Moritz & Moritz from Takahe on the New School of Old School Trend-Following
Apr 4, 2025
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Join Moritz Seibert, founder and CEO of Takahē Capital, and Moritz Heiden, head of quantitative research, as they dive into the dynamic world of systematic trading. They discuss how Takahē evolved amidst ESG challenges, offering a fresh perspective on trend-following strategies. The duo emphasizes rigorous risk management and the balance between simplicity and complexity in trading models. They navigate the intricacies of trading in liquid and illiquid markets while advocating for high-octane approaches, all while maintaining a long-term investment perspective.
Takahē Capital emerged from restrictive ESG mandates, highlighting the importance of engaging with diverse commodities for effective portfolio diversification.
The podcast underscores a trend-following strategy that emphasizes risk management through fixed risk unit sizing and allowing winning trades to expand.
A successful systematic trading approach balances simplicity and complexity while resisting over-optimization, focusing on enduring core principles for capital efficiency.
Deep dives
Navigating Uncertainty with Trend Following
Trend-following systems are designed to manage uncertainty in trading by focusing on keeping losses small and allowing winning trades to run. This strategy involves having an initial stop loss and suitable position sizing at trade inception while letting trades develop naturally. Such systems recognize that financial returns follow a non-normal distribution, characterized by 'tails,' which allows positions to demonstrate both large volatility and return concentration. This approach emphasizes patience and the importance of not prematurely exiting trades that exhibit strong trends.
The Impact of ESG on Trading Strategies
The increasing regulatory pressure for Environmental, Social, and Governance (ESG) compliance has affected trading strategies for many institutions, limiting their ability to trade in commodities often associated with fossil fuels. This shift has led to concerns over the potential risks associated with abandoning key diversifying markets, which can contribute to inflationary pressures impacting overall portfolio performance. The transition emphasizes a critique of short-sighted ESG strategies, suggesting that they often overlook the complex realities of market dynamics. There is an acknowledgment that engaging with these markets could help investors maintain necessary diversification within their portfolios.
Innovative Risk Management in Trading
The trading strategy focuses on managing risk differently by allowing trades significant room for growth instead of scaling back positions when volatility increases. This contrasts with traditional approaches, which often restrict trading based on volatility levels. The system actively aims for outlier trades—those that have an extraordinary return potential—by holding positions for extended durations, regardless of market fluctuations. Risk management here revolves around ensuring that losses remain small while maximizing the potential upside on successful trades, creating an opportunity for substantial profits.
Strategic Position Sizing and Portfolio Diversification
Position sizing in this trading strategy is crucial, as it balances the initial risk at the time of entering trades while considering ongoing volatility. By understanding the correlations among different assets, the approach allows for the utilization of various market signals without overcrowding a single position. When a position in the U.S. treasury market is taken, analysts anticipate other correlated trades but do not adjust initial sizes based on those expectations. This strategy facilitates the accumulation of diversified returns while also managing portfolio heat effectively.
The Essence of Systematic Trading Philosophy
The key to successful systematic trading lies in maintaining simplicity and transparency within systems while resisting the urge to over-optimize strategies. Acknowledging that many complex models can lead to overfitting and unreliable results, the focus remains on core trading principles that promote capital efficiency. Investors are encouraged to engage with strategies that embrace inherent risks rather than shy away from volatility, fostering a collaborative understanding between traders and investors. This philosophy emphasizes that long-term success hinges on managing investor expectations and promoting true understanding of the trading approach.
In this episode of ReSolve Riffs, host Adam Butler is joined by two special guests from Takahē Capital – founder, CEO, and chief bottle washer Moritz Seibert, and head of quantitative research, Moritz Heiden. They offer an in‐depth look into systematic trading within managed futures, exploring topics such as commodity markets, trend following, risk management, portfolio construction, and the challenges posed by investor and ESG dynamics.
Topics Discussed
• The emergence of Takahē Capital from restrictive ESG mandates and its unconventional origins
• The core trend following strategy, outlier trading, and the “high octane” approach
• Rigorous risk management techniques centered on fixed risk unit sizing and drawdown control
• Diversification across conventional and peripheral commodity markets
• Position sizing dynamics through multiple independent trading systems
• Portfolio construction methods and the management of correlated markets
• The balance between simplicity and complexity in systematic trading models
• The impact of investor demands and ESG standards on volatility, capital efficiency, and returns
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