Dr. Ernest Chan, founder of QTS Capital Management, talks about his use of machine learning as a risk management layer on QTS's Tail Reaper program, a tail hedge strategy. He shares the success and unique approach of the tail reaper program, discusses the limitations of deep learning, and explores the challenges of adopting machine learning in the process.

In this episode I speak with Jim Masturzo, Head of Asset Allocation at Research Affiliates. In his role, Jim oversees the research and publication of the firm’s capital market assumptions as well as the implementation of those views into a suite of tactical portfolios. We begin our conversation discussing the foundational assumptions behind the capital market assumptions. Like most firms, Research Affiliates takes a long-term view on return and risk. In line with the firm’s guiding philosophy, they also introduce long-term mean reversionary effects. Not surprisingly, these assumptions have been relatively bearish on U.S. equity returns for a large part of the last decade, and we discuss how to view the dispersion between these model forecasts and realized results. We then shift our conversation to the application of tactical views. With capital market assumptions serving as the strategic backbone, Jim and his team develop a number of regime-based model portfolios that can be blended to express different tactical views. But the team does not take a purely quantitative approach. Jim proactively acknowledges and seeks out model blindness. Rather than try to force idiosyncratic fixes into the models that might bias results, however, he and his team adopt qualitative trades to adapt the portfolios. From strategic to tactical and quantitative to qualitative, this is a wide ranging conversation all about asset allocation. I hope you enjoy.

Today I am speaking with Benn Eifert, founder and CIO of QVR Advisors. Benn is my first repeat guest on the podcast, making his first appearance in Season 2. When I asked listeners who they wanted on for Season 3, he was high on the list. In this episode, we take things in a bit of a different direction. Rather than a normal interview, I use this opportunity to ask Benn about his opinion on a number of different trade ideas, from covered calls to shorting VIX ETPs. Benn walks me through the subtleties of each trade and why the PnL of what might look like a simple trade can be incredibly nuanced. Towards the end of the conversation we turn to broader market topics and discuss the general impact of structured product desks and options dealers as well as Benn’s view as to whether March 2020 will create a lasting impact on volatility markets. I hope you enjoy my conversation with Benn Eifert.

In this episode I am joined by Michael Krause, co-founder of Counterpoint Asset Management and Counterpoint Mutual Funds. Our conversation covers two major topics. In the first half, we discuss some of the nuances of high yield bond timing and the subtleties of strategy construction. In the second half, we discuss long/short equity strategies. For listeners more interested in the technical, this is where the meat and potatoes of the conversation lies. We discuss Michael’s evolution from regression to machine learning techniques, the unintended consequences of accidental exposures, and managing risk through optimization while managing the risk of optimization. I hope you enjoy my conversation with Michael Krause.

My guest today is K.C. Hamann, founder of AQIS LLC. K.C. is a Warren Buffett disciple and spent his first decade in the industry working as an analyst at discretionary, deep value long/short equity hedge funds. Which probably makes him sound like an odd guest for a podcast all about quantitative investing. K.C.’s experiences, however, lead him to identify a number of biases that he believes pollute the stock picking skills of discretionary analysts. And thinking of a hedge fund as a system whose first goal is survival, he believes that these biases are durable. For K.C., 13F filings are prospect theory in action. By modeling both the universal and idiosyncratic biases of a manager, K.C. seeks to better identify cases of true conviction which often do not correspond to position size. And it is in these high conviction ideas that K.C. believes are the best opportunities to generate excess returns. I hope you enjoy my conversation with K.C. Hamann.

My guest today is … me. But rather than interview myself, my co-portfolio manager Nathan Faber joins the podcast to take the reigns. In this episode, we talk all things rebalance timing luck. It’s been an obsession of mine for years and something we believe to be a dramatically misunderstood and outright ignored source of risk in portfolios. We discuss how we first came across the topic, some recent research into it, important implications for the industry at large, and how we can try to solve for it. I hope you enjoy the conversation.

My guest in this episode is Daniel Grioli.  Daniel cut his teeth in the industry at Deutsche Bank in London, where he was responsible for valuing structured equity and hedge fund of fund products targeted at continental Europe.  His timing of joining Deutsche, while perhaps somewhat unfortunate for him, proves fortunate for us as he retells a few war stories and lessons learned from the desk leading into 2008. During the crisis, Daniel found himself back in Australia working for a pension fund, where he made a career in manager evaluation, selection, and combination.  That makes Daniel somewhat unique among prior podcast guests, as he provides us some insight into the decision making of capital allocators on the other side of the table. The breadth of managers evaluated gave Daniel some unique insights that he shares with us around where he believes the limits of quantitative and discretionary management lie.  He also shares his framework for manager selection, which he calls Via Negativa.   Presently, Daniel is leveraging this experience to build what he calls a “best ideas” portfolio, exploiting 13F reporting data to create a high conviction equity portf   olio for his clients. Finally, we talk about the i3 podcast that Daniel hosts and some of the most interesting guests he has interviewed. Without further ado, my conversation with Daniel Grioli.

In this episode I am joined by Katherine Glass-Hardenbergh, Associate Portfolio Manager at Acadian Asset Management.   In her role, Katherine focuses heavily on the application of alternative data in Acadian’s fundamentally-driven, systematic investment process.   Purported as being one of the leading frontiers of quant finance, there is plenty of hype around alternative data.  Katherine brings refreshing transparency to our conversation, speaking just as candidly about the hurdles in alternative data as the opportunities. We discuss everything from what alternative data is, where it comes from, interesting examples in the ever-expanding landscape, some of the practical challenges of working with alternative data, and the many potential applications for use within the investment industry. Katherine provides insight into the world of alternative data that only someone deep in the weeds could.  If you’ve ever been curious as to the real-world application of alternative data, this is definitely the episode for you. I hope you enjoy our conversation.

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.