Flirting with Models

My guest is Eric Crittenden, founder and Chief Investment Officer of Standpoint Funds. Eric has spent his career with trend following strategies, first at BlackStar where he managed a fund-of-funds, then at Longboard, and now at Standpoint Funds. This background makes him not only a fountain of knowledge on trend following theory, but also the operational logistics and practical considerations. In this episode our conversation ranges from the source of the trend-following premium to novel concepts for stress-testing managed futures programs. We discuss the struggles the space has faced, the evolution of CTAs, how to think about dispersion among managers, and how Eric thinks about solving for client behavior. I hope you enjoy my conversation with Eric Crittenden.

In this episode I speak with Jeffrey Baird, managing partner at Merritt Point Partners. Merritt Point Partners seeks to build diversified portfolios of convexity exposure through the commodities market. With that in mind, we talk about what makes the commodities market unique, who the players are, and the types of trades that Jeff looks for. Stepping somewhat outside of the theme for this podcast, Jeff actually employs a heavily fundamentals-driven process. But what fundamental means in the commodity space is different than what it traditional means in the equity space, so Jeff walks us through how this concept applies in markets such as gold and natural gas. With so many markets and corresponding derivatives to trade, the opportunity set seems overwhelming. And so does the risk of managing a portfolio. Jeff talks us through his framework for managing risk and the seemingly backwards idea that being profitable in a position can actually introduce more risk for portfolios seeking convexity. I hope you enjoy my conversation with Jeff Baird.

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.