Alternative markets offer superior diversification and behave differently from traditional markets traded by CTAs.
Alternative markets have a better ratio of directional movement to chop and are less influenced by traditional central bank policies.
Allocating a significant portion to alternative market CTAs provides better performance and long convexity in a potentially unstable macro environment.
Deep dives
Unique markets traded by Flooring Court Capital
Flooring Court Capital specializes in delivering alternative markets, ranging from French electricity to Turkish cross-currency swaps. These markets offer superior diversification and behave differently from traditional markets traded by CTAs.
Advantages of alternative markets
Doug Grenick explains that alternative markets tend to have a better ratio of directional movement to chop and offer greater idiosyncratic return and risk elements. They are less influenced by traditional central bank policies and have a relatively lower presence of pure speculative financial participation.
Portfolio construction and risk management
Flooring Court Capital constructs its portfolio using a tree structure approach, aiming for robustness and diversification. The firm focuses on liquidity, counterparty risks, and continuously gathers data on market conditions and execution quality. They trade smaller size initially to confirm assumptions and adjust the volatility delivered from different markets dynamically.
Considerations for allocators and combining with traditional programs
Alternative markets trend-following programs should be considered in portfolios due to their superior diversification and positive skew. It is advised to allocate a significant portion to alternative market CTAs, either as the primary trend allocation or in combination with traditional trend-following programs. The alternative markets provide better performance and long convexity, especially in a potentially unstable macro environment with dislocations and tail events.
Macro environment for trend-following strategies
Grenick highlights the buildup of leverage in Western economies, the potential for intense conflict between the US and China, the challenges of decarbonization, and a changing geopolitical landscape as factors that could lead to significant dislocations and shocks. He believes that the current macro environment favors long convexity strategies like trend following.
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.
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