Episode 224

full
Published on:

21st Mar 2025

Live Q&A - Managed Futures Trend & Carry Flash Update

This in‐depth live Q&A features guests Corey Hoffstein, Chief Investment Officer of Newfound Research, and Adam Butler, CIO of ReSolve Global, alongside host Rodrigo Gordillo, President and Portfolio Manager of ReSolve Global. In this episode, the panel unpacks the current macro market shifts and their impact on managed futures strategies, discussing topics such as policy shocks, systematic trend and carry models, volatility, and historical market precedents.

Topics Discussed

• Global Macro Market Dynamics and Policy Shifts affecting asset classes across Europe, the U.S., and beyond

• The Cumulative Impact on Managed Futures and Systematic Strategies that span multiple asset classes

• Multi-Asset Carry Strategy Fundamentals, including yield extraction and financing differentials

• Trend Following Strategies under Volatile and Reversal Conditions in rapidly shifting markets

• Risk Adjustments and Portfolio Rebalancing Mechanisms as systematic models react to sudden market changes

• Historical Precedents: Lessons from events like the 1994 bond massacre and subsequent policy shocks

• The Interplay between Policy Announcements and Systematic Strategy Performance amid geopolitical surprises

• Advisory Perspectives and Long-Term Risk Management for communicating drawdowns and premiums to clients

Transcript
Rodrigo Gordillo:

All right.

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Looks like we are live,

ladies and gentlemen.

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Thank you everybody.

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And, uh, welcome to our live Q and A

and today we're planning on discussing

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what is going on, broadly speaking

in the macro markets today, and the

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impact specifically to the managed

future strategies of trend and carry.

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And, um, yeah, I mean, if you

guys haven't heard of us already,

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uh, my name's Rodrigo Gordillo.

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President and Portfolio Manager at

Resolve Asset Management Global.

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And today I'm joined with Corey

Hoffstein, Chief Investment Officer

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of Newfound Research, along with

Adam Butler, CIO of Resolve Global.

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And everybody here today are co-founders

of the Return Stacked ETFs and Return

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Stack Portfolio Solutions Ventures.

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So thanks gents for joining us today.

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Uh, and we.

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Turn this around quite quickly.

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I know everybody's been hard at

work trying to get a handle on

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what's going on in the markets

in the last few weeks and days.

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Um, and, uh, I'd like you guys to help

us set the stage, uh, a little bit

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on what's going on in the markets.

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I mean, in the last few weeks, um,

we've had European regulation reforms,

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the surprise German fiscal stimulus.

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The Atlanta Feds negative Q1 GDP.

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Now print.

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Not to mention the tariff

battles, you know, between

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Canada and Mexico and Europe.

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Now we have systematic.

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Now it, it, the, the reality is that

systematic managers that we are,

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we generally don't talk about these

fundamental things very much, but I do

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want to kind of pick your brain 'cause I

know we talk about it a lot internally.

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What have been the biggest market moving

stories in the, in the recent weeks?

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Corey Hoffstein: Hey Rod, I wanna, I

wanna point out, you said all that's

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happened in the last couple weeks.

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All that happened in the last three days.

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Yeah, so I think, I think it's just

that every day feels like a week.

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Look to me, the, these are

all big stories, right?

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Tariff pressure leading

to a massive negative one.

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Q, Q1 GDP forecast, print

is huge for the US economy.

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These European regulatory reforms are

huge for European growth prospects,

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but to me that, like the big one that

was a surprise and and feels like a, a

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bazooka is the German fiscal stimulus.

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For folks who, who haven't read about

it or, or looked into it, the proposed

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fiscal stimulus is really focused on

infrastructure and defense spending.

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In particular it, it allows

Germany to lift their budget cap

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for any defense related spending.

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And so the amount of fiscal

stimulus that it captures is

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between 10 or 20% of Germany's GDP.

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Right.

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So to put that into context, that's

about how much the US unleashed as a

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percent of GDP during covid, right?

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When we shut down the economy,

we did a fiscal stimulus

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package of 10 to 20% of our GDP.

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Germany just went, let's do it.

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Right.

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And so you saw massive moves

in the German fund, right?

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Uh, rates there jumped 30 bips, which

is the last time they jumped 30 bips was

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again, during covid, during ex, you know,

expectations that, uh, the government

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was gonna have to pay for this somehow.

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You saw huge moves in, um, the German.

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Uh, Dax, right?

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The equity market, uh,

both up and down, right?

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Uh, lots of volatility there, right?

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And you saw moves in, in

the Euro versus the dollar.

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And so I think in terms of like something

that had a true cross market impact, that

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was just a, a huge one in the scope of it.

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For Germany is just so

massive relative to their GDP.

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It, it feels, and again, I feel like

we use the word unprecedented every

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time something happens in the markets.

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But, but for not having, uh, a

covid like economic shutdown to

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just say we're unleashing 10 to

20% fiscal stimulus is, is huge.

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People should be aware, appreciated.

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I also appreci just one

comment real quick, Adam.

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It's, it's not in effect yet.

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The, I think the vote is March 24th.

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So in terms of what markets are

trying to digest, there's also a

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probabilistic reaction here and you

know, if markets overshoot that this

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is gonna get implemented, you could

see a whipsaw effect in, in late March.

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Adam Butler: Yeah, I actually,

just in terms of whipsaws.

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I mean, this has been an

environment dominated by Whipsaws.

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I remember coming into, February,

the tariffs were announced.

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The currencies of the target

economies are decimated, which

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was in the direction of carry.

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It was in the direction

of the prevailing trend.

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Started out being a

phenomenal day, February 1st.

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And By the end of the day, it was,

announced effectively that, the tariffs

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were not gonna come into effect, or

at least they were gonna be delayed.

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There were options for target

countries actions they could take

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in order to avoid this outcome.

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So market is completely reversed and we've

seen these kinds of policy reversals over

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and over, over the last few weeks, and

it is this strange binary outcome, right?

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25% tariffs or on Canada and Mexico on top

of 20% across the board, tariffs to China.

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That is a completely different global

world in 6 to 12 months than not

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having those tariffs in place, right?

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So investors are having

to sort of price in this,

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double-headed this binary distribution,

where, you know, you've gotta price in

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the probability of one or the other.

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And it's not like it can be the

average of the two, it's gonna

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be one or the other, and markets

are just vibrating between them.

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Right?

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Uh, just in terms of the, the, um,

uh, the size, the magnitude of this,

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um, change in Europe, you know, uh,

legislation was put in place on the

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formation of the European Monitoring

Union to enforce fiscal prudence, largely

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driven by the Bundas Bank by Germany,

which, which is typically the most, uh.

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Uh, austerity or fiscal prudence

oriented country and, and,

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and governance, uh, structure.

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Um, but it was applied broadly to

the Eurozone, broadly to the EMU.

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And, um, those rules are

not easily overturned.

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Some of them require

unanimous consent from all EMU

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participants in order to to pass.

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So, you know, while Germany has changed

their views, obviously, you know,

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180 degrees over the last few days

even yet, we still need to, we, the

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Scandinavian countries also need to

validate any major changes in rules.

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Uh, it also takes a two thirds majority

to change the, the laws around the debt

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break in Germany that would allow them to

engage in this level of fiscal expansion.

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And keep in mind, this is 10

to 20 times the level of fiscal

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expansion that is currently allowed

under Germany's debt break policy.

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So it's not just that, you

know, the politicians have

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announced their objectives or

their goals or what have you.

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It is, there's, there's, you know,

the markets are saying there's a

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reasonable probability that, that these

rules will get completely repealed or

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substantially modified in the very near

future, which will unleash a completely

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different economic environment in Europe.

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And that's what's being priced here.

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Rodrigo Gordillo: Yeah.

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And, and I think, you know, talk

about unprecedented, you know, the,

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the last time that the yields move

this quickly in Germany was:

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So it's been a while since we've

seen a single day move like this.

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And so I, I just wanna kind of

go through, 'cause we're gonna be

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talking about systematic strategies.

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Um, and you know, just as a

reminder, systematic strategies.

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In, in the managed future space,

invest across all equity markets,

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you know, or large swath of equity

markets, large swath of bond

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markets, commodities and currencies.

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And I just wanna, I'm gonna go take

some time to go through some of

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the major ones so that we can get a

feel for what type of the magnitude

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of moves in the last few days.

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Um, and so why don't I

begin with currencies here.

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You know, the US dollar is up 8%

against major markets from September

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to, uh, 2024 to January, 2025.

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Down 4% from mid-January

through to March, fall.

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That's the type of whip

saw we're seeing, right?

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That the German, sorry, the, uh,

the UK uh, currency is up 2.5%

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and the euro is up 4% in the last three

days, representing a 99 percentile in 99.9

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percentile three-day move.

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Right.

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Again, this is gonna be a, a

common theme as I go through these.

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Adam Butler: Yeah.

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So just, just to put that

in perspective, right.

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A 99.9

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percentile move is expected to happen

about once every thousand days.

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Rodrigo Gordillo: Yeah.

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And so when I move on here

to, what do we just do?

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The currencies, German bonds,

we just talked about them.

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A 3% move in the last three days.

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That is a less than 0.1

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percentile outcome.

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Uh, gilts down 2% in the last three days.

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A one percentile outcome equities.

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The German stock market, uh, we

look at 25% increase since, uh, two

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thousand, 2024 in the last two days.

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It's been incredibly

volatile with a negative 3.5%

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on March 4th and a positive five, 3.5%

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on March 5th, right?

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Again, talking about these Whipsaws

S and P 500 NAS and, and Nasdaq.

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Strong trends in 2024, now negative

for the year in:

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definitely kind of seeing some

short term shift in momentum, uh,

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away from US equities and towards

European equities on the energy front.

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We're looking at a very strongly

positive 10 to 20% moves across a

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variety of contracts from the lows in

September,:

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And the, the, um, Brent crude move

in the last three days of negative

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5% is in the fifth percentile.

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Most energies are now negative for

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gas, which is, which is up quite a bit.

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It's up 35%.

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Um, all right.

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Metals, trends in gold and other precious

als are generally strong from:

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through 2024 at five, even, even to date.

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Um, copper, this is the big winner here,

is up 15% year to date with a, that's

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like a massive big one day 5% move.

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That's a 99.5

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percentile outcome.

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Right.

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And that's, uh, that's

due to the tariffs, right?

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That, that we're announcing copper.

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I know people knew that that's, that's

another announcement that has come,

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you know, we focus so much on equity

markets, but, um, you know, we are,

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Adam Butler: One can be excused for

missing, um, a policy announcement.

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Amongst the, uh, barrage we've been, yeah.

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Rodrigo Gordillo: And then in grains and

sauce, the big movers were coffee up 15 to

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25% in cocoa, uh, down 30% year to date.

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Okay.

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So that's, those are the markets we're

dealing with, and that's the magnitude.

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And again, focusing on how rare

these moves are, single day, three

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day moves as we move, uh, into, uh.

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Assessing what those broad

market impacts are to systematic

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strategies like carry and trend.

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Uh,

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Adam Butler: I think it's important too

to remind people, like listeners, when you

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talk about managed future strategies, many

people don't realize that we're allocating

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to all of these different markets.

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Like the reason why we're talking about

how cocoa and copper and the DAX and

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the BUN and all these different markets

have been behaving is because these

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are, uh, for the most part constituents

of managed futures portfolios, right?

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So while typically investors' attention

is on what's going on in maybe in the

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s and p or maybe some are watching

the US tenure rate, uh, and maybe the

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dollar, you know, So, um, really need to

take a global multi asset perspective.

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Rodrigo Gordillo: Yeah,

that's a good point.

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So let's start talking about some

of these managed future strategies.

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Let's start with carry,

um, multi-asset carry.

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To be specific, not everyone is really as

familiar with carry as with multi-asset

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carry models as they are with Trend.

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So Adam, you literally, uh, recently wrote

a large white paper for Resolve on carry.

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Can you give us a 30,000 foot review

as to how the strategy operates?

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Adam Butler: It's not that

large or intimidating.

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Definitely digestible and

approachable and worth reading.

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Um, yeah, I mean there is a reason why we,

parenthetically call carry yield, right?

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carry is the return you expect to get on

an investment if the price doesn't change.

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I mean, you know, obviously.

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We're used to in this environment

getting the vast majority of our

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returns from changes in prices, right?

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Stocks go up, indices go up, et cetera.

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But there is another source

of returns and that is yield.

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And in equities it's the dividend yield.

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In bonds it's the coupons

that are paid, quarterly or,

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bi-annually or annually on bonds.

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In currencies, you can borrow in a

currency with low interest rates to

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invest in the short term, government

bills of a, of a currency or a government

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with higher interest rates, right?

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So you can borrow it, say 1% in your,

in a domestic currency, and then invest.

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Overseas in, a country that's yielding

2% and earn that 1% spread in currencies.

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and then in commodities there's

also a yield, a convenience,

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real yield, a roll down yield.

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the idea in commodities being that,

the futures markets are helping to

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ensure large investments by commodity

producers by giving them a price

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today for their production, which

probably won't come online for many

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years in the future, but by the

futures markets giving them a price.

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Today, They're able to lock in

a much better financing rate on

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building out those large projects

to, to build those, into production.

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And, therefore their cost

of financing is lower.

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the economics on these

projects are more attractive.

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And so it's this win-win in

commodity markets, right?

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So it's really just dividends on

equities, coupon payments, in bonds.

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Interest rate differentials in currencies

and this insurance and convenience yield

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in commodities that we are harvesting.

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Again, the price doesn't really need

to change though in futures markets.

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It ends up that the price changes

just in terms of how futures roll

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up or roll down the curve coming

into the maturity of the contract.

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But the simplest way to

think about it is just.

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Picking up coupons or,

or picking up dividends.

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Rodrigo Gordillo: Okay.

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So, but let's talk a little bit about,

so that's the concept of carry, but

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let's talk about the idea of those carry

measures as signals to try to predict

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future price movement of these assets.

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Adam Butler: Yeah.

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So in general, you wanna be

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Rodrigo Gordillo: flipping coupons in

front of a steam roll roller rather than

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using it as, um, as a predictive measure.

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Adam Butler: Sure.

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The, the idea is that in general, you're,

you're gonna expect to get a higher

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return from an asset with high carry,

you're gonna expect to get a negative

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return from an asset with negative carry.

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What is positive carry or negative carry?

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Well, typically carry is whatever

the, the rate of return is above

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the cost of financing, right?

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So you need to borrow money in

order to purchase, uh, an asset.

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So if the rate that you are borrowing at

is lower than the rate that you expect,

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expect to get paid on, on that asset,

you're expecting to earn a positive carry.

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So let's say this is actually not the

case in in many global equity markets

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at the moment, but let's say that,

that the expected dividend yield on

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an equity index is 5% and the current

interest rate that you would would need

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to borrow at in order to invest in that

equity index, you only have to pay 2%.

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Well, you would expect that, um,

you expect to earn about a 3%

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premium over that, the duration

of holding that instrument, right?

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If instead, as actually is the case

today, the dividend yield is, is

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actually lower than the financing rate.

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So let's say the dividend yield is 2%

and it costs four or 5% to finance it.

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Well, actually, you probably want

to be short that, um, asset and

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long cash effectively in order to

earn the, that differential, right?

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And so in that way, what we sort

of, uh, assume or expect and what's

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validated over decades of empirical

evidence is that markets tend to rise

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in price to match the expected carry.

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Right.

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So if there's an expected 3% di uh,

difference between the cost of financing

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and the coupon or dividend yield or what

have you that you're expected to get

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paid, then the price will sort of rise

in order to deliver that 3% premium or

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in the, in the case of being short, the

price will fall in order to deliver that,

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that premium, and we're measuring that

premium, that carry premium every day,

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and it changes every day depending on

changes in interest rate differentials or

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the slope of the yield curve, et cetera.

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Um, and we're adjusting every day

to try to get maximum exposure to

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markets that appear to have the

highest expected carry and the largest

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short exposure to markets that have

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the greatest expected negative carry.

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Corey Hoffstein: And so Rod, if, if I can

summarize it maybe in like one sentence.

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Yeah.

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Right.

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Because I think what's important

here, when we talk to people

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about carry strategies, they often

think about clipping coupons.

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What's critical about a multi-asset

carry strategy is it's using carry

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as a signal to try to forecast

the total returns of each market.

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Rather than a strategy that's

trying to isolate and extract

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the carry on its own right.

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So just like trend use a trend signal

to go long and short markets and you're

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trying to forecast the total return carry

strategies can do something similar.

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Rodrigo Gordillo: Yep.

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So let's then with that understanding,

um, if anybody wants to get something,

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uh, a bit deeper, we've done a ton of

other, uh, videos and, uh, papers on

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it and, and you can go return stack.com

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and read some of the,

uh, blog posts in there.

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But, uh, let's talk about what,

how carry has been affected

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in this market environment.

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So, broadly speaking, how were

multi-asset carry models, positioning,

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positioned, entering this week.

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Adam Butler: Yeah.

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So keep in mind, right, just

think about the evolution of the

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economic environment since say 2020.

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Right?

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So we had this large stimulus from

Covid, um, that contributed to a

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surge in inflation, can argue about

what other factors contributed,

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but surge in inflation we had.

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The Fed raised rates aggressively

and therefore short-term yields

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rose above long-term yields now,

that the yield curve is inverted.

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So that when the yield curve is

inverted, you're actually getting

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a lower expected, uh, return on the

10 year than you are on owning cash.

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And so that implies from a

carry standpoint, that we

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should be short bonds, right.

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Indeed the carryr strategy was short bonds

for much of the:

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And through much of 2024.

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And then as the economy began to

cool, the Fed began to, and global

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central banks began to, to talk

more dovishly about rates imply

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rate cuts actually have rate cuts.

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The curves have normalized and, and

in many parts of the world, um, are

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now back to being upward sloping.

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Right?

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So.

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Over the last six months or so,

our, our bond exposure and the

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carry strategy has tended to be on

average more sort of long bonds.

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Now, what happened?

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And, and by the way, as a result too, um,

there were changes in currency markets as

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different economies ob uh, experienced.

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Changes in, or moderation in

inflation rates at different, um,

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rates over time or at different,

uh, speeds, let's call it over time.

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And therefore, the currency markets,

um, changed in, in order to reflect

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those changes in return expectations

and therefore changes in interest

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rates, short term interest rates.

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Right?

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So now we come into the

most recent episode.

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Um, the Trump administration

announces that.

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America is no longer in a position

to continue to fund the Ukraine

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war, to continue to support NATO

to the extent that they have.

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Europe is gonna need to

stand on their own two feet.

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Um, so-called strategic autonomy

that motivates this enormous,

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basically overnight change in.

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Both the public's perception of the

necessity of, uh, major fiscal spending,

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uh, policies in, in, uh, Europe, and

changes to the legislation that would

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be required in order to, uh, actually

operationalize those fiscal expansions.

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So the market goes from perceiving

that Europe is kinda locked into

358

:

this low growth environment because

they've got all these regulations that

359

:

prevent major expansionary policies.

360

:

Overnight that's flipped on its head.

361

:

We're getting a massive expansion.

362

:

Therefore, nominal growth

expectations jump effectively

363

:

overnight in Europe and Glo.

364

:

Uh, European bond markets are

repriced higher in terms of rates,

365

:

um, in order to reflect these

higher nominal growth expectations.

366

:

So that was a, as Corey mentioned, a

highly irregular shock to both short and

367

:

long-term rates on, on European government

bonds to the tune of between 20 and

368

:

30 basis points, basically overnight.

369

:

And as we know, when interest

rates go up, bond prices go down.

370

:

So we're long bonds.

371

:

The carry strategy, because

carry the, the slope of the

372

:

yield curve has been normalizing.

373

:

In general, we're expecting positive

returns over cash from holding bonds.

374

:

We get this kind of overnight rate shock.

375

:

Um.

376

:

That obviously is highly punitive and

that was the major explanatory variable

377

:

in terms of why we experienced that

large, uh, negative return yesterday.

378

:

Wasn't just that there were also

sort of secondary effects too, as the

379

:

interest rates changed between Europe

and the us, there also was then that

380

:

made the Euro more attractive as a

currency for, you know, uh, global

381

:

savers to hold their savings in.

382

:

So there was a flight from

US dollars into the Euro.

383

:

So the Euro rose.

384

:

We were also net short the Euro because

the interest rates in, in the US have

385

:

been structurally higher than in most

of the rest of the world over the

386

:

last, you know, uh, 12 to 18 months.

387

:

So we've been structurally long, the US

dollar and short uh, foreign currencies.

388

:

So we were positioned, we were,

we were, uh, short the Euro.

389

:

Now the Euro kind of

crashes higher, right?

390

:

So that was also at the

margin, a bit of a hit.

391

:

Add in the Trump tariffs, copper jumps,

meanwhile, copper, uh, is suggesting

392

:

negative carry properties, so we were

short copper on the wrong side of that.

393

:

And oil is reflecting supply

demand dynamics where the, um,

394

:

oil market is in backwardation.

395

:

So we're also offside a

major collapse in oil.

396

:

So it was just a kind of a, a con,

a, a, a constellation of large

397

:

surprises that went against the

prevailing tailwind that we normally

398

:

expect to get on our carry positions.

399

:

Rodrigo Gordillo: So that's,

um, that's very helpful.

400

:

Thank you Adam.

401

:

Um, I think a lot of people in the last

three days may be thinking, okay, this

402

:

is the typical carry strategy that has

a, um, a negative tail risk, right?

403

:

This idea of the young carry trade

going against you at the worst of times.

404

:

Um, do you think that idea is

true here for a multi-asset carry.

405

:

Um, what are your thoughts on, on this

concept of, of the, uh, picking up

406

:

pennies in front of the steamroller

for, for carry, broadly speaking?

407

:

Adam Butler: Well, I mean, if you look

back historically at, uh, recessions

408

:

and, uh, the concept of kind of

a, a typical procyclical strategy.

409

:

Pro cyclical meaning it does well

when the economy is in an upcycle

410

:

and, and does poorly when, when looks

like we're falling into recession.

411

:

So think sort of the reaction

function of global equities.

412

:

Um, you just don't see it.

413

:

So because we're trading all of these

different markets, we're trading

414

:

global bonds, global currencies, global

commodities and global equity markets,

415

:

um, you know, for example, we've been

sort of strategically short, uh, on

416

:

average global equities for many months.

417

:

Right.

418

:

So, you know, if, if sadly equities

kind of didn't fall yesterday, right?

419

:

Yeah.

420

:

So we, that was also a strange situation.

421

:

Um, equities are down today.

422

:

The carry strategy is, is

benefiting from that, right?

423

:

But, you know, this is not a,

uh, a procyclical type of hit

424

:

on the carry strategy, right?

425

:

If anything, it's, it's, we, the carry's

getting hit by a major growth shock.

426

:

In the Euro zone, right?

427

:

And if you look back historically, the the

carry strategy doesn't have any pattern.

428

:

You know it if it happens to be

positioned in some bear markets.

429

:

So that it's kind of long equities

or short rates that it can get hit

430

:

for a time while equities get hit.

431

:

But there are lots of times when

it runs in reverse and carry ends

432

:

up being a wonderful diversifier

by rising substantially as

433

:

equities fall in bear markets.

434

:

So there's just no clear pattern.

435

:

You know, I, I understand that many

people who've been around markets

436

:

for 30 or 40 years kind of think of

carry as currency carry where you're

437

:

borrowing in, say the yen or the dollar

to invest in the Mexican peso or the

438

:

Brazilian real or what have you, to

pick up this interest rate differential

439

:

against emerging market currencies.

440

:

That is clearly a pro-cyclical strategy.

441

:

It is in theory, it is empirically.

442

:

You see them, you know, they get hit

when equity markets get hit, but because

443

:

we're applying this concept to all

these different markets and sectors,

444

:

theoretically, there's no reason

why it should have that profile and

445

:

empirically we just don't observe it.

446

:

Rodrigo Gordillo: Right?

447

:

And, and, but let's, I think,

look, we've had a shock.

448

:

We've had a macro shock in the last few

days, and we have seen periods where

449

:

the carry strategy has been caught.

450

:

Offite.

451

:

Um, can we talk a little bit

about historical context?

452

:

Where, where the strategy is positioned

against the policy shock, and then

453

:

what happened and what happened after?

454

:

Uh, give us, can we go through

some, some examples there?

455

:

Adam Butler: Yeah, sure.

456

:

I mean, think about

the:

457

:

Uh, so Greenspan, he's,

he's newly in office.

458

:

He wants to, um, set a

standard as a, a hard liner.

459

:

Uh, so he, he enforces this very large,

uh, surprise interest rate raise.

460

:

And, um, you know, that that was actually

the, the, until this period, the largest

461

:

drawdown in the carry strategy, just

this unexpected major adjustment.

462

:

To, uh, in that case rates, it was

rates again, this time that caused a,

463

:

a material decline took kind of a, a, a

year or so to recover from those losses.

464

:

Uh, equities and metals also

contributed to losses in that period.

465

:

But eventually, you know, because the,

there's not, nothing changed about the

466

:

long-term expectation of this premium.

467

:

It went on to, uh, to new highs.

468

:

There were, uh, steel tariffs

introduced in March of:

469

:

The carry strategy was caught offside,

uh, some commodities in that year

470

:

and, uh, and struggled for a couple

of of quarters, but actually ended

471

:

up 20% on the year in 2016 to 2018.

472

:

We also had, you'll remember the fed

tried some policy normalization during

473

:

that period, and then markets kind

f had a temper tantrum in, in:

474

:

2018 was a very rocky year.

475

:

So when, at, at the beginning, when, when,

uh, central banks began this normalization

476

:

policy and markets weren't expecting it,

we had another, um, substantial drawdown.

477

:

There was also a round

of tariffs on China.

478

:

So another sort of similar context

to the, the current situation.

479

:

Um, so carry, carry experienced

about a 20% drawdown then, right?

480

:

And there was also kind of a post pandemic

inflation while the market was digesting

481

:

what the, um, how the Fed was going

to normalize rates after raising them.

482

:

Then it's, it's been a kind of, a bit

of a sideways to down move, right?

483

:

Uh, it obviously in all

of these prior periods.

484

:

Things normalized and carry went

on to actually, um, in many cases

485

:

and kind of on average to emerge

from these troughs with a surge of

486

:

better than average performance.

487

:

Rodrigo Gordillo: Yeah, that's what we've

seen across every one of these as the,

488

:

uh, uh, very strong outsized recovery,

um, coming out of these situations.

489

:

So that is important to understand here,

but, um, just going back to the last three

490

:

days, uh, a lot of people are asking,

have there been any adjustments, um,

491

:

made as a system adjusting in any way.

492

:

Uh, can we talk a little bit about

how often a multi carry strategy

493

:

described in your paper as, uh.

494

:

Is adjusting and then how the adjustments

have happened in the last three days.

495

:

Adam Butler: So we're looking at.

496

:

The changes in the interest rate

differentials and the slope of the

497

:

cash yield curve and the term structure

of commodity futures, et cetera.

498

:

Uh, we're looking at that every

day and we're making adjustments

499

:

to the portfolio every day.

500

:

Um, and so yeah, there has been

at the margin, uh, some reduction

501

:

in energy exposure, equity

markets, uh, metal exposures.

502

:

There's been a marginal

reduction in European bonds.

503

:

What's happened is, um, there's

been an obviously a, a, an increase

504

:

in, in volatility, which at the

margin would expect a position to

505

:

contract, but because the yield

curve has has steepened in Europe,

506

:

also the expected carry has gone up.

507

:

And so to some extent expectation

of, of higher future performance

508

:

by holding European bonds has

offset the increase in volatility.

509

:

So there hasn't been a, a very large

reduction in European bond exposure.

510

:

There has been some at the margin, right.

511

:

Um, there's actually been a small increase

in exposure to US bonds, but generally

512

:

the exposures in carry tend to, uh,

to change a little bit more slowly.

513

:

You know, major changes to things

like, um, uh, global yield curves,

514

:

global currency, uh, differentials, et

cetera, tend to happen over a period

515

:

of sort of several weeks and months.

516

:

And so we expect the strategy

to adapt on those timeframes

517

:

more than via overnight shocks.

518

:

And if you look back on average,

over very short horizons

519

:

after these types of shocks.

520

:

That actually, that strategy has actually

paid off because you, you tend to see an

521

:

overreaction in the very short term to

this type of shock or this type of news.

522

:

The market then moderates

that reaction a little bit.

523

:

So we tend to get back a

little bit of what we lost.

524

:

And then once the market

stabilizes, the, the, um, carry

525

:

signals have also stabilized.

526

:

We've got a, a more, uh, a better reading

on the new regime that we're in, in terms

527

:

of the carry portfolio, and we're better

positioned for what emerges going forward.

528

:

Rodrigo Gordillo: Perfect.

529

:

Okay, so that's, that's a very good

overview of, you know, carry, what's going

530

:

on in carry, and, and how it's changing.

531

:

Let's flip over to trend, uh,

following managed futures.

532

:

Corey, maybe you can help us

out here get some, uh, better

533

:

understanding of what's been going on.

534

:

Um.

535

:

Trend following strategies generally

succeed when they catch these very

536

:

strong sustained moves and they tend

to struggle in these type of reversals

537

:

that we've been talking about.

538

:

So over the last three days, uh, why

don't you give us an overview of which

539

:

markets have contributed the most and why.

540

:

Corey Hoffstein: Yeah, and I think it's

always interesting to think about when you

541

:

have these big reversals in some cases.

542

:

In other cases it's been substantial

extensions of the trend are how much are

543

:

those surprises really priced in versus

how much was the market predicting?

544

:

And we, we can talk a little bit

about that, but just in terms of, you

545

:

know, what we saw over the last couple

days, obviously gains in European

546

:

equities were strong though volatile.

547

:

And we've been overexposed to European

equities, largely underexposed to US

548

:

equities as US equities have been flat

to negative over the last three months.

549

:

We've been seeing a moderation of

that position while European equities

550

:

have been very strong, plus 10 to 15%

depending on which market you look at.

551

:

So we continue to see

positive trends there.

552

:

we've been long metals,

gold, silver, copper.

553

:

And continue to see strong trends there.

554

:

Energy is one that we've been flat-ish,

and it depends on particularly where

555

:

in the energy complex we've been.

556

:

You know, we had some gains

in net gas that were offset

557

:

by losses in, crude right.

558

:

And, RBO gasoline.

559

:

So, that's sort of a mixed

bag over the last couple days.

560

:

Bonds, we've been short and so, while

we're down year to date on bonds, 'cause

561

:

bonds have been a, I mean, bonds have

just been a struggling trade for the last.

562

:

I don't know, call it 18 months

almost as they just get whipsaw

563

:

back and forth by different, the

market digesting policy decisions

564

:

and what's happening with inflation

and, economic impacts of tariffs.

565

:

but we did get the benefit from

bonds and then probably the

566

:

biggest loss was in currencies.

567

:

Right?

568

:

We have been predominantly long, the US

dollar, as you mentioned at the beginning,

569

:

Rodrigo, the dollar as a basket was up.

570

:

8% last year.

571

:

It's not a surprise.

572

:

We were long the dollar against a good

cross section of other G10 currencies.

573

:

And then we had these very rapid

repricing, particularly in the British

574

:

pound and the Euro that led to a, pretty

substantial, you know, one or two day

575

:

loss, not, substantial in knocking the

whole portfolio off sides, but substantial

576

:

in the size of that individual position.

577

:

Rodrigo Gordillo: And so since these we've

seen extreme volatile moves here in the

578

:

last few days, uh, have we seen any major

adjustments in positioning as a result?

579

:

Corey Hoffstein: Yeah, and, and

when we think about, again, we're,

580

:

evaluating trends every single day.

581

:

When we think about trend following,

there's, two drivers for us.

582

:

There's the volatility component where we

are volatility targeting these positions.

583

:

So as volatility expands, we'll

naturally reduce the size long, will get

584

:

less long, short will get less short.

585

:

And if trends change materially,

right, that can change the direction

586

:

or moderate how much exposure we have.

587

:

So, again, with weakening US equity

and increased equity volatility,

588

:

we've seen some of our equity

position to continue to come down.

589

:

We've actually seen a marginal

increase in the metals as gold,

590

:

silver, and copper continue to perform.

591

:

We've seen a marginal

decrease in energies.

592

:

trends continue to reverse

from popositive and somef them

593

:

are showing as negative now.

594

:

We have increased our short bond exposure.

595

:

bond prices have been trending negatively

since around September last year, and,

596

:

the trend continues and so we'll, press

the shorts there and, we've been reducing

597

:

long US dollar exposure now reducing here.

598

:

Right.

599

:

I, think when we look at a couple

multi-day changes, you know,

600

:

our bond exposure has jumped up.

601

:

40%.

602

:

Right?

603

:

But it's, important to keep in mind

vol of a five year treasury is very

604

:

different than vol of equities.

605

:

Currencies have dropped, you

know, about 20 percentage points.

606

:

But again, vol of the Euro is

very different than vol of equity.

607

:

So on a, risk basis, there haven't

been really substantial changes

608

:

from these last couple of days.

609

:

But as markets continue to digest.

610

:

The probability of these

things going into effect.

611

:

That's where trends can emerge, right?

612

:

I think that's a really

important point here is people

613

:

often ask, why do trends exist?

614

:

We talk about this one day change with the

German fiscal policy proposal that has to

615

:

go to vote, and Adam talked about all the

potential risks of this going to vote.

616

:

The market over the next month will

start to price in the probability

617

:

of realizing that the first move was

just recognizing that it could occur,

618

:

and then as it becomes more or less

likely, if it becomes less likely that

619

:

those moves will likely revert as it

becomes more likely they might continue.

620

:

And again, that's how those trends

can persist as markets price in the

621

:

probability of, these bimodal events.

622

:

Rodrigo Gordillo: Right.

623

:

So let's talk about just the same thing

as, as carry, like historically we've

624

:

seen similar geopolitical movements

affect trend in different ways.

625

:

Um, what lessons from those kind of

past events can we apply to the price

626

:

movement of managed future trend today?

627

:

Corey Hoffstein: Yeah.

628

:

Not surprisingly, it's actually a lot of

the same events that happened in Cary.

629

:

We're trend events as well.

630

:

Right?

631

:

And it's because a lot of these events

that catch their carry or trend offside,

632

:

it's not because trendy carry actually

historically are similar signals.

633

:

They're actually quite dissimilar,

and that's what makes them

634

:

such a great compliment.

635

:

But it's because the policy or

market shift has been so against

636

:

the prevailing expectation.

637

:

That you get this sudden

reversal in these markets.

638

:

So, you know, um, 1994, you know, again,

the interest rate, uh, event in 94

639

:

with a massive unexpected rise in rates

caused trend to have a negative year.

640

:

Steel tariffs in 2002, 2015 through 2018.

641

:

Just a struggling period for

trend in general as it was.

642

:

Sort of these ambiguous central bank

decisions around the world as to whether

643

:

they were or were not gonna come off of

the, you know, zero interest rate policy.

644

:

Um, you know, start and stop growth in

global economies in the early:

645

:

again, causing, causing, uh, struggles

for a lot of, uh, trend strategies.

646

:

And then.

647

:

2021 to 2024.

648

:

Obviously 2022 was a very strong

nd year, but then we had post:

649

:

again trying to renormalize trends

to post pandemic inflation:

650

:

particular, being very tough in bonds.

651

:

I mean, I think the majority of losses

last year were in bonds, but we can

652

:

highlight the move in the yen as well.

653

:

Last year as being a big driver,

a sudden surprise, a big sudden

654

:

policy surprise that went against

the prevailing positioning.

655

:

The last thing I'll add there is.

656

:

While some of these moves can go

against the prevailing positioning,

657

:

right, the trend is your friend

until it ends, you can still net

658

:

make money on trend following, even

if the end is a violent reversal.

659

:

And if you look at a lot of trend

following p and l last year, the

660

:

yen was a violent reversal in

August that caused a lot of pain.

661

:

But the net p and l for the year

on the Y trade was still positive.

662

:

'cause the performance was

tro so strong before that.

663

:

And so some of these can be very

painful when they occur simultaneously.

664

:

Trend actually hasn't really been

that bad over the last couple of days.

665

:

No.

666

:

Especially compared to carry.

667

:

Um, but again, some of these things when

they are trend surprises can be painful,

668

:

but you have to consider it in the

position, you know, in, in the context of

669

:

the larger trend in p and l that you've

generated over the last six to 12 months.

670

:

Rodrigo Gordillo: Yeah, and, and look,

I, I'm just reminded of '08 when I

671

:

was a very heavy investor in trend.

672

:

You know, we're talking about three

days and when Lehman happened,

673

:

the volatility in trend was just

insane over those three days.

674

:

And, um, it wasn't necessarily favorable.

675

:

Again, this is, the thing about

all of these is that there's a,

676

:

there's a period of adjustment.

677

:

Um, and, uh, we saw it in

:

678

:

That first leg, it just, the trend

happened to be positioned in the

679

:

opposite of the prevailing trends.

680

:

And so the first week or so, it had a

similar reaction to what was happening

681

:

in global markets, but then it quickly

transitioned the other way, right?

682

:

So the, the adaptability of

this is something to remember.

683

:

But in any given day, you know, really

whether we're gonna be on the right

684

:

or wrong side of a geopolitical move

will depend broadly on whether that

685

:

geopolitical move is in the, in, in the

prevailing, uh, trends or against it.

686

:

So, um, it, it, three days is not much.

687

:

We gotta talk about it, we gotta put

it into context, but, um, but it, let's

688

:

remember the big picture ultimately.

689

:

So let's talk a little bit about just

kind of comparing this, uh, trend

690

:

following and multi-asset carry.

691

:

Um, you know, they're both

trading the same contracts.

692

:

Um, what, uh, why do we have

those two different signals?

693

:

And, and how did, how do they tend to

relate to each other, especially, um,

694

:

when they react slightly different

to, uh, global macro events?

695

:

Any, anybody grab that one?

696

:

Adam Butler: I mean, they're

mechanically, they're similar.

697

:

In so far as you know, we're,

we're, we're broadly trading

698

:

the same universe of markets.

699

:

Um, we're, we're broadly finding an

optimally diversified portfolio of those

700

:

markets based on the trend and or carry

signals at, at the end of every day.

701

:

Um, and, you know, they're,

they're systematic, right?

702

:

And the other thing to recognize

that, that Corey has hinted at, um.

703

:

Is that systematic strategies, at

least the ones that carry and and

704

:

trend rely on, are relying on.

705

:

Changes in prices.

706

:

You know, for, for trend it's the

change in effectively the rolled front

707

:

month, um, futures contract for carry.

708

:

It's changes in the prices of, of

contracts along the, um, along the curve,

709

:

the futures curve or along the spa curve.

710

:

Um, but we're taking signals

from the market itself.

711

:

So, you know, as, as market participants

are, are shifting capital away

712

:

from one market and toward another

trend and carry are picking up

713

:

on that, why do we rely on that?

714

:

Well, it's because we do assume that

at the margin participants making

715

:

decisions in markets on average.

716

:

Reflect information, right?

717

:

So we are picking up on the information

that the market is transmitting via its

718

:

price movements and just by virtue of the

fact that these movements are basically

719

:

impossible to decipher narratively or

using, using some kind of, uh, clinical.

720

:

Framework, just in your mind, you

know, we are forming portfolios

721

:

based on all these different signals

across 27 different markets, right?

722

:

But it's all just reacting to or digesting

information that the market is giving us.

723

:

So when the market is not doing a

very good job of adjusting because

724

:

it is confused or uncertain, or

doesn't know what is likely to happen.

725

:

These are the periods when our,

when the trend and carry strategies

726

:

are most likely to suffer.

727

:

And that's exactly what

we're seeing today.

728

:

We're in a period of extreme

policy ambiguity, right?

729

:

We won't always be in a period

of extreme policy ambiguity.

730

:

Once that sort of settles out, either

the market will get used to the way

731

:

that, for example, Trump communicates

and be able to, you know, read the tea

732

:

leaves and, and anticipate what his true

intentions are and adjust towards that.

733

:

Sort of over the intermediate term

or just, you know, Trump may get

734

:

what he wants and therefore there

won't be the same number of these

735

:

policy changes, um, happening.

736

:

But at some point there will be, the

market will adapt to the new environment.

737

:

There will be a new equilibrium,

and these strategies will continue

738

:

to go on and do what they've always

done, which is just deliver on

739

:

this nice, uncorrelated premium.

740

:

Rodrigo Gordillo: So the, let's,

let's just kind of discuss,

741

:

you know, the difference here

between market moves on headlines.

742

:

Uh, just kind of wrap it up really,

you know, what are the strateg, the,

743

:

the strategies operate on principles.

744

:

And, uh, the question is whether

recent returns are a feature or a bug.

745

:

Um, and so which is it like,

is this a feature or a bug?

746

:

What we're seeing in these,

in these, um, two strategies?

747

:

Corey Hoffstein: Yeah.

748

:

Right.

749

:

So we have these systematic strategies

that we talk about trying to harvest these

750

:

premium that we believe exist, right?

751

:

Trend following in carry.

752

:

And we believe that there are,

particularly with carry, I think there's

753

:

a very strong argument that there's,

that's tied to intrinsic risk premia that

754

:

exists in the market carry of a trend.

755

:

You might argue there's some risk

premia there, some behavioral right,

756

:

but they can be caught off side by

these sudden market headline movements.

757

:

And I, and I think that's just the

reality of any investment strategy.

758

:

Certainly it's never fun for something

like a carry strategy to be down 5% in

759

:

a day, or you know, 5% over three days

and four and a half percent in one day.

760

:

Um, but we see that happen

in other markets, right?

761

:

Not just alternative strategies.

762

:

We see, we've seen that happen

in equity markets frequently.

763

:

We've seen that happen in bond markets.

764

:

Rarely over the last 20 years,

but it has happened right.

765

:

And those sort of things happen

when there is a fund, the market is

766

:

fundamentally repricing something

that it, it didn't get right.

767

:

And a strategy can do the same thing

where the strategy can be offsides.

768

:

Um, because again, in our case if

we're trend and, and carry relying

769

:

on market derived signals, and those

market derived signals are just

770

:

not capturing or didn't anticipate.

771

:

These sudden rapid, in

this case, policy changes.

772

:

So the reality is it,

it's a feature, right?

773

:

The thing I always say is, if a strategy

becomes too easy to hold over the

774

:

long run, everyone would hold it and

all the premium gets squeezed out.

775

:

It's not a fun answer.

776

:

It's a little flippant, frankly.

777

:

But you know, I've said time and

time again, no pain, no premium.

778

:

If we believe there's a risk premium

here that's different than equities

779

:

and bonds it, we should expect it

to behave like equities and bonds.

780

:

And no one really questions.

781

:

Equities dropping by

5% over a couple days.

782

:

It's happened.

783

:

It'll happen again in the future.

784

:

But when it happens in an alternative

strategies, the sudden question

785

:

is, well, is the strategy broken?

786

:

And I think a lot of that

just comes from a lack of

787

:

transparency in these strategies.

788

:

Going back to the beginning of this

call, we rattled off all these markets.

789

:

That impacted carry, especially, right?

790

:

Just carry, just fundamentally, this

week was on the on wrong side of three

791

:

or four massive policy announcements

that came out of nowhere, right?

792

:

You got the Canada Mexico tariffs, you

got the copper tariff, you have European

793

:

deregulation, you have the German fiscal

policy announcement all happening in

794

:

a two or three day period, and carry

was on the wrong side of all of those.

795

:

And that un, that's unfortunate, but a

lot of people don't even realize when

796

:

they're investing a strategy like this

because again, it changes over time.

797

:

They might be long the Dax, long the

dollar, you know, long German bundts.

798

:

That's where the beneficial

diversification comes in,

799

:

hopefully over the long run.

800

:

But that can, that can cut

in the short run as well.

801

:

And so it is, I don't wanna say losses

are a feature, but losses are a reality.

802

:

Rodrigo Gordillo: And, and so are, you

know, large positive gains that offset

803

:

losses in your traditional portfolio

that, you know, we don't talk about much

804

:

'cause everybody wants to focus on what,

what's, what's going quote unquote wrong.

805

:

The wrong is the pain that

you're paying for that premium.

806

:

Uh, one of the questions here was, you

know, this, the, the drawdown in carry

807

:

has recently, recently been pretty large.

808

:

Um, and you know, one of the biggest

challenges for advisors here is to

809

:

help clients stick to strategies

through different market environments.

810

:

And a, a good way to set expectations

here, and I, I bring this up over and

811

:

over again, is, look, you're taking risk.

812

:

You are taking risk in equities, you're

taking risk in bonds, you're taking risk

813

:

in a carry strategy or trend strategy.

814

:

A good rule of thumb for me

has always been, what, are my

815

:

expectations of the best and worst?

816

:

Let's focus on the worst year, right?

817

:

So if you have a strategy like

the carry strategy that we discuss

818

:

as a, on an average volatility of

standard deviation of around 10%.

819

:

Well, I think the expectation here needs

to be that there will be a negative three

820

:

standard deviation move in that strategy.

821

:

It is broadly normally distributed.

822

:

You need to expect those types of

moves to happen every so often.

823

:

It happened back in 1994 during

the, bond massacre in 94.

824

:

it happened, in the mid noughts and we're

seeing a little bit of it again today.

825

:

And what's a three standard deviation

for a 10%, volatility, strategy, you

826

:

know, assuming a sharpe ratio of 0.5?

827

:

That's a 25% drawdown is a

three standard deviation, right?

828

:

It's probably gonna go plus

or minus that at some point.

829

:

that's the risk.

830

:

That is the kind of the long-term risk

that you're gonna take in order to see

831

:

it then in every case, it's rebounded

pretty aggressively from that bottom.

832

:

And, you know, this is the

behavioral side that I think, you

833

:

know, I want to bang the table on.

834

:

This is where you might

want to start thinking about

835

:

allocating if you have it, right?

836

:

if, you believe that it's normally

distributed, you believe that it's,

837

:

it's going to revert back to its mean.

838

:

it might not be a bad idea to start

seriously thinking about allocating here.

839

:

Um,

840

:

Adam Butler: This is where

you earn your premium, right?

841

:

So if you're gonna earn it, are you gonna

stick around and get paid for it, right?

842

:

I, I also like to think about.

843

:

With these trend and carry strategies,

I think it works for others as well.

844

:

But the, I just bring it back

to middle school science.

845

:

It's potential energy and kinetic energy.

846

:

Kinetic energy is when you're

getting, when the bets that

847

:

you're, making are paying off.

848

:

Right?

849

:

But in carry, you're building

potential, potential energy as,

850

:

okay, you're, in bonds because

they've got high rates versus cash.

851

:

Well, there's a loss on that position,

which means that rates just went up.

852

:

So now you're, yeah, you just took a loss,

but your expected return is higher, right?

853

:

And so you've, got this sort

of negative kinetic energy

854

:

translating into potential energy.

855

:

And so the potential return on the

portfolio, is probably considerably

856

:

higher now because, you know, the, rate

differentials have, widened the, slope of

857

:

the yield curve has steepened, et cetera.

858

:

And so you just have to wait for this

potential energy to translate into

859

:

kinetic energy once it's unleashed

in, you know, the next regime, right?

860

:

Um, it really is just a waiting game.

861

:

This is where you pay and

the payoff happens later.

862

:

Rodrigo Gordillo: Yeah.

863

:

Um, I mean, look, just to kind of wrap

things up, any parting words from any

864

:

of you as to, you know, how to think,

how to kind of help advisors talk to

865

:

clients with regard to this type of

environment with rapid policy shifts.

866

:

Uh, we talked a little bit

about no pay, no premium.

867

:

Any, any other thoughts?

868

:

Adam Butler: Well, I, I have one thing

and somebody mentioned it about, you

869

:

know, um, how much trend versus carry

would you recommend in, in a portfolio?

870

:

Right.

871

:

Um.

872

:

And I mean, in general, we, we

have about the same expectation

873

:

for both, at least I do.

874

:

You know, I'm not sure whether

everyone would come down in the

875

:

same exact place, but I think about

about the same expectation for both,

876

:

especially over, you know, a five

or 10 or 20 year investment horizon.

877

:

Um, I have about equal expectation.

878

:

So, and what's great is that off,

you know, they're uncorrelated,

879

:

they're reacting to different,

information at different times.

880

:

So, you know, I always say you

should, if you own trend, you

881

:

should 100% also own carry.

882

:

They are, they're tremendously

good diversifiers for one another.

883

:

They're, it's like having two eyes

and being able to, view things in 3D

884

:

through binocular vision, you're, getting

information from the term structure.

885

:

You're getting information from

price, momentum, and together

886

:

it's just a really fine.

887

:

well-crafted dish and the experience

of them together is just so much

888

:

smoother and more palatable than

holding either of them on their own.

889

:

Corey Hoffstein: Yeah, I mean, I, I

have a tremendous amount of sympathy

890

:

for advisors who particularly

have line item sensitive clients.

891

:

When any line item goes through

a big one day drawdown, you

892

:

know, they've gotta field calls.

893

:

Right.

894

:

And that's, and you can't

rent conviction, right?

895

:

So if an advisor isn't truly

understanding what this strategy is, I,

896

:

I understand the desire to get out of it.

897

:

And frankly, I felt the same way

yesterday looking, looking at our,

898

:

you know, the carry strategy I have,

I, you know, we eat our own cooking.

899

:

I have a substantial amount of,

my portfolio has a carry overlay.

900

:

But to Adam's point, I also

have a trend overlay and I

901

:

have other overlays that I add.

902

:

I have a huge amount of overlay on

my core stock and bond position.

903

:

Carry is just a slice and somehow

despite loss, substantial losses in

904

:

carry yesterday, my PA was positive.

905

:

Rodrigo Gordillo: Yeah.

906

:

Corey Hoffstein: Right.

907

:

And, and so I go back to.

908

:

Even I have to check myself,

like I can become over line item

909

:

focused, but at the portfolio

level, like diversification worked.

910

:

You know, it wasn't fun to have that part

of the portfolio down, but there was other

911

:

stuff that was substantially up that net

offset it because I wasn't so dramatically

912

:

overweight that one particular trade.

913

:

And so again, it is one risk

premium that we have high

914

:

confidence in, but it's one of many.

915

:

And it's one that is gonna operate well

or not well in different environments.

916

:

The same way stocks and bonds operate

well and not well in other environments,

917

:

trend may operate well and not well.

918

:

And, for me, trying to market time or,

determine when these things do well

919

:

or not, is totally, undermining the

potential benefits of diversification.

920

:

And when you have diversification

across a huge swath of different

921

:

strategies, the hurdle rate for

market timing just goes up so much.

922

:

And so for me, I just go back to

those basic principles of do I have

923

:

conviction in the strategy long term?

924

:

Is it appropriately sized in my portfolio?

925

:

Yesterday was a great test and for

me it was, you know, and what else do

926

:

I have next to it that I do believe

is truly diversifying and, did it

927

:

behave in a diversifying manner?

928

:

And so I looked at my PA yesterday

and I said, it did exactly

929

:

what I thought I would do.

930

:

Rodrigo Gordillo: Yeah, and, and

again, I think what we've seen

931

:

is that these strategies are

non-correlated to equities, bonds,

932

:

and themselves in the last three days.

933

:

And we've certain, like, look, an

another acute moment of pain for managed

934

:

futures was during the SVB fiasco, right?

935

:

The, the, um, Silicon Valley drop trend

had a, it was just caught really offside.

936

:

Carry was not, it was

a non-event for carry.

937

:

Slightly up, I think, during that period.

938

:

Right.

939

:

So again, it's, it, it,

it can be the opposite.

940

:

Right now carry's struggling more than

trend, um, and that's what we've, what it

941

:

is, it's, it's just, it's added diversity

across different areas of your portfolio.

942

:

Um, and they all tend to have a positive

expected return, and we're gonna be in

943

:

around that over time in different ways,

which is exactly what we're looking for.

944

:

Okay, so with that, um, sorry

we weren't able to get into

945

:

any fund specific content.

946

:

Here we are, um, restricted from, uh,

speaking to, uh, with regard to the

947

:

funds, due to regulatory restrictions,

but I, I hope that this was useful in

948

:

providing some context on the macro

environment and the kind of managed

949

:

future strategies that are out there.

950

:

Um, if you do have any questions,

you can reach out to us directly,

951

:

you can go to return stacked.com

952

:

and go to the contact section

and talk to any one of our reps.

953

:

If you want to go directly to

us we are on Twitter and pretty

954

:

active there, or LinkedIn.

955

:

These days.

956

:

So look us up.

957

:

Um, uh, Corey is Cho at choffstein.

958

:

Adam is at Gestalt U and

I am at Rod Gordillo.

959

:

P Um, all right.

960

:

Any, any parting thoughts?

961

:

Adam, I know you needed

to go 15 minutes ago.

962

:

Thank you for sticking around.

963

:

Thank you everybody for

sticking around this long.

964

:

Really appreciate your, uh, time

today and, uh, looking forward to

965

:

seeing you in our next live q and a.

966

:

Adam Butler: Thanks.

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About the Podcast

Resolve Riffs Investment Podcast
Welcome to ReSolve Riffs Investment Podcast, hosted by the team at ReSolve Global*, where evidence inspires confidence.
These podcasts will dig deep to uncover investment truths and life hacks you won’t find in the mainstream media, covering topics that appeal to left-brained robots, right-brained poets and everyone in between. In this show we interview deep thinkers in the world of quantitative finance such as Larry Swedroe, Meb Faber and many more, all with the goal of helping you reach excellence. Welcome to the journey.


*ReSolve Global refers to ReSolve Asset Management SEZC (Cayman) which is registered with the Commodity Futures Trading Commission as a commodity trading advisor and commodity pool operator. This registration is administered through the National Futures Association (“NFA”). Further, ReSolve Global is a registered person with the Cayman Islands Monetary Authority.