this idea that you know >> in a world where bonds or the feds you know has many dissents and all these things going on it may be that bonds don't behave exactly the same and that's where that school of thumb you know of thought comes that says like, well, we should look at recent um events. And so, I think there's a grain of truth in all of those methods, but you probably don't want to stick to just one because philosophically you're kind of, you know, banking too much on one particular view of the world. So, I think the best approach is really to kind of combine different methods with different assumptions and sort of aggregate those over time. And that should be the most diversified in terms of school of thought. And I think that that's how I think about it. No, >> I think that makes uh perfect sense. It kind of ties into something that I thought was very interesting that Alan and Y spoke about last week, and that is this idea based on this paper that's a few years old, but I'd not come across it before of market elasticity and depending on their general reaction pattern. I mean, some markets react more quickly than other markets. Perhaps that is something to take into account when creating parameters. But of course, you don't want to overoptimize at the same time and and make it too uh complicated. But anyways, if people haven't listened to that episode, I would definitely recommend to go back and and listen to that as well as actually the one with Nick and Moritz about the whole QIS space which was very uh interesting because that is one thing I would love uh and I think they touched on it and that is why don't Nick and his friends report their performance anywhere? Why is it completely opaque to the world how these strategies are are because they are so big in size? I mean, they're bigger probably than the official CTA AUM. Um, so why would that not be a good idea to uh have some regulation or whatever it is to say, well, if you're running these strategies, whether you're a CTA or whether you sit inside an investment bank, that needs to be disclosed. Let's talk about some, you know, some of the things that uh we had planned. um trends so far this year. Talk to me a little bit about that. The styles, the chunky ETF uh flow um slow slow moving uh replicators and all of that good stuff that you know much more about than I do. >> Well, it's interesting because I think you know what we've seen in a pure Trenton space is Q1 and Q2 were very challenging. Q3 and Q4 have been much better. So, you know, to me it feels almost philosophically like, you know, we had a huge shock to the markets um around liberation day. And at that point there was a a lot of uncertainty in terms of price discovery and movements in markets that were you know very at sometimes erratic and headlines driven. So in that sense you didn't really have you know we had a big shock in terms of everything is changing but if you think about it from a fundamental macro perspective the world hadn't changed yet. So the market was really trying to assess that and as we've started to see things calm down of course macro change is occurring and you're starting to see sort of more consistent price trends in the market um as some of that headline risk has toned down. Another thing which was very interesting to me that I'm looking at right now is if you look at sort of the typical uh typical sort of what there are multiple names for this. So I remember early in my career we called it coordinated market sell-offs. Then you know a few years ago a colleague of mine and I wrote this paper on turbulence metrics. So like turbulent days so like high magnitude surprise days um where you sort of have a huge move in terms of how CTAs react. And um if you look at those, we showed that those are very negative for CTAs and they usually the day after or the next day they tend to like recover from these type of shocks. What was interesting with liberation day is that for the first time in history within the time series I've looked at for turbulence metrics or magnitude surprise, liberation day was actually three days in a row. >> Wow. Um so that has never happened in the data that I have examined. Um looking at you know lots of years of data we there's a lot of these events right there's SVB there's Black Friday there's you know Brexit other things >> but you know a three day in a row um magnitude surprise and then the market was flat and then it went up. So I don't know what you would call that like a debut or something. I don't know because it's definitely not a V. Um, if you think about that from the perspective of a trend falling system, we often, you know, are able to sort of waver through a one-day shock, >> right? >> A one-day shock relative to all the data that we're investigating has sort of shock impact, but not maybe sort of massive impact. a three-day consistent move is is pretty large, right? And so, as a trend follower, it's really the question of balancing between the strength of the trend and sort of the volatility as well. So, if you have that type of move, um it's not in the back test, right? There's nothing like this that's happened before. Um and so I think it's very tricky to imagine replicating that again, right? So like 3 days of negative shock complete even co was nothing like this, right? Um because you'd have a shock up and then you have a shock back and then you know something a little bit more in those lines. This was much more of a U. Um, and so I think that was interesting to me because it represents, you know, it tells me how big of a shock this was to the markets compared to some of the ones that we've experienced in the past. Um, and I think the market definitely was very challenging for trend strategies that are trying to measure the direction of the trend using data um, in that environment. >> So I have a question. I have to sorry to interrupt you here but otherwise I'll forget. Um, now that the data is in the back test, okay, I don't know if you've looked at that, but if you then ran a back test today versus a back test prior to liberation day, how would the parameters I don't think the models would change, but how do you think the parameters would be different or would they even be different? Because it's still only three days out of maybe a back test running 15 years. So kind of you just have to live with it or you know >> I I don't think that you know you don't you don't want to you don't change based on you know recent events and things like this but it does you know it does like sort of get you to start questioning like what these magnitude surprises mean right >> and sort of you know and and it also begs the question of like examining how you measure your volatility and how it reacts to a much more sustained shock. >> Um and also sort of how signals react to sustain sustained shock is definitely something I'm thinking about. Um, obviously it's very hard to do those analysis because there's no statistical significance. Um, they're one-off events, but it is something to note that this was a very unique >> uh price trajectory trend movement that we haven't seen in the data for CTAs. um doesn't mean it's going to happen again per se, but it does you know get you to do some thought about volatility estimation signals and how they adjust to that type of movement. >> I completely agree with that actually. Um and also speaking to our researchers um I think they learned something uh during that period. Um so I would agree with that. um what changes um that may or may not be done is different question but to say that they learn something I think is completely fair and and and and more importantly as you say actually you should think about things when when this happens because it had not really happened before. So definitely um actually a colleague of mine um Mike sent to me yesterday an article uh from CityWire. Um it was an article about um AQR specifically um and um and it talked about how they had kind of coped quite well this year. Um but thanks to doing things a little bit differently which we already touch uh upon namely not just using price data for their trend models. Now when we had uh AQR on the podcast a couple of years ago Alan and I uh they already did this economic trend for 50% of their uh for for one specific program. Um, so if people want to listen a little bit more detail about what they do, um, that might be an episode that they can find in the top traders on PL series, uh, on the website. But, um, I thought it was very interesting. And of course, now that we've come out of a period of time with no economic data. We'll see how that actually worked out. But um anyways, did you have a chance to just sort of skim through the uh the article and what what are your thoughts about um this kind of I guess we could call it either alternative data trend following or diversifying trend following or bit of both? >> I mean I think it's very interesting. I mean they highlight how they use um single lane equities and then they use 50% economic trend 50% price trend. Um and generally economic trend or macro even as well um has done pretty well this year and what [clears throat] that makes a lot of sense to me because you know if you look at what's gone on I I explained there was a lot of headline risk that was causing a lot of chaos in price movements. Um whereas if you stepped back and perhaps followed the fundamentals and looked at sort of what the overall themes of the economy were, you know, you might have sifted through some of that noise. So that to me is very intuitive that that worked well. Um I think one of the things I'm still sort of navigating myself because I'm also very interested in economic trend is it's a little bit more of an art to understand exactly what what you're using. So it's more pretty much macro with a different name, right? Um and then what we need to do next is sort of distill what type of macro strategies actually connect to trend and how much trend capture they really have. Um because I think the challenge for any investor is going to be if they're looking to capture trend or the features of trend. No doubt there are scenarios where macroeconomic indicators or data can predate or predis you know can give an indication of a future trend but there's also you know the other direction where they actually predict a trend that doesn't actually occur. Um, and so I'd say it's interesting and it's something I'm actually thinking about. I'm hoping write a little bit about it at some point. Um, but the concept of, you know, trend capture, how much do economic trend models capture of price trends? Um, and how do they complement and what part of that trend capture um, is connected with sort of, you know, price trends themselves. And I think you know if you look at macro and we have a paper coming that we've been working on on macro trading it has a very high correlation with trend falling at least a lot of macro managers and this is you know a question of what part of the trend are they part of because the truth is we're all trying to capture global trends across asset classes and there are different methods to get in and out andor participate in those trends and I think for me economic trend is one way. The challenge of course is the art of how you implement it and what data you use. Um but there's definitely some connections between economic trend and price trend. >> Couple of thoughts. I'd love to hear your your your thinking on this. So when I read the article and I don't remember sort of word by word but one of the ways that they were writing it and I don't know if this was the journalist or whether this was something that came from from AQR uh but it was this thing I of you know they were trying to diversify kind of the responsiveness uh meaning that the data uh has you know investors have different um time lag in terms of how they respond that's how trends form and by using economic data they are trying to maybe capture some things that had not played out in the price data yet, for example. Okay. So, um this concept is kind of interesting to me because one of the things at least in in my career um that we've kind of tried to stay away from and that we say about trend following is that we don't try to predict. And one thing that we also have to acknowledge which is um uh you could some people would say it's a weakness is we cannot anticipate either because we need the data and we need some time to to adjust. So in a sense um when I hear this it feels a little bit predictive. It feels a little bit oh maybe this is a way to get the in you know anticipation into your trend model. Now, love to hear your thought about that. But what it also reminds me is an interview I did very early on in my podcasting career, quote unquote, with a systematic global macro manager out of Sweden, IPM. >> Mhm. They had fantastic track record for many years and they kind of raised all the assets in in in the space and there was not much left for for the rest of us until it stopped working >> and they didn't blow up but they didn't make money and they were in a draw down when they decided to close the business. So, and maybe that's just how it works that you like the trend. You have your periods where it works, you have your periods where it doesn't work and maybe that's why it's a good idea to combine. I don't know. But all I'm just saying is that sometimes when I read these things and I'm not suggesting that AQR is doing the same as IPM is doing or whatever, nothing like that. I'm just saying that I think all approaches will have their time in the sunshine and their time when things don't work so well. Um, but right now it's more about the time in the sunshine when I read about these things because recent performance has been certainly helped as they say in the article by this. So that's kind of my two. >> Yeah. It's it's interesting you bring this up because I I do think one of the challenges with trend falling is and I was just doing a presentation this week on crisis alpha that you know it was an academic presentation but I was looking at one of the old graphs that I love to plot where you look at how does the SG trend perform in different quintiles like the worst quintile and the best and you know over the history it's that the worst case scenario that convexity that you know those opportunities that occur in a time of stressful market environments which do provide a lot of uh complimentary uh benefits of trend falling and that's exactly the idea that you know in times of stress you know often times the fundamentals become irrelevant right and so it's really about the world changing and prices are changing >> and so trend is really very good in that type of environment if it's sustained We're actually this year not in that environment. You already mentioned it yourself. The S&P 500 is up 16%. And you know, macro data and information has suggested generally positive themes. And if you followed that information, you ignored some of the price noise around the headline risk and you know it was a good strategy. Um so I say that each of these strategies and approaches have their days of sunshine and days of of rain and I think you know I do agree that you know depending on the investor combining them can make sense um if depends on their mandate right if we have certain clients that their main mandate is risk mitigation and they like trend because they know when it's really bad it tends to do very well um and they also understand that in a year when their S&P is up 16, it might do okay or not, you know, and and that's kind of >> a question of construction and investor preferences to me. So, I think all these strategies are viable in different [music] ways and different times. [music] Okay, we will end up on a a a positive note. Um [music] um but before we get to that um you you wrote a few comments to me about um and I don't know if you feel we've already discussed it. Oh yeah, maybe we did the three days in a row topic uh about the liberation day. So let's move on to the next topic which I thought was very interesting. Um something that I don't even know where I got the uh link to the uh to the article. It was an article um or blog post from Capgeemini and it was titled the rise of alternative investments by Juya Jin Jan I think it was um and it talks about how alternative investments are really reshaping uh the wealth management industry and uh one of the I'd love to hear your more detailed uh thoughts about this. But one of the headlines or sub headlines uh in the article was something like how uh some of these consultants uh or financial firms were essentially thinking of alternatives becoming the core, not the alternative in a portfolio. And that this could lead to a rise according to them from the current $4 trillion or so invested. um all the way to about $12 trillion by 2034, which is not that far away. And then other groups were estimating alternatives would hit 30 trillion globally by 2030. I think that was Everest group that had that prediction. So I mean these are not small changes. I mean these are like complete game changers. if this is true uh or even comes close to being true. It also talks about how institutions and different types of investors have really approached alternative differently. Some people you know as 3% allocation is enough but once you move into the kind of high net worth individual space um and and private investors you know 20 25% seem to have been much more uh the norm. family offices actually some of the the ones that use alternatives the most 30 to 50% allocation has been mentioned and the the the one thing that actually uh I thought about and this is something I've been thinking about for like the last 20 years and this is this thing about fiduciary responsibility because I thought as a fiduciary your job was to pick the best investments for your portfolio and this is not necessarily a block or uh manufactures or or trend following. Um it could be other strategies, but it's very hard to objectively argue that it doesn't add value to a portfolio. I mean, there's never been a white paper written to suggest uh the opposite. So, I've always kind of thought, hm, how do the fiduciaries get away with having no allocation to trend or 1% allocation to trend? Um maybe this is also part of the change. Um I would love to hear your thoughts about this and also whether you already see signs of this uh in in your conversations in your um kind of the construction of your the types of investors you see the flows coming from. Uh would love to hear that. >> I mean I think the most interesting thing about this particular paper is not just like the flows to alternatives but it does focus a lot on private wealth. Um and I [clears throat] think of that as sort of if you look at the way especially when I speak with my friends in Europe like um the way that sort of investment management is bifurcated in the United States between institutional investing and sort of private wealth and you know retail investing. there has been a lot of limitations and barriers to sort of accessing very fragmented pools of capital and I think what's happening a I think there's a market opportunity because you know stocks and bonds for example with bonds being a little more challenging has made you know larger investment firms have to ask questions like can can we just make it there with just stocks and bonds we need to think about this more and we need to think about what these institutions are doing differently from us and how we can sort of import some of that wisdom and I think the interesting part I mean it's just exciting with AI and all these other things that can solve some you know can aggregate information more quickly for us sort of the development of model portfolios and solutions and more access points and this paper actually argued a little bit about that as well this idea of you know access to these things changing. Access is a function of both new products and new legislation. For example, the ETF market is a good example of that. Um, but it is sort of a slow evolution that seems to be speeding up after people, you know, have perhaps been a little bit concerned about the 6040, right? So I think for me um it just shows that there's a wide range of investors out there that are limited in their diversification compared to an institution. And I think that you know by aggregating these approaches that you can actually have access to a wider range of investment options and even the article mentioned some of the larger banks and investment firms kind of examining alternatives access for their clients and the private wealth and so I think it's a wave that's coming that keep you know is going to continue and so I agree with the article I think it's going to be interesting to see how that develops and sort sort of I think accessing these networks and working with them is going to be important. Um I think you and I have many times you've asked me questions about sort of like knowing your client, right? So that's going to be I mean I bring that up because that's important to you Neil and you and I talk about that a lot especially when we talk about ETFs and other things. So I think that the um there's going to be a lot of education necessary. There's going to be a lot of people that need to sort of understand and obviously larger investment firms are going to have to spend resources to cover, manage and sort of understand alternatives. Um we have been you know for a long time in the alternatives completion space. So like building portfolios of alternatives together. And I think that's something that we strongly believe and I believe I've talked about this many times with you is like interestingly enough it's like having some trend falling or managed futures of any type actually gets you farther than you would think. Um just because it's one of the few things that's actually different if you just own stocks and bonds. >> Yeah. Oh, I had completely forgotten about that little um pet peeve of mine where if you go if you just get all the flow through an ECF, you don't know who the underlying client is and how important it is in my opinion to uh to know your clients, especially in the year like this year where I think people got nervous uh after Q2 where people didn't really feel that comfortable uh in in in the trend space. But if you know your clients and you can actually reach out and talk to them um you can avoid a lot of uh unnecessary uh hardship on their side by by them making allocation decisions at the uh you know wrong time. So uh thanks for reminding me about that. Now let's as we always do let's look at it from a purely selfish perspective. If this is true, how do we as an industry, do you think how how should we position ourselves or what should we do different to try and capture some of this? And I know full well that this will be captured uh I'm sure both through managers like uh ourselves but also through uh replicators um for sure. Uh and um and obviously one doesn't mean that you shouldn't have the other and vice versa. Um but but what else can we do to be part of this potential, you know, tidal wave of assets that could flow into alternative investments because alternative investments, I think, also includes private equity and private credit. And to me, that's not really that alternative, right? That's really just um the same thing in a different um you know, clothing. But but the true alternatives like what we do, how do we how do we take advantage of this opportunity? >> Well, I think it's important. I mean, they talked about access points. So, I mean, clearly um creating products in different rappers like ETFs is one way you can sort of be active in these spaces, >> but also sort of maintaining relationships with key stakeholders in these spaces. For example, model portfolio researchers. So those are the people that's your client in some sense. >> Um and sort of getting to understand the private wealth network and sort of how you can support that and help them make um educated decisions about things like managed futures is sort of our next educational um journey in this space. I know we've you know clearly there's been a lot of focus on institutions in the past. The new wave is really probably private wealth and sort of and also sort of aggregators of that are thinking about model portfolios and model selection and and manager selection. >> Good stuff. All right, final topic which is not really a topic but I'm always curious about I know you mentioned you're thinking about or you already have started writing about sort of trend and global macro. um what else kind of interests you because I know you're someone who um not only produces a lot of uh papers during the year but um but you cover a lot of different topics within our industry. What what else after a year like this year that has been so I wouldn't say different because every year is different but so wide ranging in terms of the um the the challenges and the tailwind we've had. um what what else inspires you at the moment? >> So I have two papers that I'm almost done with. One's on macro and trend and another one >> is on utilizing uh managed futures and target retirement portfolios. Um >> tell me about that. That's something >> again something very I mean it goes to the the same discussion of like new avenues for managed futures. Um we um we're interested in this topic because if you think about target retirement, it's really a long-term investment problem, but the objective is a little different than a pension fund. The objective is to improve um the you know some of the worst case scenarios for retirees, right? So a situation. So what we do is we model um model sort of cash flows for a typical target retirement with um and and it's not done yet but I'll definitely send it to you when I'm done. The idea is that managed futures can improve some of the down you know the worst case scenarios or some of the sort of bottom 5% where sort of you have poor market timing in terms of when you allocate or when you withdraw and and I think that's very interesting because they have a different objective in target retirement than you might have sort of best risk adjusted return for a portfolio. Um more to come eventually it's not ready yet. >> Yes. Okay. I don't want to take all your thunder, but I will ask you just one follow-up question. So, because again, target retirement plans are probably more common in the US than they are in Europe. Um, you would think that as we get older and nearer our retirement age that our portfolio construction should look different. I think well if people have listened to to to the podcast since it began they're like 14 years older than when they you know started or whatever how many years we've been going on about this. So they're getting closer to retirement. So how should they as you get older how should you think differently um um about your portfolio and also without again taking all the thunder away how should you think differently about or how will that impact how you should think about trend following just broad >> well I mean I don't think we answered that huge philosophical question exactly but what you know the allocation that you have and that's why our conversations about the total portfolio and this conversation about adding alternatives is um those choices matter obviously when you're thinking about retirement those may be timebearing as well um I think what we are trying to understand is you know sort of we all understand that trend falling especially with equities has a naturally you know more diversified approach and it has lower maximum draw downs on average and so if you're thinking about you know the average of the population that matters. But, you know, if you're actually thinking about individuals, you know, each individual has their own sample path and depending on when they're getting close to retirement, they they want to sort of minimize those draw downs so that they have enough time to recover. So, I think it's an interesting question and for me that's that's a hard question. I mean we try to look at that a little bit because >> the value of managed futures is that it can help reduce maximum draw downs for a equity focused portfolio and that >> can help over a longer term avoiding some of the worst case scenarios especially if you think about you know you accidentally decided to retire in you know 2008 for example when the market's down 60%. that individual is actually adversely affected more than say the person that retired and decided to adjust their allocation for example in 2007. Um so so I think that's a good question. I don't have the whole answer for you yet but it's something we can talk about. >> Well the paper is not done yet so I'm expecting all the answers in the paper when when we [laughter] get the chance to talk about it. Of course Katie this was wonderful um as always very uh wide ranging and uh super educational. So, uh really appreciate your time and your efforts uh in preparing for this. Uh it's not always easy to come up with new uh ways of talking about the same thing uh each week. So, I uh always appreciate the help I get from from you and all the other co-hosts uh in that. Speaking of uh new angles, um next week uh I have Rob Carver coming back on the uh on the show and you said something interesting about Rob just before I pressed record. tell me more. >> Oh, Rob has a really fun post on volatility forecasting and if it helps. So, I would love for him to talk through that next week. So, ask him about it. >> So, we are putting Yeah, exactly. We're putting down the challenge and I'm sure he would want to bring it up anyways. He uh he he and others obviously like to uh to do that. Um which is perfect. Um, so anyways, if you have questions for Rob, um, info@toptradersunplog.com uh is the email to, um, to do that. If you want a copy of the paper that we did at Don regarding where we combined or we where we compare all the alternative investment strategies including trend and see how they perform, as Katie said, during crisis periods and why they might be a true alternative. If you sign up to the uh weekly newsletter that I do, uh you can do that on toptradersunplugged.comttu minus news or or whatever you however you pronounce that. Um then from time to time I will promote that uh little paper and you can see for yourself uh what these things do. And finally, very importantly, if you want to show your love for Katie and all the work she does, uh, and and not just here, but everywhere she shows up to educate people about trend following, then head over to your favorite podcast platform and leave a rating and review. Um, because there is a lot of work that goes into preparing these conversations. So, it's nice to see some positive feedback on that. Anyways, from Katie and me, thanks ever so much for listening. We look forward to being back with you next week. Until next week, take care of yourself [music] 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 guests lined up for you. 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October Market Recap: Missing Data, Strong Equities, and more | Systematic Investor | Ep.374
Summary
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 [music] their product before you make investment decisions. Here's your host, veteran hedge fund manager Neil's Krup Larson. [music] Welcome or welcome back to this week's edition of the systematic investor series with Katie Kaminsky and I Neils Castro Larsson where each week we take the polls of the global market through the lens of a rules-based investor. Katie, it is absolutely wonderful to be back with you uh this week. How are you doing? What's going on in Boston? >> Good. I mean it's, you know, we're ticking along here. I mean trends are working well again. So that's exciting. Um and I can't believe we're already so far into the year. I mean, this is amazing. So, time flies. >> I know. I know. Have you had any snow yet? I was uh close to Boston a couple of weeks ago and and I see now that in Montreal, for example, there is snow now. But uh what about you? >> We um missed some of that, but we did have sort of a super cold chill. And ironically, over Veterans Day and you know, the heat was off in our office and I was wearing my park, so I was like, "Oh my gosh, we're here. It's winter." Yeah. So, um, definitely getting ready for the cold here. >> Yeah, absolutely. We've got a, uh, a great lineup, as I always say. So, some, uh, you know, important talking points, uh, no doubt. Um, but before we do that, um, I always ask you about what's been on your radar, and I know you said, well, I don't really have anything specific, but let me mention a few things. Um, and what has been on another person's radar that involves you is that my daughter actually met you in Boston. And she thought you are the coolest and most chill person and very inspiring. So, I just wanted to uh publicly uh acknowledge you for taking time out to uh to see her. >> No, that was awesome. So fun to get to meet your daughter. I've heard so much about her over the years and um she was visiting Boston, which is such a fun place to be when you're um you know, exchange student or whatever. So I mean I was very impressed with her organization and structure on her trip. So she must have inherited that from you Neils. >> Not sure about that but she is very organized. Okay. All right. So what's been on my radar? Um flying around uh uh you know and in the US last week. Uh of course the government shutdown was a little bit on my radar because everything was a bit delayed. Um, but one thing I thought of is despite whatever it was, 40 days of no government data, the markets didn't really seem to be too bothered about that. Um, so the question is, do we really need um economic data all the time to uh to be good investors? Katie, what do you think? >> Oh, that's a really good question. I mean, I think it's been kind of a nuisance in some sense because, you know, we're so used to the routine. Here's non-farm payrolls. Here's this. And, you know, I think people are a little out of sorts. I feel particularly bad for uh the people in the media who are just used to that routine that you know Friday's release and I think that must have been hard for them kind of thinking like how do we structure if we don't have any data >> as I hear you talk about it um it actually reminds me of something we're going to be talking about later because we're going to be talking about diversifying trends and one of those are this economic trend that AQR is doing and I'm kind of thinking wow economic trend no data That's not a great situation to be in. Not that the economic data changes that quickly, but still it kind of shows you a little bit of a weakness. Um, similar to if we did get if we didn't get any uh data from the exchanges uh for for 40 days that would be a little bit of a challenge. >> That's a good point. I mean, and let's start asking the question like what if the data gets, you know, manipulated too, right? I mean that's another thing we can think about is you know we know the head of data for was also fired right so I mean you got to start asking that question as well but I guess the point is you know there's official data and then there's also lots of other sources of data um so I think that that'll be interesting to discuss >> you know I think in our industry Katie we've always talked about that the only truth is the market price because that's where the market is caring and uh maybe that's a good reminder that that you know price data is really um pure and important um in in many ways. I'm sure there's maybe small commodity markets that can be manipulated but um anyways so that was one thing that was on my radar. The other thing that was on my radar is closer to you than it is to me because it's about what's going on on the west coast of the US because next week one of the largest um pension funds in the world I think Kalpers they're going to vote on adopting the total portfolio approach and I'm not an expert in that but my understanding is that if you adopt the total portfolio approach each individual investment kind of you you look at the value it adds to the portfolio as a whole. That's kind of the justification. And I'm thinking that alternative investments and specifically something like trend following which we know objectively, empirically, we know that that is uh you know non-correlated etc etc. You would think that that would move up the um the list so to speak of really valuable components in a portfolio like that. So, and I know this is completely off the cuff of course, but do you think that that these pension funds that are now adopting this that it will have an effect on say uh alternative investments uh percentage allocation in a portfolio, maybe even managed futures allocation in a portfolio? I definitely think so because I mean we've often talked about this this concept of locally optimal versus globally optimal and why you know a trend strategy in general is one of the few strategies that is so complimementaryary in the sense that you end up with total portfolio risk reduction and I think that is not always the case for a lot of other alternative strategies and I think you know we've seen this in the success of risk mitigation strategies and buckets where they've actually tried to create a bucket where you get that total portfolio effect but by creating the bucket they created a list where they could put that because I think the line item problem and sort of this subdivision of labor in the investment management creates this very siloed view from time to time where you know you're optimizing each of your buckets or each of the line items but maybe not able to see sort of the total portfolio view as easily. So I do think um you know philosophically that that's very aligned with how we think about things um in our space. >> Yeah. And it reminds me of a conversation we had with uh Elizabeth Burton who at the time were the head of uh pension fund in Hawaii. Now she's with Goldman Sachs and and she told us that uh they completely stopped using anything to do with buckets. I mean they just looked at things individually and so on and so forth. So uh very interesting indeed. Now the final thing that was on my radar has nothing to do with trend following or portfolio management. It was just an a a a little blog post that came out from a previous guest of ours uh Ed Yadini and um talking about the enormous demand for data centers right with all this AI going on. And you know I was stunned by the increase in he talked about the spending for building the data centers and also the Microsoft uh CEO came out saying that's actually where the shortage is not in getting the chips but actually getting the sensors to put the chips in. um and it had gone up the spending like 400% uh in 2 years which is crazy and then the power uh where uh you know US has by far the most data centers more than 4,100 and it uses about 183 terowatt hours of electricity uh last year but they're expecting that to more than double in the next four or five years and um I think now 26% of total electricity supply in Virginia is consumed by data centers. I mean, these are staggering amounts. And if we don't know where inflation might come from, I would say electricity prices is a good um guess. >> Oh, yeah, definitely. And I mean, there's a lot of other places as well. I mean, I was looking at numbers for US healthcare as well. There was some interesting stats on that. So, there's all these little different places where you're seeing that things have gone up substantially. insurance cost um etc. So I mean I think it's coming you know price increases may not come linearly and we know this with inflation but they do drift. So I think inflation is still a very interesting topic to think about especially over the next few years and I think was it the podcast last week you guys were talking about inflation as well and one of those great papers the um I think yo was talking about that too that >> yeah I think and was talking about it when I was traveling. Yeah. And um you know there what I think is interesting about is we did a very long study of inflation for trend falling and trend falling does really well in high inflation and rising inflation. So you know we might be the only people that might be slightly happy about that. So um because in general it's difficult. >> But talking about that because I do think that's relevant. My non uh detailed analytical view of that is that actually we don't care so much about the level of inflation but we care that it's not stable because when I look at the performance periods over time the worst period for CTAs has been this 2000 to 2019 where we had low but also stable inflation when we had um from 1992 until uh oh maybe was 82 to 20 it's like a long period 17 years. Um, so it must have been 82 to 2000 where we had relatively low inflation but it was not stable. >> And that actually when I look at at Don's track record that was the highest compounding period um so not the highest inflation level that was back in the uh '7s and early 80s but it was just an unstable inflation and I feel that's kind of the environment that I'm expecting. Not so much, you know, that we have 8 8% 10% inflation constantly, but actually just that we can't control it or central banks can't control it. >> That actually makes sense. I mean, because it's more the disruptive nature and sort of the trends that that creates. So, for example, electricity prices might be sort of a pocket where you see the inflation surging um and then you may see inflation dropping in other areas. And I think >> it's that sort of >> turbulence in the inflation sort of changes that probably causes more >> sort of is indicative of price trends because obviously inflation has to do with how much prices move right as well. So there's some uh relationship there as well. >> Yeah. And even in a relatively stable inflation environment we've had the last 18 months I mean bonds where you would think oh there must be a link to that has not been an easy place to operate in as we will talk about I'm sure. Um anyways, let's talk a little bit about trend following. Um October had a couple of days in in in in October. The first couple of days of October was actually a little bit soft and you think okay natural correction but that's really changed. Uh seeing a lot more managers now to be uh well aligned with these uh longerterm trends that have come back in play. Um you know obviously equities seem to be never stopping. Uh, and I was looking at something I picked up and I think this is from Deutsche Bank actually. They had a chart that shows the total equity fund flow in in percentage of assets and it compares this year week by week uh with uh the average or the mean uh or median uh from 2010 to 2024. And it's very interesting to see how much more inflows you've seen this year than the average from 2010 to 2024. So um no doubt that there is a lot of flow behind um the constant uh increase in equities which of course uh works very well with uh trend following as long as there's no politicians that are trying to upset that trend. Precious metals continues to do um really well. Softs doing okay but slightly different direction depending on which commodity you're looking at. and even currencies although not overall for the year has probably not been great but the last month or so starting to to pick up which leaves us as I mentioned before um with fixed income being the the big the big challenge >> yeah that's I mean you summarized it perfectly I think we've seen you know a consistent equity trend move that has been sort of surprising if you think how we felt earlier this year um we had been talking about this idea of you know is the risk really over stimulation at some point, you know, maybe inflation at some point. Um, obviously we've been a little bit at limbo in those narratives without official data coming out. But I think the trends that I'm seeing that have been hard are things like energies that have been back and forth. >> Um, and also fixed income has been a year where you're sort of the market wants cuts, especially for the US, but they're waiting for them. So those trends I've seen less risk in that asset class. Um so that could be something interesting next year perhaps. Currencies um you have seen a little pivot in the sort of weak dollar theme which is >> kind of interesting to me as well. You know is the dollar kind of moving on potential slowdown and rate cuts that people don't expect or is it >> you know kind of has it bottomed out because it moved so far this year. So I think that's an interesting asset class that's a little different right now. Um and of course the best trades for trend this year precious metals right so gold uh silver platinum palladium any of those markets really sort of surging on you know what I think it looks a little bit like a hedge right so >> you know you want the equities but if you're worried you buy the safe asset the dollar doesn't look good so you you know you go for gold and you hold the gold it could also be you know central banks and just people general demand for gold So, um it's definitely an interesting year for precious metals. >> Yeah. No, it is. And I was just looking at it this morning and uh I mean even just we're we're we're not that far into the month of November. Um but um silver is up, you know, 12%. Silver is up 73% this year. Platinum 68% and gold 59%. Um, so hopefully that's a good indication for people to to uh to realize how important it is to trade commodities and not just be stuck with uh the usual suspects in a traditional portfolio. Well, at the same time, orange juice is down 65%. So, there's a little little bit on both sides uh for those who do trade orange juice. Um, but uh but there we are. Now, this environment is also being reflected in my own trend barometer. We're up at 57. That's kind of I don't remember everything that's been going on this year, but it is certainly one of the highest levels I've seen. So, very much in line with recent performance. Um, beta 50 index as of Tuesday the 11th uh closer business is up 93 basis points for the month up now for the year 2.59% which is great. Uh and by the way, people often I think talk down trend following CTA performance, but in the B top 50 in the last five years, it's up four of those five years including this year would be up six years uh or sorry, five of the last six years and the only down year uh was in 2023 where it lost 1.85%. I mean that's not too shabby frankly. Anyways, stockg gen CT index uh up 1.19% for the uh month and uh down only 35 basis points for the year. Stock gen trend index up 1.77% for the month and now positive tip territory up 0.86% for the year. The only real lagard I find which is surprising to me is the short-term traders index down 53 basis points down 4.8% on a volatility adjusted basis. That's a high number actually. And given the it's a year where we've had these short-term corrections uh based on statements and trade policy and all of that, you would kind of logically think, well, that must be great for shortterm because they can react to it. But that's not been the case. I would agree cuz it's interesting is that we would have expected short-term to do better this year as well and we've seen similar results. Um, I think it just has to do the amount of sort of the frequency, right? So, there's been a lot of like big event risk and and a lot of moving around earlier this year that was difficult for short-term. Um, interestingly enough, it seems that having sort of ironically like just a very long-term view this year in some asset classes would have been very helpful. So for example, equities if you had just kind of ignored the noise earlier this year that would have been helpful. Um you know and you may have seen sort of a mismatch in frequency for them. So for example they're kind of seeing a new trend that's moving they're get or you know following new short-term opportunity and then sort of you get a a swap back that you know is at the wrong frequency. And I think that's definitely been the case this year as you've been sort of particularly the first part of the year. Um, right now shorter term movements could also be a little challenging because we've had occasionally little pullbacks, but for a longer term trend falling system, pretty normal. Um, but you know, you've seen pretty big moves in things like gold over a 2 or three day horizon. It's interesting. We'll have to kind of see. It was just definitely a different kind of year. So, I guess short-term wasn't the savior in that scenario. >> Yeah. No, very true. Now, I must be out of my normal routine since I've had two weeks off from doing podcast because I completely forgot to look at the traditional uh markets that are normally also quote, although I can see on my screen here the S&P 500 uh is up about almost 3% for the month and up 16.25% [music] for the year. So, anyways, there we are. >> [music] >> Let's jump to a question before which I normally put in here at this part of the section before we um [music] move on. It's from Justin uh who lives in the US. Uh he he's he's asking about what's the importance in term the importance in terms of performance metric. But you when you replied back to me about it, you actually framed it quite nicely because it's about not just evaluating performance metrics but also kind of the confidence and how robust it is. And I think what Justin was trying to look for is just you know what are the key metrics that you would look for, why those maybe um and and so I would love to hear your thoughts about that. Um >> well this is a good question because um he was kind of asking about how do you determine the best metrics to determine which is the best trading strategy and I think for me you know always the most important thing to think about is sort of outof sample performance and and especially when you think about academic research that's you know kind of very important um in the sense that you know you might have selected a set of parameters and a configuration that works very well in your back test. But it's really sort of the robustness of those parameter choices that matter to me the most in the sense that you know if you choose these five parameters if you per permute them at all. You know how robust are those performance statistics relative to those selection choices are probably my number one criteria. And the reason for this is it's so easy to overfit the past and to find a strategy that worked like in in history. But what's hard is we live in forward in life. And so for me it's about looking at sort of stab stability across your selection criteria. Um and then of course we always look at many of the more classic approaches. You want to look at downside capture, upside capture, you want to look at you know sharp races. I want to look at many different things, but you don't want those things to be very susceptible to some of the decisions you made. And I think that's for me the most important thing about what we do. Um is combining methods that are sort of robust to the selection choices. Um that's that's how I started. >> Let me ask you let me ask you just a few follow-up questions and we'll move on to to the other topics. I think there's a school of thought whereby parameters are changed very rarely. Let's put it that way. There are another school of thought where they change dynamically over time. And there is one school of thought that uses uh more recent data. There's another school of thought that uses the most data you can get to select. There's one school of thought that may have different parameters per market or sector. And there's another school of thought saying, "Well, no, you should trade the same parameters on all markets." Where do you where do you sit in that? >> This is a really good philosophical question and I actually think that you should do a little bit of most of those things. Um, and so let me explain. So you know if you look at a classic trend system like a moving average crossover system that is somewhat unbiased in the sense that you know once you pick your time horizons and how you estimate it you kind of have a predictable response to market moves. >> Now is this particular approach >> going to work the best all the time? Not necessarily. for example, one asset class may move quicker or slower or be more nonlinear. >> Um, so my general view is that you can use more advanced techniques to try and shift how you adjust those parameters over time, things like machine learning, other methods which can sort of cater to some degree um, and add some value over a more classic approach. Now the problem is and you kind of highlighted it the past is not always the same as you know the past and what's happening now things can shift and I mean this is something we've been talking a lot about >> as well this idea that you know >> in a world where bonds or the feds you know has many dissents and all these things going on it may be that bonds don't behave exactly the same and that's where that school of thumb you know of thought comes that says like, well, we should look at recent um events. And so, I think there's a grain of truth in all of those methods, but you probably don't want to stick to just one because philosophically you're kind of, you know, banking too much on one particular view of the world. So, I think the best approach is really to kind of combine different methods with different assumptions and sort of aggregate those over time. And that should be the most diversified in terms of school of thought. And I think that that's how I think about it. No, >> I think that makes uh perfect sense. It kind of ties into something that I thought was very interesting that Alan and Y spoke about last week, and that is this idea based on this paper that's a few years old, but I'd not come across it before of market elasticity and depending on their general reaction pattern. I mean, some markets react more quickly than other markets. Perhaps that is something to take into account when creating parameters. But of course, you don't want to overoptimize at the same time and and make it too uh complicated. But anyways, if people haven't listened to that episode, I would definitely recommend to go back and and listen to that as well as actually the one with Nick and Moritz about the whole QIS space which was very uh interesting because that is one thing I would love uh and I think they touched on it and that is why don't Nick and his friends report their performance anywhere? Why is it completely opaque to the world how these strategies are are because they are so big in size? I mean, they're bigger probably than the official CTA AUM. Um, so why would that not be a good idea to uh have some regulation or whatever it is to say, well, if you're running these strategies, whether you're a CTA or whether you sit inside an investment bank, that needs to be disclosed. Let's talk about some, you know, some of the things that uh we had planned. um trends so far this year. Talk to me a little bit about that. The styles, the chunky ETF uh flow um slow slow moving uh replicators and all of that good stuff that you know much more about than I do. >> Well, it's interesting because I think you know what we've seen in a pure Trenton space is Q1 and Q2 were very challenging. Q3 and Q4 have been much better. So, you know, to me it feels almost philosophically like, you know, we had a huge shock to the markets um around liberation day. And at that point there was a a lot of uncertainty in terms of price discovery and movements in markets that were you know very at sometimes erratic and headlines driven. So in that sense you didn't really have you know we had a big shock in terms of everything is changing but if you think about it from a fundamental macro perspective the world hadn't changed yet. So the market was really trying to assess that and as we've started to see things calm down of course macro change is occurring and you're starting to see sort of more consistent price trends in the market um as some of that headline risk has toned down. Another thing which was very interesting to me that I'm looking at right now is if you look at sort of the typical uh typical sort of what there are multiple names for this. So I remember early in my career we called it coordinated market sell-offs. Then you know a few years ago a colleague of mine and I wrote this paper on turbulence metrics. So like turbulent days so like high magnitude surprise days um where you sort of have a huge move in terms of how CTAs react. And um if you look at those, we showed that those are very negative for CTAs and they usually the day after or the next day they tend to like recover from these type of shocks. What was interesting with liberation day is that for the first time in history within the time series I've looked at for turbulence metrics or magnitude surprise, liberation day was actually three days in a row. >> Wow. Um so that has never happened in the data that I have examined. Um looking at you know lots of years of data we there's a lot of these events right there's SVB there's Black Friday there's you know Brexit other things >> but you know a three day in a row um magnitude surprise and then the market was flat and then it went up. So I don't know what you would call that like a debut or something. I don't know because it's definitely not a V. Um, if you think about that from the perspective of a trend falling system, we often, you know, are able to sort of waver through a one-day shock, >> right? >> A one-day shock relative to all the data that we're investigating has sort of shock impact, but not maybe sort of massive impact. a three-day consistent move is is pretty large, right? And so, as a trend follower, it's really the question of balancing between the strength of the trend and sort of the volatility as well. So, if you have that type of move, um it's not in the back test, right? There's nothing like this that's happened before. Um and so I think it's very tricky to imagine replicating that again, right? So like 3 days of negative shock complete even co was nothing like this, right? Um because you'd have a shock up and then you have a shock back and then you know something a little bit more in those lines. This was much more of a U. Um, and so I think that was interesting to me because it represents, you know, it tells me how big of a shock this was to the markets compared to some of the ones that we've experienced in the past. Um, and I think the market definitely was very challenging for trend strategies that are trying to measure the direction of the trend using data um, in that environment. >> So I have a question. I have to sorry to interrupt you here but otherwise I'll forget. Um, now that the data is in the back test, okay, I don't know if you've looked at that, but if you then ran a back test today versus a back test prior to liberation day, how would the parameters I don't think the models would change, but how do you think the parameters would be different or would they even be different? Because it's still only three days out of maybe a back test running 15 years. So kind of you just have to live with it or you know >> I I don't think that you know you don't you don't want to you don't change based on you know recent events and things like this but it does you know it does like sort of get you to start questioning like what these magnitude surprises mean right >> and sort of you know and and it also begs the question of like examining how you measure your volatility and how it reacts to a much more sustained shock. >> Um and also sort of how signals react to sustain sustained shock is definitely something I'm thinking about. Um, obviously it's very hard to do those analysis because there's no statistical significance. Um, they're one-off events, but it is something to note that this was a very unique >> uh price trajectory trend movement that we haven't seen in the data for CTAs. um doesn't mean it's going to happen again per se, but it does you know get you to do some thought about volatility estimation signals and how they adjust to that type of movement. >> I completely agree with that actually. Um and also speaking to our researchers um I think they learned something uh during that period. Um so I would agree with that. um what changes um that may or may not be done is different question but to say that they learn something I think is completely fair and and and and more importantly as you say actually you should think about things when when this happens because it had not really happened before. So definitely um actually a colleague of mine um Mike sent to me yesterday an article uh from CityWire. Um it was an article about um AQR specifically um and um and it talked about how they had kind of coped quite well this year. Um but thanks to doing things a little bit differently which we already touch uh upon namely not just using price data for their trend models. Now when we had uh AQR on the podcast a couple of years ago Alan and I uh they already did this economic trend for 50% of their uh for for one specific program. Um, so if people want to listen a little bit more detail about what they do, um, that might be an episode that they can find in the top traders on PL series, uh, on the website. But, um, I thought it was very interesting. And of course, now that we've come out of a period of time with no economic data. We'll see how that actually worked out. But um anyways, did you have a chance to just sort of skim through the uh the article and what what are your thoughts about um this kind of I guess we could call it either alternative data trend following or diversifying trend following or bit of both? >> I mean I think it's very interesting. I mean they highlight how they use um single lane equities and then they use 50% economic trend 50% price trend. Um and generally economic trend or macro even as well um has done pretty well this year and what [clears throat] that makes a lot of sense to me because you know if you look at what's gone on I I explained there was a lot of headline risk that was causing a lot of chaos in price movements. Um whereas if you stepped back and perhaps followed the fundamentals and looked at sort of what the overall themes of the economy were, you know, you might have sifted through some of that noise. So that to me is very intuitive that that worked well. Um I think one of the things I'm still sort of navigating myself because I'm also very interested in economic trend is it's a little bit more of an art to understand exactly what what you're using. So it's more pretty much macro with a different name, right? Um and then what we need to do next is sort of distill what type of macro strategies actually connect to trend and how much trend capture they really have. Um because I think the challenge for any investor is going to be if they're looking to capture trend or the features of trend. No doubt there are scenarios where macroeconomic indicators or data can predate or predis you know can give an indication of a future trend but there's also you know the other direction where they actually predict a trend that doesn't actually occur. Um, and so I'd say it's interesting and it's something I'm actually thinking about. I'm hoping write a little bit about it at some point. Um, but the concept of, you know, trend capture, how much do economic trend models capture of price trends? Um, and how do they complement and what part of that trend capture um, is connected with sort of, you know, price trends themselves. And I think you know if you look at macro and we have a paper coming that we've been working on on macro trading it has a very high correlation with trend falling at least a lot of macro managers and this is you know a question of what part of the trend are they part of because the truth is we're all trying to capture global trends across asset classes and there are different methods to get in and out andor participate in those trends and I think for me economic trend is one way. The challenge of course is the art of how you implement it and what data you use. Um but there's definitely some connections between economic trend and price trend. >> Couple of thoughts. I'd love to hear your your your thinking on this. So when I read the article and I don't remember sort of word by word but one of the ways that they were writing it and I don't know if this was the journalist or whether this was something that came from from AQR uh but it was this thing I of you know they were trying to diversify kind of the responsiveness uh meaning that the data uh has you know investors have different um time lag in terms of how they respond that's how trends form and by using economic data they are trying to maybe capture some things that had not played out in the price data yet, for example. Okay. So, um this concept is kind of interesting to me because one of the things at least in in my career um that we've kind of tried to stay away from and that we say about trend following is that we don't try to predict. And one thing that we also have to acknowledge which is um uh you could some people would say it's a weakness is we cannot anticipate either because we need the data and we need some time to to adjust. So in a sense um when I hear this it feels a little bit predictive. It feels a little bit oh maybe this is a way to get the in you know anticipation into your trend model. Now, love to hear your thought about that. But what it also reminds me is an interview I did very early on in my podcasting career, quote unquote, with a systematic global macro manager out of Sweden, IPM. >> Mhm. They had fantastic track record for many years and they kind of raised all the assets in in in the space and there was not much left for for the rest of us until it stopped working >> and they didn't blow up but they didn't make money and they were in a draw down when they decided to close the business. So, and maybe that's just how it works that you like the trend. You have your periods where it works, you have your periods where it doesn't work and maybe that's why it's a good idea to combine. I don't know. But all I'm just saying is that sometimes when I read these things and I'm not suggesting that AQR is doing the same as IPM is doing or whatever, nothing like that. I'm just saying that I think all approaches will have their time in the sunshine and their time when things don't work so well. Um, but right now it's more about the time in the sunshine when I read about these things because recent performance has been certainly helped as they say in the article by this. So that's kind of my two. >> Yeah. It's it's interesting you bring this up because I I do think one of the challenges with trend falling is and I was just doing a presentation this week on crisis alpha that you know it was an academic presentation but I was looking at one of the old graphs that I love to plot where you look at how does the SG trend perform in different quintiles like the worst quintile and the best and you know over the history it's that the worst case scenario that convexity that you know those opportunities that occur in a time of stressful market environments which do provide a lot of uh complimentary uh benefits of trend falling and that's exactly the idea that you know in times of stress you know often times the fundamentals become irrelevant right and so it's really about the world changing and prices are changing >> and so trend is really very good in that type of environment if it's sustained We're actually this year not in that environment. You already mentioned it yourself. The S&P 500 is up 16%. And you know, macro data and information has suggested generally positive themes. And if you followed that information, you ignored some of the price noise around the headline risk and you know it was a good strategy. Um so I say that each of these strategies and approaches have their days of sunshine and days of of rain and I think you know I do agree that you know depending on the investor combining them can make sense um if depends on their mandate right if we have certain clients that their main mandate is risk mitigation and they like trend because they know when it's really bad it tends to do very well um and they also understand that in a year when their S&P is up 16, it might do okay or not, you know, and and that's kind of >> a question of construction and investor preferences to me. So, I think all these strategies are viable in different [music] ways and different times. [music] Okay, we will end up on a a a positive note. Um [music] um but before we get to that um you you wrote a few comments to me about um and I don't know if you feel we've already discussed it. Oh yeah, maybe we did the three days in a row topic uh about the liberation day. So let's move on to the next topic which I thought was very interesting. Um something that I don't even know where I got the uh link to the uh to the article. It was an article um or blog post from Capgeemini and it was titled the rise of alternative investments by Juya Jin Jan I think it was um and it talks about how alternative investments are really reshaping uh the wealth management industry and uh one of the I'd love to hear your more detailed uh thoughts about this. But one of the headlines or sub headlines uh in the article was something like how uh some of these consultants uh or financial firms were essentially thinking of alternatives becoming the core, not the alternative in a portfolio. And that this could lead to a rise according to them from the current $4 trillion or so invested. um all the way to about $12 trillion by 2034, which is not that far away. And then other groups were estimating alternatives would hit 30 trillion globally by 2030. I think that was Everest group that had that prediction. So I mean these are not small changes. I mean these are like complete game changers. if this is true uh or even comes close to being true. It also talks about how institutions and different types of investors have really approached alternative differently. Some people you know as 3% allocation is enough but once you move into the kind of high net worth individual space um and and private investors you know 20 25% seem to have been much more uh the norm. family offices actually some of the the ones that use alternatives the most 30 to 50% allocation has been mentioned and the the the one thing that actually uh I thought about and this is something I've been thinking about for like the last 20 years and this is this thing about fiduciary responsibility because I thought as a fiduciary your job was to pick the best investments for your portfolio and this is not necessarily a block or uh manufactures or or trend following. Um it could be other strategies, but it's very hard to objectively argue that it doesn't add value to a portfolio. I mean, there's never been a white paper written to suggest uh the opposite. So, I've always kind of thought, hm, how do the fiduciaries get away with having no allocation to trend or 1% allocation to trend? Um maybe this is also part of the change. Um I would love to hear your thoughts about this and also whether you already see signs of this uh in in your conversations in your um kind of the construction of your the types of investors you see the flows coming from. Uh would love to hear that. >> I mean I think the most interesting thing about this particular paper is not just like the flows to alternatives but it does focus a lot on private wealth. Um and I [clears throat] think of that as sort of if you look at the way especially when I speak with my friends in Europe like um the way that sort of investment management is bifurcated in the United States between institutional investing and sort of private wealth and you know retail investing. there has been a lot of limitations and barriers to sort of accessing very fragmented pools of capital and I think what's happening a I think there's a market opportunity because you know stocks and bonds for example with bonds being a little more challenging has made you know larger investment firms have to ask questions like can can we just make it there with just stocks and bonds we need to think about this more and we need to think about what these institutions are doing differently from us and how we can sort of import some of that wisdom and I think the interesting part I mean it's just exciting with AI and all these other things that can solve some you know can aggregate information more quickly for us sort of the development of model portfolios and solutions and more access points and this paper actually argued a little bit about that as well this idea of you know access to these things changing. Access is a function of both new products and new legislation. For example, the ETF market is a good example of that. Um, but it is sort of a slow evolution that seems to be speeding up after people, you know, have perhaps been a little bit concerned about the 6040, right? So I think for me um it just shows that there's a wide range of investors out there that are limited in their diversification compared to an institution. And I think that you know by aggregating these approaches that you can actually have access to a wider range of investment options and even the article mentioned some of the larger banks and investment firms kind of examining alternatives access for their clients and the private wealth and so I think it's a wave that's coming that keep you know is going to continue and so I agree with the article I think it's going to be interesting to see how that develops and sort sort of I think accessing these networks and working with them is going to be important. Um I think you and I have many times you've asked me questions about sort of like knowing your client, right? So that's going to be I mean I bring that up because that's important to you Neil and you and I talk about that a lot especially when we talk about ETFs and other things. So I think that the um there's going to be a lot of education necessary. There's going to be a lot of people that need to sort of understand and obviously larger investment firms are going to have to spend resources to cover, manage and sort of understand alternatives. Um we have been you know for a long time in the alternatives completion space. So like building portfolios of alternatives together. And I think that's something that we strongly believe and I believe I've talked about this many times with you is like interestingly enough it's like having some trend falling or managed futures of any type actually gets you farther than you would think. Um just because it's one of the few things that's actually different if you just own stocks and bonds. >> Yeah. Oh, I had completely forgotten about that little um pet peeve of mine where if you go if you just get all the flow through an ECF, you don't know who the underlying client is and how important it is in my opinion to uh to know your clients, especially in the year like this year where I think people got nervous uh after Q2 where people didn't really feel that comfortable uh in in in the trend space. But if you know your clients and you can actually reach out and talk to them um you can avoid a lot of uh unnecessary uh hardship on their side by by them making allocation decisions at the uh you know wrong time. So uh thanks for reminding me about that. Now let's as we always do let's look at it from a purely selfish perspective. If this is true, how do we as an industry, do you think how how should we position ourselves or what should we do different to try and capture some of this? And I know full well that this will be captured uh I'm sure both through managers like uh ourselves but also through uh replicators um for sure. Uh and um and obviously one doesn't mean that you shouldn't have the other and vice versa. Um but but what else can we do to be part of this potential, you know, tidal wave of assets that could flow into alternative investments because alternative investments, I think, also includes private equity and private credit. And to me, that's not really that alternative, right? That's really just um the same thing in a different um you know, clothing. But but the true alternatives like what we do, how do we how do we take advantage of this opportunity? >> Well, I think it's important. I mean, they talked about access points. So, I mean, clearly um creating products in different rappers like ETFs is one way you can sort of be active in these spaces, >> but also sort of maintaining relationships with key stakeholders in these spaces. For example, model portfolio researchers. So those are the people that's your client in some sense. >> Um and sort of getting to understand the private wealth network and sort of how you can support that and help them make um educated decisions about things like managed futures is sort of our next educational um journey in this space. I know we've you know clearly there's been a lot of focus on institutions in the past. The new wave is really probably private wealth and sort of and also sort of aggregators of that are thinking about model portfolios and model selection and and manager selection. >> Good stuff. All right, final topic which is not really a topic but I'm always curious about I know you mentioned you're thinking about or you already have started writing about sort of trend and global macro. um what else kind of interests you because I know you're someone who um not only produces a lot of uh papers during the year but um but you cover a lot of different topics within our industry. What what else after a year like this year that has been so I wouldn't say different because every year is different but so wide ranging in terms of the um the the challenges and the tailwind we've had. um what what else inspires you at the moment? >> So I have two papers that I'm almost done with. One's on macro and trend and another one >> is on utilizing uh managed futures and target retirement portfolios. Um >> tell me about that. That's something >> again something very I mean it goes to the the same discussion of like new avenues for managed futures. Um we um we're interested in this topic because if you think about target retirement, it's really a long-term investment problem, but the objective is a little different than a pension fund. The objective is to improve um the you know some of the worst case scenarios for retirees, right? So a situation. So what we do is we model um model sort of cash flows for a typical target retirement with um and and it's not done yet but I'll definitely send it to you when I'm done. The idea is that managed futures can improve some of the down you know the worst case scenarios or some of the sort of bottom 5% where sort of you have poor market timing in terms of when you allocate or when you withdraw and and I think that's very interesting because they have a different objective in target retirement than you might have sort of best risk adjusted return for a portfolio. Um more to come eventually it's not ready yet. >> Yes. Okay. I don't want to take all your thunder, but I will ask you just one follow-up question. So, because again, target retirement plans are probably more common in the US than they are in Europe. Um, you would think that as we get older and nearer our retirement age that our portfolio construction should look different. I think well if people have listened to to to the podcast since it began they're like 14 years older than when they you know started or whatever how many years we've been going on about this. So they're getting closer to retirement. So how should they as you get older how should you think differently um um about your portfolio and also without again taking all the thunder away how should you think differently about or how will that impact how you should think about trend following just broad >> well I mean I don't think we answered that huge philosophical question exactly but what you know the allocation that you have and that's why our conversations about the total portfolio and this conversation about adding alternatives is um those choices matter obviously when you're thinking about retirement those may be timebearing as well um I think what we are trying to understand is you know sort of we all understand that trend falling especially with equities has a naturally you know more diversified approach and it has lower maximum draw downs on average and so if you're thinking about you know the average of the population that matters. But, you know, if you're actually thinking about individuals, you know, each individual has their own sample path and depending on when they're getting close to retirement, they they want to sort of minimize those draw downs so that they have enough time to recover. So, I think it's an interesting question and for me that's that's a hard question. I mean we try to look at that a little bit because >> the value of managed futures is that it can help reduce maximum draw downs for a equity focused portfolio and that >> can help over a longer term avoiding some of the worst case scenarios especially if you think about you know you accidentally decided to retire in you know 2008 for example when the market's down 60%. that individual is actually adversely affected more than say the person that retired and decided to adjust their allocation for example in 2007. Um so so I think that's a good question. I don't have the whole answer for you yet but it's something we can talk about. >> Well the paper is not done yet so I'm expecting all the answers in the paper when when we [laughter] get the chance to talk about it. Of course Katie this was wonderful um as always very uh wide ranging and uh super educational. So, uh really appreciate your time and your efforts uh in preparing for this. Uh it's not always easy to come up with new uh ways of talking about the same thing uh each week. So, I uh always appreciate the help I get from from you and all the other co-hosts uh in that. Speaking of uh new angles, um next week uh I have Rob Carver coming back on the uh on the show and you said something interesting about Rob just before I pressed record. tell me more. >> Oh, Rob has a really fun post on volatility forecasting and if it helps. So, I would love for him to talk through that next week. So, ask him about it. >> So, we are putting Yeah, exactly. We're putting down the challenge and I'm sure he would want to bring it up anyways. He uh he he and others obviously like to uh to do that. Um which is perfect. Um, so anyways, if you have questions for Rob, um, info@toptradersunplog.com uh is the email to, um, to do that. If you want a copy of the paper that we did at Don regarding where we combined or we where we compare all the alternative investment strategies including trend and see how they perform, as Katie said, during crisis periods and why they might be a true alternative. If you sign up to the uh weekly newsletter that I do, uh you can do that on toptradersunplugged.comttu minus news or or whatever you however you pronounce that. Um then from time to time I will promote that uh little paper and you can see for yourself uh what these things do. And finally, very importantly, if you want to show your love for Katie and all the work she does, uh, and and not just here, but everywhere she shows up to educate people about trend following, then head over to your favorite podcast platform and leave a rating and review. Um, because there is a lot of work that goes into preparing these conversations. So, it's nice to see some positive feedback on that. Anyways, from Katie and me, thanks ever so much for listening. We look forward to being back with you next week. Until next week, take care of yourself [music] 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 guests lined up for you. 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