Flirting with Models

In this episode I speak with Gerald Rushton, senior member of the QIS Structuring team at Macquarie Bank.

Our conversation largely revolves around commodity strategies, including thoughts on trend following, commodity carry, commodity congestion, and commodity volatility carry. Gerald argues that the latter three are particularly well suited to be paired with equity hedging strategies, and we spend quite a bit of time discussing the major design levers behind each strategy.

Gerald also provides some insight as to how QIS desks have evolved over the past decade, why he believes QIS desks can provide unique edge, and the many ways in which they can customize mandates for clients.

Please enjoy this conversation with Gerald Rushton.

Today, August 28th, 2023, my company Newfound Research turns 15.  It feels kind of absurd saying that.  I know I’ve told this story before, but I never actually expected this company to turn into anything.  I started the company while I was still in undergrad and I named it Newfound Research after a lake my family used to visit in New Hampshire.  I fully expected the company to be shut down within a year and just go on to a career on Wall Street.

But here we are, 15 years later.  I’m not sure why, but this milestone feels larger than any recent birthday I can remember.  I’m so incredibly grateful for what this company has given me.  I’m grateful to my business partner, Tom.  I’m grateful to employees – both past and present – who dedicated part of their lives and careers to work here.  I’m grateful to our clients who supported this business.  I’m grateful for all the friends in the industry that I’ve made.  And I’m grateful to people like you who have given me a bit of a platform to explore the ideas I’m passionate about.

Coming up on this anniversary, I reflected quite a bit on my career.  And one of the things I thought about was all the lessons I’ve learned over the years.  And I thought that a fun way to celebrate would be to take the time and write down some of those ideas and lessons that have come to influence my thinking.

So, without further ado, here are 15 lessons, ideas, and frameworks from 15 years.

My guest is Devin Anderson, co-founder of Convexitas.

The theme of this episode, as you can likely guess from the title, is strategy versus structure. While we often focus on strategy specifics on this podcast, Devin hosts a masterclass as to why the structure you wrap your strategy in can ultimately determine the type of strategy you can deliver.

Specifically, we discuss option-based tail hedging and the types of strategies that can be delivered in hedge fund, mutual fund, ETF, and separate account wrappers.

In the back half of the conversation, we dive into how Convexitas implements their risk mitigating strategies. Specifically, Devin explains why Convexitas focuses on convexity with respect to the S&P 500 and actually refuses to customize this mandate, despite having the ability to do so at scale.

Finally, we end the conversation on a bit of a spicier note, where Devin explains why most market pundits overstate the influence large, scheduled derivative rolls might have on the underlying market.

Please enjoy my conversation with Devin Anderson.

In this episode I speak with Martin Tarlie, a member of the Asset Allocation team at GMO and spearheading their work on Nebo, a goals-based investment platform.

Martin describes Nebo as, “bridging the gap between financial planning and portfolio management,” with a key innovation being the reformulation of risk from volatility to not having what you want/need when you want/need it. In other words, constraints on both wealth target and horizon.

This reformulation of the core problem introduces a number of complications to the portfolio optimization process. For example, under classic power utility, lower volatility is always preferred. But if you’re an investor expecting significant shortfall with respect to your wealth targets, increased volatility may be something very much worth pursuing.

We spend plenty of time in the weeds discussing topics such as: the limitations of dynamic programming via backwards indication, the term structure of return variance, ergodicity economics, and portfolio selection sensitivity to utility function choices. And while these are all important details, at the end of it all, what Martin stresses most is that it’s the reformulation of the problem being solved that ultimately leads to a more pragmatic solution for allocators.

Please enjoy my conversation with Martin Tarlie.

In this episode I speak with Grug, an anonymous MEV searcher on the Ethereum blockchain. If that sentence made no sense to you, I promise this will be a fun episode.

To begin the conversation, Grug explains the basic architecture of the Ethereum blockchain and how its structure allows for the emergence of MEV strategies like sandwich attacks, arbitrage, and liquidations.

He discusses some of the criteria he looks for when identifying a profitable MEV strategy and provides examples of some of the long-tail approaches he has deployed in the past as well as some of the risks associated with them. We discuss the pro-cyclical nature of some of these strategies, the role of retail flow, and the edge in being able to deploy rapidly.

Grug also provides his thoughts on the impact of alt-L1’s and L2’s on MEV, airdrop strategies, and the end game of MEV if Ethereum infrastructure becomes too centralized.

Please enjoy my conversation with Grug.

My guest this episode is Doug Greenig, CEO and CIO of Florin Court Capital.

Florin Court specializes in delivering an alternative markets CTA, trading over 500 markets ranging from Turkish cross currency swaps to French power markets.

We spend the majority of the conversation discussing what makes these markets unique from traditional markets traded by CTAs. For example, who are the players in these markets, what are the unique considerations for introducing and sunsetting markets, and why we would expect these markets to trend in the first place?

Doug also explains why he thinks these markets tend to behave better than traditional markets, why you don’t need special trend signals to trade them, and the significant diversification potential they can introduce.

Please enjoy my conversation with Doug Greenig.

In this episode, Corey Hoffstein, CIO of Newfound Research, Rodrigo Gordillo, President of ReSolve Global* and Adam Butler, CIO of ReSolve Global, delve into the concept of return stacking and introduce the innovative RSBT Return Stacked™ Bonds & Managed Futures ETF.

This podcast is essential for investors, financial advisors, and anyone interested in learning more about return stacking, the RSBT ETF, and the potential benefits of combining bonds and managed futures for portfolio diversification and risk management. Don't miss out on this insightful conversation to deepen your understanding of these innovative investment strategies and their potential impact on today's complex financial markets.

They cover a wide range of topics, including:

• The motivation behind the return stacking concept and its relevance in today's market environment

• The history of institutional leverage and diversification in retail portfolios

• The advantages of using return stacked strategies for portfolio construction and risk management

• The role of bonds and managed futures in building a robust, diversified investment portfolio

• The importance of low correlation between asset classes for effective diversification

• The mechanics of combining bond exposure with a managed futures overlay in the RSBT ETF, including the use of cash collateral and Treasury Futures

• The benefits of using ETFs as capital-efficient building blocks for return stacking

• The potential for a family of return stacked ETF products to address various investor needs and preferences

• The significance of managed futures as a "third leg of the stool" for managing inflation and mitigating market risks

• The challenges and opportunities related to implementing managed futures strategies and managing leverage in retail portfolios

• The goal of matching the RSBT ETF's bond strategy to core US fixed income, such as the Bloomberg US Core Aggregate Bond Index, and adjusting duration accordingly

Today I speak with Pim van Vliet, Head of Conservative Equities at Robeco.

It will come as no surprise, to those who know Pim’s work, that we spend the majority of this conversation talking about conservative investing. Specifically, we discuss the low volatility anomaly. But rather than rehash the usual high level talking points, I wanted to dig into the more practical considerations.

For example, how are low volatility and low beta different? How do selection and allocation effects contribute to low volatility investing? Are low volatility and quality actually different anomalies? And how should we think about the influence of currency in a global low volatility portfolio?

While Pim has nearly three dozen research publications to his name, he provides the balanced perspective of a practitioner, acknowledging the practical limitations to managing money in the real world.

Please enjoy my conversation with Pim van Vliet.

In this episode I speak with Asif Noor, Portfolio Manager at Aspect Capital where he oversees the firm’s Multi-Strategy Program.

Asif has spent the last 25 years of his career developing systematic macro strategies, giving him a depth and breadth of experience to understand what it takes to remain competitive in the space.

While a handful of low frequency signals may have been sufficient a few decades ago, today Aspect’s Multi-Strategy Program incorporates hundreds of alpha forecasts ranging from intraday to several months. But this evolution also brings new challenges, which we discuss at length in this episode. For example, how are new alphas introduced and old alphas sunset? How do you unify alphas of different magnitudes and convictions? Or, how do you manage risk across so many signals?

This conversation is chalk full of the practical, real world experiences of running a multi-strategy program.

Please enjoy my conversation with Asif Noor.

My guest is Rob Croce, Senior Portfolio Manager at Newton Investment Management Group.

This episode is all about what Rob considers to be the two super factors: trend and carry.  More importantly, how Rob uses them to inform how risk is taken within asset classes, across asset classes, and over time.

Rob is not afraid to get in the weeds, either.  For example, on the trend side we discuss details such as how to combine trend signals of different speeds, how to balance the probability of a trend signal being noise versus its likelihood of continuing, and how trend signals can be improved using clustering ideas.

From high level thoughts about diversification to low level details about measuring bond carry correctly, there’s a lot to unpack in this episode.

Please enjoy my discussion with Rob Croce.