Top Traders Unplugged

SI302: The Negative Crisis Beta and CTA's Hidden Market Timing Skills ft. Nick Baltas

Jun 29, 2024

Nick Baltas discusses CTAs' negative crisis beta and hidden market timing skills with Alan Dunne. They explore trend-following programs, volatility levels, constructing carry strategies, and the impact of equity exposure in crisis situations. The podcast delves into market timing, downside protection, and optimizing portfolio design with trend following and carry strategies.

01:07:37

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Episode guests

Nick Baltas

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Quick takeaways

Trend-following strategies excel during market downturns due to negative beta and crisis alpha.

Unconstrained trend-following outperforms equity-constrained strategies in the long run.

Combining trend-following with carry strategies optimizes market exposure and diversifies portfolios.

Deep dives

Uncovering the Value of Equity Participation in Trend-Following Strategies

Trend-following strategies show strong performance in bad equity regimes due to negative beta to equities coupled with crisis alpha from other assets. Analyzing 100 quarters since 2000, trends outperformed during market downturns, indicating more than just equity beta driving positive returns during crises.

Intro

3min

Analysis of Trend Performance and the Role of Reversion Components in Financial Markets

3min

Analyzing Performance of Touchstone Reversal Strategies in Commodities and its Connection to Trend Markets

2min

Selecting Markets for a Trend Following Strategy

10min

Optimal Portfolio Volatility and Risk Management

7min

Exploring Equity Exposure and Trend Following in Crisis Situations

17min

Analyzing Market Participation and Downside Protection

3min

Market Timing and Carry Strategies in Finance

22min

This week, Alan Dunne chats with Nick Baltas about CTAs' negative crisis beta and their hidden market timing skills. Nick and Alan tackle the question of how to build an effective trend-following program as part of a larger multi-asset portfolio, in relation to the markets traded and speed of system and tie in insights from a recent Quantica paper. They weigh the benefits of unconstrained trend-following programs versus those with capped equity beta. Plus, they discuss the ideal level of volatility for running an investment program and take a closer look at a Resolve Asset Management paper on the best ways to construct carry strategies.

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Episode TimeStamps:

01:23 - What has caught our attention recently?

03:00 - Industry performance update

05:32 - Reversions incoming?

07:06 - Q1: Regarding how to choose instruments in your trend following algorithm

14:20 - Getting the speed right

17:37 - Q2: At what point does volatility put an investor in a danger zone?

24:32 - Discussing the paper "Negative Crisis Beta" from Quantica

38:16 - Capping the beta

45:17 - The hidden market timing of CTAs

50:23 - The benefits of adding carry to your portfolio

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