Flirting with Models

Chris Meredith is co-Chief Investment Officer and Director of Research at O’Shaughnessy Asset Management.  In this episode, we focus on the latter title and talk all about what it means to develop a strong research program. Our conversation centers around what Chris considers to be the three key pillars: data, tools, and people.   Chris provides insight into how data sets have changed since the beginning of his career, starting with highly structured price and fundamental data to so-called “pointy,” highly specific data sets and now completely unstructured blobs of information.  He offers his thoughts into how this growing information set represents both an opportunity for researchers as well as a risk, requiring careful forethought into how it is going to be attacked. Our discussion of tools covers both the digital and the physical.  We talk about the influence of open-source software, the growing role of machine learning, and the operational benefits of treating each researcher’s laptop like a stand-alone research sandbox.  It is easy to tell that while Chris has a passion for the data and tools, he truly believes that they are for naught without the right people and he shares some of his ideas on how to maximize the potential of his team.  Chris also sheds light on the OSAM research partners program, which grants 3rd party researchers access to the OSAM data platform.  This new initiative is a highly unusual approach for a traditionally secretive industry, but early papers coming from their collaborations suggest it may bear significant fruit. Please enjoy my conversation with Chris Meredith.

In this episode I am joined by Liqian Ren, Director of Modern Alpha at WisdomTree. After receiving her degree in Computer Science, Liqian came to the United States to pursue her Masters in Economics.  Liqian then did a quick stint at the Federal Bank of Chicago as an associate economist, before returning back to academia to pursue her PhD at the University of Chicago. In 2007, Liqian joined Vanguard’s Investment Strategy Group, where she leveraged her background to perform economic and capital market forecasts, studies on asset allocation, and research into topics such as retirement income and investor behavior. Liqian eventually transitioned to Vanguard’s Quantitative Equity group, where research efforts were focused on deep, stock-level signals analysis and portfolio construction.  Becoming one of the first to act in a dual capacity research / portfolio manager role, Liqian developed a deep appreciation for implementation-aware research. We spend much of our conversation talking about factors in both theory and practice.  We hit subjects such as the risks of delayed implementation, mixed versus integrated portfolio construction, opportunities for factor timing, active versus indexed implementations, and how factors fit within a glide path. Finally, we discuss Liqian’s new role at WisdomTree and new areas of research she is excited to pursue. I hope you enjoy our conversation.

In this episode I chat with Wayne Himelsein, president and chief investment officer at Logica Capital.  To our conversation Wayne brings over two decades of experience managing long/short portfolios, ranging from statistical arbitrage to factor long/shorts. For as deep in the weeds as he liked to go as a quant, Wayne has a philosopher’s streak and Twitter is his soapbox.  Of course, 280 characters can be limiting, so I start out conversation by putting Wayne in the hot seat and ask him to explain the deeper meanings behind some of his recent tweets. Using these philosophies as a foundation, we then dive into long/short portfolios.  We talk about the practical difficulties of managing these strategies and Wayne explains why he believes that beta-neutral is a fool’s pursuit.   We then switch topics to tail risk hedging.  These sorts of strategies are notorious for their bleed, and we discuss whether the payoff is ultimately worth the cost of insurance.  Wayne describes a few ways in which the bleed can be managed and the ensuing tradeoffs with each method.   In discussing both long/short and tail risk hedging strategies, I ask Wayne what due diligence questions he would ask if he were evaluating another manager.  I find this question always provides great insight into what managers of these strategies actually think is important.  Wayne does not disappoint. I hope you enjoy my conversation with Wayne Himelsein.  

My guest in this episode is Jason Thomson, a portfolio manager at the William O’Neil family office. On paper, Jason doesn’t seem like a particularly good fit for this podcast.  He runs a highly concentrated discretionary portfolio of growth equity names.  He can be levered long, net short, or completely out of the market all at his discretion. What becomes rapidly apparent is that while Jason has ultimate discretion, he adheres closely to a disciplined, rules-based process driven by the empirical research of an in-house quant group.  The core framework of that process retains the spirit of William O’Neil’s original CANSLIM methodology, but now has nearly a half-century of learning and nuance layered on top. As a quant, it is tough to hear “growth” and not think “expensive.”  Jason dismisses the idea that growth investing is all about headline-making, high-flying stocks, though, and emphasizes the importance of valuations.  In fact, about a quarter of his holdings are turn-around plays.   We talk about the role of investment themes, the importance of position sizing, and how Jason thinks about managing risk in a portfolio with less than ten names. The idea of managing a portfolio the way Jason does definitely put me out of my comfort zone, but our conversation made me reconsider what I think I know about growth investing

My guest is Artur Sepp, Director of Research at Quantica Capital AG in Zurich. In 2008, Artur was working on structured credit products for Merrill Lynch, giving him a front-row seat to the ensuing credit crisis.  We use this experience as a jumping off point for our conversation, with Artur providing both pragmatic and philosophical lessons learned. One of those key lessons was the role of liquidity, which Artur argues is the key factor behind many premia we see in the market. Artur’s focus on liquidity grew as he transitioned to London in as an equity derivatives quant, where he was responsible for building models to hedge options on illiquid underlying assets.  Here we get into the nitty gritty, discussing a paper Artur wrote about the practical realities of delta-hedging options under a framework of discrete hedging and transaction costs. In 2015 Artur moved to Julius Baer’s advisory solutions group in Switzerland where he served as a client-facing advocate for alternative risk premia strategies.  Here Artur had to learn how to translate his deep quantitative knowledge into client understanding.  He shares with us some techniques and tricks he learned for effectively communicating what can be rather complex ideas. Today Artur works at Quantica Capital, whose flagship product is a Managed Futures strategy.  I ask Artur for his opinion on recent struggles in the managed futures space and what he thinks the future for trend following managers will look like.  You definitely won’t want to miss his answer. Artur is a fountain of quant knowledge and offers the unique perspective of someone who has both spent time deep in the weeds and time trying to explain the esoteric.  There are lots of gems in this one, so stay tuned.

In this episode, I am joined by Tammira Philipe and Elena Khoziaeva, both of Bridgeway Capital Management, a quantitative asset manager founded in 1993 offering systematically managed equity strategies.   But that’s not how Tammira or Elena would describe it.  And that’s what this episode is all about: communication in the realm of quant.   As President and CEO of Bridgeway Tammira provides us with a perspective of why effective communication is so important for building an enduring asset management firm and why quants, in particular, face an up-hill battle. Elena, who serves as head of US equities, offers us insight from the PM seat and provides some practical advice on how to best communicate difficult quantitative ideas. We discuss both the importance and difficulty of on-going investor education, smart beta’s impact on industry comprehension, and ideas for how quants can better communicate in the future.

In this episode I chat with Ben McMillan, a founding partner of IDX Insights, a firm offering "indexing as a service." Ben cut his teeth in manager analysis at a fund-of-hedge-funds and we spend a considerable amount of time discussing how this experience impacted his research in building hedge fund replication strategies. As it turns out, a naive replication strategy is very easy to implement. A robust one, however, is deceptively difficult.  One of the most interesting insights I gleaned from this conversation is that the edge in replication may not be in applying more sophisticated math, but rather in the data sets applied. We discussed where replication might work, where it doesn't, and the dependent nature these liquid replicators have in crowd-sourcing their allocations from their less-than-liquid peers. Finally, we discuss how these sorts of replicators might be further enhanced by replacing standard beta factors with more customized index solutions. Ben is full of insights and this one runs long.  So let's not waste any more time and let's dive in.

I am joined today by Benn Eifert, founder of QVR Advisors.  QVR specializes in managing option-based strategies and Benn describes what he does as volatility investing. We quickly wade into the deep end with this one.  Benn schools me on relative value investing and dismisses my favored mental model of style premia for what he prefers to call “the Star Wars framework.” We chat about volatility ETPs, their impact on the volatility landscape, and how the market has changed since February 2018.  And with some spectacular option-driven blow-ups in the last couple of years, I ask Benn for his guidance on how he would think about due diligence in the space. Finally, while Benn deals exclusively with institutions at QVR, I get his thoughts on how volatility investing might play a role for individual investors.  We go deep with this one.  So let’s dive in.

In this episode, I sit down with good friend Adam Butler, Chief Investment Officer of ReSolve Asset Management.  Rather than take the usual interview style, we thought it would be fun to just sit down at a bar without an agenda and just record the stuff we would have been talking about anyway. With drinks in hand, we dive into a conversation that covers topics ranging from machine learning to analytical derivations of the correlation between trend following signals to the role of defensive strategies in a portfolio. We hope you enjoy.

"How do you come to a rational conclusion as to what a company is worth?"  A seemingly simple question with little-to-no clear answer. For John Alberg, a background in computer science and a passion for machine learning led him to view the problem through the lens of data.  "If it is true that you can use publicly available information to buy companies for less than their economic worth," he thought, "then you should be able to see it in the data." And thus was born Euclidean, an investment firm that marries machine learning with a deep value mentality. Our conversation spanned more than 2.5 hours and covered everything from the basics of machine learning, to the evolution of Euclidean's approach over the last decade, to the implications of adversarial examples in neural networks. This podcast, an abridged version of our conversation, picks up the thread mid-way through, where I have asked John to expand upon his experience with his startup, Employease, and how it influenced his value-based thinking at Euclidean. I hope you enjoy.