Episode 225

full
Published on:

4th Apr 2025

Moritz & Moritz from Takahe on the New School of Old School Trend-Following

In this episode of ReSolve Riffs, host Adam Butler is joined by two special guests from Takahē Capital – founder, CEO, and chief bottle washer Moritz Seibert, and head of quantitative research, Moritz Heiden. They offer an in‐depth look into systematic trading within managed futures, exploring topics such as commodity markets, trend following, risk management, portfolio construction, and the challenges posed by investor and ESG dynamics.

Topics Discussed

• The emergence of Takahē Capital from restrictive ESG mandates and its unconventional origins

• The core trend following strategy, outlier trading, and the “high octane” approach

• Rigorous risk management techniques centered on fixed risk unit sizing and drawdown control

• Diversification across conventional and peripheral commodity markets

• Position sizing dynamics through multiple independent trading systems

• Portfolio construction methods and the management of correlated markets

• The balance between simplicity and complexity in systematic trading models

• The impact of investor demands and ESG standards on volatility, capital efficiency, and returns

Transcript
Moritz Seibert:

We don't know what's going to be popping up next year or next

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month or in the next 10 years that when

these trades emerge and they start to run.

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The way we design our systems or any

other trend following system, which

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is, you know, you keep losses small.

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You have an initial stop-loss, you

are appropriately sized at the time

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of trade inception, and then you let

that trade develop wherever it wants

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to go, and it can go into a tail

region of the distribution because

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returns aren't normally distributed.

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They, they are tails.

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And then these positions, they

develop a footprint, and they have a

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relatively large volatility and return

concentration simply because of the

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fact that the trade becomes larger.

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Adam Butler: All right.

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Good morning, good

afternoon, good evening.

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Welcome to, um, this

episode of ReSolve Riffs.

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We've got special guests here

today from Takahē Capital.

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We've got the founder, CEO President,

chief Bottle Washer, Moritz

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Seibert, we've got the head of

quantitative research, Moritz Heiden.

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We've got both Moritz's

here with us today.

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Welcome guys, and thanks for joining me.

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Moritz Seibert: Thanks, Adam.

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It's great to be here.

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You've missed our dog.

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Great introduction, but yeah, we

have a chocolate brown, Labrador.

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Maybe next time you

mention that one as well.

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Adam Butler: He, oh, yeah.

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So is he a paid member of the staff?

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What is, what's his

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Moritz Seibert: No, he is,

we just pay him in food.

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That's all.

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Adam Butler: Yeah, that's what he wants.

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Anyway.

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I, I

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Moritz Seibert: Exactly.

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Exactly.

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Adam Butler: he's well compensated.

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all right, so you guys are located,

where are you guys located exactly?

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Where's Takahē out of?

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Moritz Seibert: Around Munich.

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I'm south of Munich.

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Moritz is a little bit west of Munich,

but that's where we're from, right in

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the middle of Bavaria, uh, mountain Boys.

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the winter is coming to an end here.

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It feels like spring now, but,

yeah, we're close to the Alps.

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Close to the Austrian border.

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Adam Butler: I mean, are there other

managed futures, managers in that

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area that you get together with?

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Is that a fairly, popular

strategy in, in and around Munich?

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Moritz Seibert: So it's,

it's definitely not a hub.

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by and large, Germany is

not a hedge fund land.

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It's definitely not a hedge fund country.

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But there is, um, there is a CTA actually

one that I've founded by the name

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of a quantum that's based in Munich.

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I mean, there is a, you know, a

couple of capital management asset

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management firms, in and around Munich.

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But, the majority of them I think are

still in Frankfurt, which is more of

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the financial center of, of Germany.

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I think some of the more

fintechy type of shops they've,

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coalesced around, uh, Berlin.

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so yeah, not, not too many,

just a few as a few of us.

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Adam Butler: Okay.

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And then so how did you guys

get interested in managed

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futures and systematic trading

and come to, to found Takahē?

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Moritz Seibert: Well, Moritz,

do you want to take that or?

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I, I, I've been trading for,

well, 25 years, so I've been

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interested in that for a long time.

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uh, Moritz and I were working

together since almost 10 years.

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and, we used to work at Munich

Re Investment Partners, or at

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least subsidiary business that we

created inside the Munich Re group.

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Essentially an internal hedge

fund, internalized hedge fund.

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And that came to an end because of

ESG requirements and everything had

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to be focused on sustainability.

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no longer trading crude oil contracts

and all that type of stuff, which

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is, you know, the markets that

we love and, and really lead to

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trade to get diversification.

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So we just decided to, uh, start

our own business and, that's what

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we did about, three, four years ago.

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Adam Butler: Oh, that's

really interesting.

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So within Munich Re, they adopted

an ESG type mandate, and as a

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result, you weren't able to trade

many of the commodities contracts

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because they just didn't fall under.

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the, the types of securities that you were

or that Munich Re was able to trade then.

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Moritz Seibert: Yeah, so it's

by design, but also there's a

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regulatory pressure on these firms.

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Um, ESG has become a regulatory

framework in the European Union.

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so most of the firms, they need to

comply with it, whether they want or not.

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And some they kinda like, they

go the extra mile and they

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want to be, extra compliant.

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and so what that just means is you're

no longer trading WTI, you're no longer

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trading any of the agricultural markets.

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You're no longer trading Brent or

gas oil or like, anything that could

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have, a connection to fossil fuels,

say Right, or to agricultural markets.

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And so that's just, you

know, the commodity markets.

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As you know, Adam, they

are the most diversifying.

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Markets we can find in our portfolios,

you know, from orange juice to canola,

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to grapee, palm oil, corn, wheat.

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All of these markets are, very value

additive, in a systematic trading

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firm where if, if you're losing them,

if you can no longer touch them,

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it's just, yeah, it just doesn't

make the system work any better.

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Adam Butler: No, I mean, it seems

extremely naive and risky for an

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organization like Munich Re or, you

know, a large institution pension

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fund, et cetera, to be completely

forbidden from trading contracts that

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ultimately represent very large sources

of risk for, for their portfolios

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and for their businesses, you know,

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Moritz Seibert: Yeah.

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Adam Butler: We all know the extent to

which commodities contribute to and react

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to inflationary pressures, which tend

to be a blind spot for most portfolios.

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So completely abolishing all

exposure to them, at an institution

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level seems fraught with just,

incredible amounts of risk.

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Moritz Seibert: Well, the, partly this

behavior is being unwound as we speak.

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you may, even in the us the US has

never really adopted the frameworks, to

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such an extent as, as, as Europe has.

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But, as you can imagine, over the

past, say 10 years or so, a lot of

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products have come up, catering to

the ESG and sustainability community.

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We're not saying that that is necessarily

wrong, per se, we're critiquing the

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immediate effect that some investors

think, an ESG driven investment will have

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on climate change or something like that.

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Like just by, by virtue of the fact that

you're no longer trading the, the stock

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of BP or Shell or Exxon, it doesn't

really change, change things immediately.

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If, if, if anything, you're losing your

voice, you're lo you losing your right

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to vote and go to the ag GM and actually,

you know, um, influence management.

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So a lot of that.

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So, and then a lot of ETFs and investment

products got designed around ESG, A lot

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of like equity filtered ESG portfolios.

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And what has now for, for a high

price, you know, the, the fees

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have no longer been two bips or

five bips, you know, they're than

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50 bips or something like that.

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so substantially more expensive than

a standard equity, investment product.

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and then they've underperformed.

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So I think now some of that,

um, euphoria is, put back in the

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bottle and, it's still around.

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but no longer as, uh, as

much as it used to be.

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Adam Butler: Well, I think we

can all agree that the ambition,

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is directionally correct.

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It's just the implementation is often

very shortsighted, very first order,

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and ignores second and third order and,

and higher order, uh, implications.

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Right.

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You, you mentioned a few.

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There are many more.

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And, I I I think having the intention

to, to act responsibly is admirable.

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Thinking about.

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Multiple orders of, the implications of

those actions, I think is also, important.

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So, alright.

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So tell me about Takahē, you guys,

I know you're a CTA managed futures,

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you're, you're actively discussing

your strategy on, on various

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podcasts, especially the, the TTU Top

Traders podcast, which is amazing.

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but maybe for those, of our

listeners that haven't heard you

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talk about your strategy, maybe

what exactly does Takahē do?

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How would you differentiate Takahē?

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trend following approach or manage

futures more broadly, approach

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from maybe other well-known trend

following managers in the space?

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Moritz Seibert: Go for it.

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Moritz Heiden: Yeah, of course.

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I, I always say it's high octane,

even though some people cannot

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kind of like, yeah, would, would

group it into high volatility.

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For us, it's a different thing.

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Talking about volatility and risk.

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High octane for us means that we really

trade the system in a way that it's, I

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meant to be kind of like cutting loose as

short letting winners run and giving the

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trades room that they need to breathe.

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So something we do not take into account

is kind of like volatility as a measure

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for controlling the trade itself.

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So for example, we are not scaling

back trades if volatility rises.

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So we are not doing vault control in a

way which kind of brings us into this high

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octane world where we are kind of trading

at a level of 25% wall, something that

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is more or less unheard of these days.

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So most CTAs in our group and also in

other groups, they have around eight to

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maybe 15% volatility on an annual level.

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Right?

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That's kind of the feel good point.

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And also the point where institutional

investors get interested in you, but we

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are doing something different on purpose,

which gives us a lot of benefits, of

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course, both in terms of kind of bang for

the buck, but also in terms of how we can

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trade and aim for these outlier trades.

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And that's what we do.

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Adam Butler: Okay, so outlier trades.

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I love when, when, when this comes up

in, in all the, the trend, podcasts.

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It's such a touch point.

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so let's get into that.

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Maybe define what you mean by,

by outlier trades and, and by

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extension, maybe outlier hunting

as some people describe it.

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Moritz Heiden: Yeah, some people,

like to call it that way, right?

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It's, there's different dimensions or

things you can define as an outlier.

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One outlier is definitely

kind of like holding period.

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For example, we are not a short term

CTA, so we don't kind of like turn

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around positions daily or whatever.

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We have positions which we hold

for a long time, so we can hold a

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position, for example, last year,

cocoa, which was live for more than two

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years, so we can hold positions for.

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500 days.

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If the trend is there, we just hold it

and give it room to breathe and it kind

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of like can go into the money and can

become of one of these real outliers.

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That usually means we at the right

tail of the distribution, right?

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We kind of like give the trade

some room to move far into the

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money and do not cut it back.

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We do not kind of reduce the size

just because it made us some money.

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We do not, take profit in a way where

we say, okay, this has now made 20%.

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That's enough for us and we are out.

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And on the other hand, it, it

means also kind of like not

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making the losses too big.

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Of course, that is always in place

no matter kind of like if it's an

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outlier trade or not an outlier trade,

you will get out of the position if

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the loss hits a certain boundary.

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But the outlier really refers up

to kind of like the right tail of

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the distribution, which you really

let run as long as it wants to run.

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And also hold on to as long as it.

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Needs to be in the portfolio.

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Right?

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So it does not have a time

exit, for example, it does

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not have a profit target exit.

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Adam Butler: Gotcha.

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So there's nothing special or like really

completely novel about the way that you're

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identifying, trends or, or breakouts.

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It.

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Would you say that outlier hunting is

more about, differences in risk management

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of positions once the positions are on?

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Moritz Heiden: Yeah, I

would definitely say that.

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And I mean, of course, like if

you initiate a position, everyone

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has a different opinion on how to

take a trade, if it's crossovers

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or breakouts or whatever.

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You are using channels.

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I mean, they're very similar

on a certain timeframe, right?

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They do not produce very

different entry signals, but.

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In our opinion, the way we manage risk

first on a position level, but then

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also on a portfolio level is crucial

to kind of how we let these winners

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run and cut these losers, losers short.

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So that is the way where

we differentiate ourselves.

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It's not novel in a way that this

is kind of like the fanciest machine

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learning algorithm out there or

something that we just invented.

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I mean, this stuff has been

around since seventies, right?

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So we have seen some great,

great, uh, asset managers and CTAs

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out there doing this strategy.

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But the problem is many of them have

adapted a style which actually works

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against the strategy itself by kind

of like dialing back the risk and.

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Reducing the winners, kind of dialing them

back, taking, for example, profits at a

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point where they are satisfied with it

because they think the trend has ended.

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So this is in our, thinking,

working against the original idea

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of trend following where you really

should trade it at a volatility.

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Where we are comfortable at is

25%, where you kind of like, can

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these give these traits the room to

breathe and actually fulfill their

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potential and not scale them back?

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Of course, that is kind of like

our opinion and gladly also

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the opinion of, our clients.

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But we know coming from the

institutional background that this is.

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Something that has been basically

viewed as the antichrist in, uh,

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institutional asset management.

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It's kind of like you're trading at 25%

while you are out, please, here's a door.

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Go.

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We want 8%.

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We want a stable and steady return.

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But if you think about it, for

example, if you are an investor

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yourself and you buy stock, stock

indices have traded at 20% wallet.

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It's nothing new.

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It's something we are used to and

people we talk to are also used to this.

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20, 25% wallet is not unheard

of in your personal account.

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And then comes the other aspect,

actually, like many managers

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aim for risk adjusted returns.

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It's something I cannot

read, risk adjusted returns.

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And I personally am never

interested in risk adjusted returns.

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If I look at my portfolio, I have never

in my life calculated a sharp ratio.

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Why would I?

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It's absolute returns I'm targeting.

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And of course, kind of like draw

down risk, correlation risk.

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So I don't want kind of to be

hit on the face every day and

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every month and stuff like that.

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But in the end, what.

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Counts for me in on the wealth path is

managing the risk in a way, and then

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also compounding with high returns.

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Because if I traded 8% vol and

I get these 8% returns, and

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well, it's not super attractive.

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It's something where I would say

that's fine if I'm getting older,

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I'm talking of for myself actually.

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But at the moment at least, I would

say, well, if I'm fine with:

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5% equity ball, then I'm also fine

with:

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Adam Butler: I think it's important

to distinguish too, between just

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running at a 25, say target, fall

versus, 'cause my, I, I'm not, I

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don't think that's what you're doing.

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Right.

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I think what you're allowing is, you

know, you're putting positions on,

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sometimes when you're putting positions

on, the portfolio gets concentrated.

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You get concentrated in.

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Positions where the volatility of

those positions is changing over time.

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Sometimes that when it changes,

it's expanding and therefore the

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vault of the portfolio can get,

can vary quite a bit over time.

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Right?

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And it ends up having a a, a

higher long-term volatility.

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But that's not the objective.

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It's just what emerges

from the style of trading.

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Moritz Seibert: It is not

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Moritz Heiden: very good.

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Moritz Seibert: and we can't, uh, we,

we can't, forecast that, you know,

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we don't have a crystal ball what's

going to be driving the portfolio.

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so we're definitely not

targeting a volatility level.

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the 25% that Moritz mentioned is

probably at the lower end of a range.

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the only thing that we can observe

is where the real less volatility

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of the portfolio usually falls into.

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And that is a range of 25 to

35 and 35 being very high.

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But, so yeah, 25 to 30 is

kind of like, you know, where

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the returns come in and then.

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Every once in a while, as Moritz was

saying, you have these outlier traits.

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We can't forecast which

ones those are going to be.

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We don't know whether they're going to

be on the long side or on the short side

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in, you know, more recent month it's

been cocoa and orange juice and coffee.

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we don't know what's going to be popping

up next year or next month or in the next

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10 years that when these trades emerge

and they start to run the way we design.

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Our systems or any other trend

following system, which is, you

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know, you keep losses small.

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You have an initial stop-loss, you

are appropriately sized at the time

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of trade inception, and then you let

that trade develop wherever it wants

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to go, and it can go into a tail

region of the distribution because

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returns aren't normally distributed.

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They, they are tails.

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And then these positions, they

develop a footprint, and they have a

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relatively large volatility and return

concentration simply because of the

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fact that the trade becomes larger.

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Say you have a long trade such as

cocoa, it starts at $3,000 per ton.

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It goes to a high of 12,000 or 13,000.

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I, I forgot what the number was,

so it's kinda like a four x trade.

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If you're not res reducing your lot

size in that trade and you're rolling

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from, you know, one expiry to the next,

then the notional contract value of

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every lot that you are belong is now

four times larger than what it used

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to be at the time of trade inception.

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And we allow that.

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We don't mind that we we're completely

aware of the fact that cocoa because

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of that, will have or is likely to have

a dominating effect on the portfolio.

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It depends on the volatility and average

true range and how that market behaves.

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But the way we view this is that we know

the position from a level of:

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It is now.

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Clearly in the money, it is money

that's been credited to our brokerage

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account of the form of variation margin.

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And because it's a zero sum game net

of commissions and trading costs,

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it is essentially somebody else's

money that has been booked and

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transferred to our clearing account.

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Somebody will have had

that short position.

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we can be very liberal

with somebody else's money.

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We're going to be very tight with

our own capital, which is why we're

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keeping losses that eat into our core

equity or into our closed equity very.

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Short, very small.

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We don't allow these losses to become

large losses because large losses

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are devastating to your portfolio

from a compounding perspective.

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And they can also be damaging from

a psychological perspective because

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you're, you know, working your way into

a drawdown, it can lead to paralysis.

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Even though you are systematic

rules-based trader, you know, you're

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still observing your daily returns.

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Um, you're not completely

immune to any of that stuff.

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So it's very important to keep

these losses, very small and

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not to erode your core capital.

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But the winning trades, which are

driven by variation margin, and open

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trade equity that has been submitted

to our accounts by other traders, that

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is something that we can really, play

with, well, play is the wrong word.

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We can, we can really, you know,

take that and, and, and risk it.

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That's what we do.

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and then at some point, you

know, the, the exit is hit.

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It's not a time-based exit.

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It's not a profit target.

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It's simply a reversion of the

trend and it hits a one of many

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exit levels that we have defined

and then we get out of the trade.

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We don't overthink it.

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In essence, we say thank you.

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we're not completely out

of cocoa, by the way.

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One of our systems has exited cocoa.

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And you know, when we look at that

from start to finish, it's been

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:

one of the greatest traits that

we've ever had in our portfolio.

364

:

There's really no reason to

be grumpy about the gift back,

365

:

over the last, two month or so.

366

:

I mean, yeah, whatever.

367

:

we've had a great time with cocoa.

368

:

We're still having a

great time with coffee.

369

:

we've had a fantastic time with

orange juice and we're now short.

370

:

Let's see what that brings.

371

:

that is another point is we're

trading a set of markets that.

372

:

that includes some of the smaller markets.

373

:

the market's less well

traveled by the larger traders.

374

:

I've mentioned orange juice, I've,

you know, canola and grapee and

375

:

white mace in South Africa, and,

you know, markets such as that.

376

:

And we're also treading them out

further on the curve, not necessarily

377

:

only pointing our systems to the

near dated or front month contract.

378

:

these are markets that can

be extremely diversifying.

379

:

They are extremely diversifying long

and short, because really palm oil

380

:

and white mace and sunflower seeds.

381

:

Nothing really correlates with that.

382

:

The S&P doesn't correlate with that.

383

:

The 10 year note doesn't

correlate with that.

384

:

So we love these markets and as a

result of that, we have language in our

385

:

legal offering documents that caps our

systems and our funds to 500 million.

386

:

We're not going to be a multi-billion

dollar CTA, we just can't.

387

:

If, if we, if we went to a level based

on today's liquidity and open interest

388

:

profiles and everything that we can

observe and value, at a level of 500

389

:

million, we would have to start trading

substantially smaller in some of the

390

:

markets that I have just mentioned,

unless they develop better liquidity.

391

:

But that is, again, something

that we can forecast.

392

:

So we value the diversification

that we can get from these markets.

393

:

They're important to us, and we

just wanna stay true to that.

394

:

We wanna trade the best possible portfolio

that we can find, that by definition,

395

:

needs to include these markets.

396

:

And therefore we can't

go into the billions.

397

:

Adam Butler: So say more

about that because I mean, so.

398

:

We trade some of the

more peripheral markets.

399

:

Well, I say peripheral, let's,

let's call, you know, palm oil.

400

:

some of the less liquid softs, that

sort of stuff in our hedge fund

401

:

products, but we don't trade them in

our more broadly distributed products.

402

:

but we don't even trade, for example,

orange juice in our, in our hedge fund

403

:

products because, and, and, you know,

we might trade a hundred odd million

404

:

in the hedge fund products and we still

feel that, for example, orange juice is

405

:

not, doesn't have sufficient liquidity

or, you know, we'd be too constrained by

406

:

CFTC limits to trade oj How do you guys

think about that in terms of constraints?

407

:

You just, you simply just trade it up

to the, the CFTC limit or the liquidity

408

:

threshold that you're willing to

tolerate, and that is just an active

409

:

portfolio constraint and you take what

you can from that, and already bothered

410

:

by the fact that you can only trade

it relatively small, in the context

411

:

of the broader portfolio or like

what kind of thinking goes into that.

412

:

I.

413

:

Moritz Seibert: Yeah, I mean CFTC limits

or position limits, exchange limits,

414

:

they are obviously a hard constraint.

415

:

There's, there's no way around that.

416

:

And then the other one is, I, you

know, how liquid is the market?

417

:

How much of a footprint or

effect are you going to have

418

:

when you execute in the market?

419

:

What's the bit offer spread and

how are you moving that market?

420

:

that also then depends, or it

links into your system design.

421

:

If you only traded like one entry, one

exit, and you kind of like you have

422

:

to get out of OJ all in one go, on

one single day, then obviously you're

423

:

consuming more of that liquidity.

424

:

If you have a more distributed

approach across timeframes that

425

:

doesn't guarantee that you're not

getting out on exactly the same day.

426

:

It can still happen, but the odds are

now that, you know, you're, you're kinda

427

:

like smoothing the exit, you're smoothing

the entry and got distributing liquidity

428

:

requirements across time a bit more.

429

:

That helps.

430

:

And then it's a question of, okay,

how much do we get in terms of

431

:

diversification benefit by trading

lumber or sunflower seeds or orange

432

:

juice that you've just mentioned

versus the slippage and trading costs.

433

:

All in trading costs, which includes,

you know, execution and exchange

434

:

fees and clearing commissions and

all slippage, all that type of stuff.

435

:

and that is a question,

is it still worth it?

436

:

And for some of the markets,

it is still worth it.

437

:

today, this morning, this earlier today,

we started, where we rediscussed one

438

:

of the markets that we are observing

and monitoring, which we're not trading

439

:

right now, which is Rotterdam coal.

440

:

you know, it's definitely

a non ESG market.

441

:

people that are SG driven,

they don't like it.

442

:

They would, they would, you

know, shake their heads and

443

:

say, no, no, no, don't trade it.

444

:

But it is, it is a, it's

a fuel, it's a commodity.

445

:

It's, it's in high demand still,

but the, the futures market hasn't

446

:

really become any more liquid.

447

:

It used to be more liquid.

448

:

so it does have a wide bid offer

spread, but it is a market that

449

:

can be very diversifying to the

other elements that we trade.

450

:

And so the question is, how much

would we be willing to pay in terms

451

:

of crossing bid, offer, or, you know,

transacting in that market versus

452

:

what do we get in return, as an extra

bank for the buck in the portfolio?

453

:

That's the question that

we have to ask and answer.

454

:

Adam Butler: Yeah.

455

:

Moritz Seibert: take these at lightly.

456

:

Like, you know, it's kinda like we we're

not just looking at the coal and say,

457

:

oh yeah, you know, we're flipping a

switch and we're now switching on coal.

458

:

It also depends on, you know,

where can you find the liquidity?

459

:

Is there screen liquidity?

460

:

Can you just click this away on ice

or are there specialist brokers?

461

:

And in the case of coal, there are

specialist brokers in the case of, you

462

:

know, freight markets, they're specialist

freight dealers, that you can, that you

463

:

can work with, to find better liquidity

and then cross on the exchange as

464

:

opposed to, you know, going into the

autobook and, executing right there.

465

:

Adam Butler: Yeah, that's a

really good insight actually.

466

:

Just the ability to source liquidity off

book is, is definitely, an interesting

467

:

and unexplored edge or underexplored edge.

468

:

you've mentioned a few times

that, that there's a diversified,

469

:

a diversity of systems, and I'm

assuming that most of that is just

470

:

trading different trend lengths.

471

:

How wide is the range of, of trend

length generally that you are looking

472

:

at and, is it only trend length or is

it also the, the type of trend signal

473

:

that you're also diversifying across?

474

:

And are there any other dimensions

that you are seeking diversity through?

475

:

Moritz Seibert: Yeah, it's, it's both.

476

:

I mean, and if, if we go from, from

top to bottom, the, the, the most

477

:

diversification impact we can get by

finding additional markets and trading

478

:

other markets, independent markets,

markets that are uncorrelated, to markets

479

:

that we already have in our portfolio.

480

:

Now, at some point that exercise

comes to an end, or we find it very

481

:

difficult to find additional markets

that would, um, really diversify

482

:

our portfolio substantially more.

483

:

One of the areas I may just add this

are the Chinese commodities, and it's

484

:

definitely something that Moritz and I

have been working on for eight years.

485

:

We're not trading these

markets at the moment.

486

:

I think we are getting very close

to trading them, but there is also

487

:

a question of operational risk and

legal risk, when you're accessing

488

:

Chinese markets with offshore money.

489

:

And that's just nothing

that we take very lightly.

490

:

But yeah, we would like to trade glass

and apple and urea and all the, you

491

:

know, chemical products that they have

because these markets don't correlate

492

:

with the markets that we already tried.

493

:

Then second order effect is,

um, the timeframes and, and, and

494

:

the signals that you are using.

495

:

we're distributing, our trend

following signals across

496

:

medium to long-term timeframes.

497

:

We're not really active in anything

that is short term, say anything that

498

:

is, you know, sub 70 days or something

like that on the breakout level where

499

:

we're not reacting to that, we don't

think that we have an edge in this.

500

:

we're using daily bars.

501

:

We're not, we're not in the HFT world.

502

:

we just don't have that set up.

503

:

We, our research also shows that

the longer term systems work

504

:

better than the short-term systems.

505

:

The short-term systems.

506

:

They can, of course, in an environment

such as, for instance, right now

507

:

where the equity markets seem to be

turning around, they can provide a

508

:

buffer, but the long-term CGA, the

long-term return of these short-term

509

:

systems is just, inferior to the longer

term timeframes that we can trade.

510

:

And then we find it also important

to diversify our entries and exits.

511

:

Yeah, we do like breakouts by the way.

512

:

breakouts are extremely clean.

513

:

They're very pure.

514

:

They're not a derivative of

anything because the only thing

515

:

that they need as an input is price.

516

:

Whereas a moving average is

already a derivative of price.

517

:

So it's kinda like no

longer the pure information.

518

:

And then, you know, you can think

about, um, exiting on a new low if

519

:

you have a long position, or you can,

you know, consider exiting at the

520

:

mid of a donkey and channel, or you

can, you know, consider exiting with

521

:

a trailing stop that is, you know,

volatility based, things like that.

522

:

And, and as I've said before, I.

523

:

Sometimes these exits hit at the same

point in time because the reversal

524

:

in the market is so strong that

kinda like, oh, you're getting out.

525

:

That is then also the day where we

have to liquidate or we, where we would

526

:

liquidate our OJ position all in one go.

527

:

And maybe there is excess slippage

that we would, experience on an

528

:

exit, such as like such as that.

529

:

But in other scenarios you can

have the exits distributed or

530

:

sometimes like in cocoa, one system

exits and another one does not.

531

:

It kind of like it missed the exit by

a couple of points and it's like, okay,

532

:

well we're, we're hanging in there.

533

:

let's see where it takes us.

534

:

Adam Butler: Yeah, exits are something

that maybe are, Less glamorous

535

:

dimension of, trend following,

but probably are maybe arguably

536

:

the, the most important dimension.

537

:

so maybe spend a

538

:

little more time

539

:

Moritz Seibert: I disagree.

540

:

Adam Butler: Yeah.

541

:

Okay.

542

:

Moritz Seibert: important thing.

543

:

Yeah.

544

:

Yeah.

545

:

Yeah.

546

:

So, and then, and then, then Moritz

can add to that, but I think.

547

:

I, I, I know what you want to say.

548

:

The, the exit is really important,

but the most important thing is the

549

:

entry because if you don't enter the

position, you have nothing to exit.

550

:

Uh, if you miss the entry,

the exit is irrelevant, right?

551

:

So one of the, it's when you trade

systematically and you have all these

552

:

statistics that we produce, the system.

553

:

Tells us to take all of the trades.

554

:

So it is really important that we take

these trades and we're not skipping them.

555

:

We're not missing them.

556

:

We're not second guessing them.

557

:

We're not, imagine we got a

short signal on the s and p.

558

:

We, we don't have that yet.

559

:

We're still long, most

of the equity markets.

560

:

But if our system tell us to

short the s and p, we shouldn't

561

:

be sitting here and, uh, counter.

562

:

Guessing that I say, ah, you know what,

it's probably going to be V-shape.

563

:

Trump is going to be putting

a, a, a put under the market.

564

:

we're not taking that short trade.

565

:

No, we will take that short trade.

566

:

And then also very importantly,

is the appropriate sizing

567

:

at the time of trade entry.

568

:

This is, you know, Moritz I think

alluded to the fact that we're staying

569

:

away from dynamic position sizing.

570

:

These, ex post overlay type of

risk adjustment, correlation,

571

:

volatility based adjustment traits.

572

:

They mess up our trade statistics.

573

:

We like it when these

statistics are clean.

574

:

We're risking one r one risk unit, of our

equity at the time we enter the trade.

575

:

And that is also how

we evaluate the system.

576

:

Like if we risk one R,

how many Rs can we make?

577

:

you know, on the upside when we exit

the trade, that calculation really only

578

:

works when you have a clean entry and

a clean position sizing appropriate

579

:

position sizing at the time of entry,

and then you leave the trade alone.

580

:

Adam Butler: So, okay.

581

:

I was gonna ask you about exits,

but maybe I'll press that on pause

582

:

because we, we sort of segued into

position sizing and I mean, there's

583

:

just obviously a wide variety of

different ways that you can attack this.

584

:

if you're not adjusting the position

size once, I guess this is, you're

585

:

not adjusting the position size for a

position that was taken for a specific

586

:

system, but because you've got multiple

systems all trading the same market,

587

:

then you've got different systems

either entering or exiting a trade

588

:

in that market at different times.

589

:

So that is how the position size will

moderate over time, presumably, right?

590

:

Moritz Seibert: It, it can

distribute over time, like you say.

591

:

Or in the example of cocoa

that I just mentioned.

592

:

You know, one system exits,

the other one does not.

593

:

So we're kinda like partially

reduced in our long position.

594

:

but each of these systems is kinda

like an independent engine system.

595

:

Number one does not know about the

existence of system number two and

596

:

system number two doesn't know of

the existence of system number three.

597

:

So they run independently and it

aggregates a nets to a portfolio,

598

:

for which we then calculate risk

statistics, yes, he distance to

599

:

stop, all that type of stuff.

600

:

Some of these statistics

are purely informative.

601

:

it's kind of like our eye candy, you

know, we can look at a valued risk.

602

:

We don't necessarily care about

valued risk because we know about

603

:

the shortcomings of valued risk.

604

:

Obviously we can calculate sharp ratios

and, you know, we would produce something

605

:

like a sharp ratio, but it's definitely

not a guiding light for our portfolio.

606

:

We really care about the risks

that we have, which is how much

607

:

of our closed equity can we lose

given the positions that we have.

608

:

and you know, there's, you know,

a certain level where we would

609

:

say, Hey, that is too much.

610

:

so yes, we would at, at that point

probably touch a position, but it is

611

:

very rarely that we would do that.

612

:

Adam Butler: Yep.

613

:

Understood.

614

:

I was just trying to get at the fact

that, because there are multiple systems

615

:

trading each market that you're not,

either, the portfolio is not either

616

:

in or out of a, a particular market.

617

:

It's just that a system is in or

out, and to the extent that maybe all

618

:

systems are in, and then one system

exits, then you'll be selling part of

619

:

the position not because of risk in

that position has gone up, but because

620

:

the, you, you've just got more than

one system and one of 'em is exited.

621

:

Yes.

622

:

Moritz Seibert: That That's right.

623

:

Adam Butler: Yeah.

624

:

And then, so how do you

think about position sizing?

625

:

Are you, are you observing the risk

of the market at the time of entry,

626

:

or are you using more of a, you know.

627

:

the s and p has a long-term risk of

X and therefore, whenever we put a

628

:

trade on ES then we're, we're going

to take this number of contracts

629

:

or this, you know, this percentage

of the portfolio or what have you.

630

:

How, how does that work is because

I always find it weird if you're

631

:

using a relatively dynamic estimate

of risk to put the position on, but

632

:

then you're not bothering to measure

the risk once the position is on.

633

:

It makes more sense to me that,

you know, a market has sort of a, a

634

:

long-term average ambient risk level,

and so you're gonna put one unit of

635

:

that long-term average ambient risk on

for each system when it, when you're

636

:

taking a trade or what have you.

637

:

So maybe just walk me

through your thinking there.

638

:

Moritz Heiden: Yeah, it's a,

it's a mix of what you described.

639

:

I would say.

640

:

Um, I agree to, with the fact that

you have to differentiate between

641

:

the long term and short term risk.

642

:

In many markets, what we do is we look

at the risk over certain time horizon

643

:

at the trade inception, and then the

risk on an ongoing basis actually

644

:

enters into, the, stop rule where we

would be out of the market actually.

645

:

So you have both once a trade inception

where you can look at different

646

:

timeframes, for example, like classical

one 30 days, 90 days, whatever for long

647

:

term shortterm risk for the position size.

648

:

And then you have something

like, for example, classic

649

:

trailing stop loss, which.

650

:

Is an ongoing risk measure where you

kind of have that trading with your

651

:

position with a certain window, which

can be one of the exit rules, right?

652

:

So both things enter.

653

:

What doesn't enter is kind

of like very long-term risk.

654

:

So we do not look at, for example, two

years, three years, risk measures in

655

:

terms of, okay, this very long-term

risk for the market determines the

656

:

position size, but this will be more,

important in actually constructing

657

:

the portfolio and the systems itself.

658

:

So we do not arrive, for example, at

this 21st percent, volatility roughly

659

:

or 20 30% dynamic volatility that we

are trading by accident, but rather by

660

:

choice and kind of like looking first

of all at of course long-term risk

661

:

statistics and then also long-term

correlations between the markets.

662

:

Kind of like that is determining

overall then the portfolio risk,

663

:

but not necessarily then a trade

inception, the position risk.

664

:

Adam Butler: Okay, that's great

actually, 'cause I wanted to

665

:

transition into portfolio construction.

666

:

so you've got a variety

of different systems.

667

:

They all roll up to a, you know, a, a

position in each market, any given time.

668

:

how are you aggregating the

risk across the portfolio?

669

:

it sounds like you're using correlations,

which, which is a little, I found a little

670

:

surprising given some of the other, ways

that you articulated the, the strategy.

671

:

I, I suspect you're also looking at

aggregate potential loss to various,

672

:

exit levels, that sort of thing.

673

:

But maybe just walk me through how

you roll up all of these individual

674

:

systems that are looking exclusively at.

675

:

A specific market with their own

individual exit levels, into an overall

676

:

portfolio and a portfolio risk model.

677

:

Moritz Seibert: So I, I can take

that, the, the correlations that

678

:

really only play a role, during the

research phase, to be quite frank.

679

:

we're not using correlation or measure

a measurement of correlation or a

680

:

reaction function to correlation,

once a trade has come into existence.

681

:

so what we do is every market that

comes into the portfolio, has a

682

:

Covance or correlation matrix.

683

:

So, you know, we're, we're producing that.

684

:

So WTI and brand, they're very

highly correlated markets.

685

:

Their correlation is not one, but.

686

:

The correlation is whatever, 0.8

687

:

to 0.9,

688

:

something like that.

689

:

But it's kinda like statistically,

statistically high and

690

:

persistent at that level.

691

:

now the correlation between WTI and

heating oil is no longer that high.

692

:

It is positive and it's

also more volatile.

693

:

It, the correlation of, you know, palm

oil to the DAX Index is essentially zero.

694

:

So the way we we built the portfolio

is we're adding markets, together in a

695

:

portfolio, and we start with kind of like.

696

:

Start with a 10 year note at the

s and p 500, at crude oil, at net

697

:

gas, at palm oil, at wheat, at corn.

698

:

So you get to, you know, market number 25

to 30, where all of a sudden you realize,

699

:

okay, I, I, I'll run into difficulties

finding or adding the 31st market that is

700

:

truly independent, or everything else that

we have already added into the portfolio.

701

:

So you get to, okay, are we going

to be adding the five year node?

702

:

Are we going to be

adding the two year node?

703

:

Are we going to be adding,

you know, wt I to brand?

704

:

And so now we're in these, in this

space where we're adding markets

705

:

that have a persistent positive

correlation, not by guarantee, but you

706

:

know, on, on average that is the case.

707

:

They can always decouple, uh,

during certain points in time.

708

:

But, so yes, we will add these markets.

709

:

Because their correlation is not

one, there's still a little bit of

710

:

diversification benefit that we can get.

711

:

A good example is TTF and

Henry Hub Natural Gas.

712

:

You know, these markets used

to be much more correlated.

713

:

Now they're very uncorrelated because,

you know, the European natural gas

714

:

markets are just trading completely

different to the us net gas markets.

715

:

So, then it is, once we've done this,

it is a question of how much risk

716

:

are we going to be putting onto a

trade If we're getting a signal to

717

:

trade, orange juice, because that's

the example that we've recently used.

718

:

We would immediately give

this a full risk unit.

719

:

because we know that really nothing

else is in the portfolio that would

720

:

have anything to do with orange juice,

where, so we know we want to get

721

:

as much as we can from that trade.

722

:

If we get a signal, however, in the

10 year note contract, it's not going

723

:

to have the same percentage of risk

or the same percentage of capital

724

:

that we're going to be risking on

that trade because, by experience we

725

:

know that it's now very likely that

we'll be receiving the same signal.

726

:

Maybe with a bit delay on the five year

note, on the two year note, on the ultra

727

:

contract, on the bond, on the bubble,

on the whatever, like, you know, go the

728

:

Canadian government gun go down the list.

729

:

I mean, it's, it's a very

correlated cluster, so we don't

730

:

want to be putting too much heat.

731

:

Into, you know, that cluster, the

same thinking applies to equities.

732

:

If, you know, we're trading the, and the

IEX and the DAX and the Euro stocks, I

733

:

mean, kinda, it's kinda like this all

European equity risk, SE uh, MIP 30.

734

:

So the signals are going to be very

correlated, not by one again, which is why

735

:

we're trading these markets, all of 'em.

736

:

But, you know, we would

size them differently.

737

:

So this is, this is how we do it.

738

:

We found that this, OCMs razor

approach, which is a relatively simple

739

:

approach, is in our opinion, the best

because correlations are really nasty.

740

:

You know?

741

:

Yes, they're between minus

one and one, but they change.

742

:

And, um, just, you know, chasing

correlations and changing correlations,

743

:

we don't think that's a good idea.

744

:

We, we'd rather, or in our case, we

prefer to make that broad observation.

745

:

I.

746

:

Exi, when we design the portfolio

and say, okay, these are the markets

747

:

that have a high correlation.

748

:

These are markets that have

no correlation, sometimes

749

:

even negative correlation.

750

:

Wouldn't that be great?

751

:

and then we, we define essentially,

um, sizing levels for these markets.

752

:

and the second step, like you

say, then it's all just adding up.

753

:

There's no like, correlation function that

goes into that or any complex mathematics.

754

:

It's just, you know, if one system

wants to trade, you know, 10 lots of,

755

:

uh, the 10 year note and another system

wants to trade, eight lots of the 10

756

:

year note, then it's going to be 18.

757

:

Okay, fine.

758

:

That will trade 18.

759

:

Adam Butler: so it sounded

to me like there may be some

760

:

sort of sequencing to it.

761

:

So, in the example you provided.

762

:

You first get a signal to be long, a

10 year note, you anticipate, because

763

:

the five year and the, the T bond

note are, sorry, the T bond future

764

:

are also gonna be highly correlated.

765

:

The European bond complex is

also gonna be highly correlated.

766

:

You're anticipating that you're,

you may get those signals and

767

:

therefore you're moderating the

initial allocation to the tenure.

768

:

Is that, did I understand

that correctly or are you

769

:

putting the,

770

:

Moritz Seibert: You, got it.

771

:

You got it.

772

:

That, that, that's exactly it.

773

:

And obviously the, the flip side of that

is that, uh, you know, we're an, like

774

:

you say, anticipating, well we're, we're,

it could happen that we're taking, you

775

:

know, smaller size trade in, say the

two year node and like you say, yeah,

776

:

the anticipation is we'll get a signal

in the five year node and the 10 year

777

:

node and all the other, like longer

duration us, bond futures contracts.

778

:

But maybe we don't, you know, maybe

the market, doesn't go to that

779

:

level and then we only have a,

you know, smaller, or relatively

780

:

smallish position on the two year.

781

:

No.

782

:

If that happens, that is

not necessarily an issue.

783

:

we usually have, you know, between 40

and 60 active trades in the portfolio.

784

:

whether we're missing, you know, one

or two, especially in these correlated

785

:

clusters, doesn't matter that much.

786

:

Adam Butler: no, I was just clarifying

whether you're putting a full

787

:

position on the tenure and then.

788

:

You've got a full position on that

crowds out your ability to then

789

:

add five year or add the two year,

but that's not really the case.

790

:

You're sort of leaving room

for these other markets in the

791

:

cluster to, to come in and add

risk if, if they trigger trades.

792

:

Moritz Seibert: Correct.

793

:

I understand better now.

794

:

Yes, correct.

795

:

So the ano, another version of this,

but we're not doing this, and I think

796

:

this is what you've just described, is

we could take the full position in my

797

:

example, on the two year note, and then

if the signal on the five year note

798

:

comes up, we would reduce the two year

note because we had a full long position

799

:

that we kinda like, we fill up the

budget or the room that was now given.

800

:

with, with the five net.

801

:

We don't do that because that would

also then be, we don't like these

802

:

trades where we're reacting or we're

changing the position size in one market

803

:

because something else has happened

in another market in our portfolio.

804

:

See that this would be the case, right?

805

:

We'd be reacting, we'd be changing the

two year node position size because we're

806

:

getting a signal on the five year node.

807

:

But really we don't do this.

808

:

We, we like to keep these

things very separate.

809

:

Adam Butler: Right.

810

:

Yeah.

811

:

No, it's, it, it takes me a few minutes to

get into this head space because it, we,

812

:

which is, this is such a rich ecosystem.

813

:

We think about things in,

totally in a continuous manner.

814

:

And so this idea of all these discreet

trades and each individual market being on

815

:

its own as is sort of anathema to the way

that we think, think about the problem.

816

:

I think the way you guys think about the

problem is a, is a one of a compliment

817

:

to how we think about the problem.

818

:

and as equal merit, just for my headspace,

it takes me a minute to kind of stretch

819

:

my legs and, and get into the, the

way that you, you think about it.

820

:

I mean, another way to sort of attack

that would be kind of acknowledging

821

:

that the US rate complex is basically

maybe kind of one trade, which is what

822

:

you're sort of implicitly staying by.

823

:

The fact that you're gonna leave room in

the portfolio for the potential for these

824

:

other, US, rate futures to come in, right?

825

:

If, if the trade triggers.

826

:

but if they don't, then you're kind of

under risks to the treasury complex.

827

:

Another way to think about it

is you're just gonna trade the

828

:

US rate complex a unit, right?

829

:

Like you're gonna look for

830

:

that entire complex to trigger a, a

trade, and then you're gonna enter

831

:

the complex and, and exit the, the

832

:

Moritz Seibert: I.

833

:

Adam Butler: right?

834

:

Moritz Seibert: In, in, in the absence,

in your example of a massive twist

835

:

in the interest rate curve in the

US where the two year point, behaves

836

:

completely different to all the other

points on the curve, say two year

837

:

yields are rising and the long end

of the curve the yields are, are not.

838

:

So they're, they may, maybe they're

even dropping, but, so yeah, in that

839

:

case, that could lead or that could

result in the effect that you've

840

:

just mentioned that we're essentially

under risk in one position because

841

:

we got the trade in the two year.

842

:

No, but we're really nothing.

843

:

There's nothing to follow through.

844

:

Now on the five year point

and the 10 year point.

845

:

In the absence of that, if that is not

the case and you have more of a parallel

846

:

shift up and down in, you know, interest

rate curves or any other markets, I mean,

847

:

in the equity markets you have that, that,

that these twists don't really exist.

848

:

Right?

849

:

It's kind of like that they're,

they're all in one way.

850

:

Then not getting the trade on the

five-year point, the 10 year point,

851

:

the 30, the long bond point, probably

is a good thing in that scenario

852

:

because then there's no follow through.

853

:

It's very likely going to be a

trade that has already reversed.

854

:

it's gonna be a scratch trade

or a small losing trade.

855

:

So if that's the case, our says or we'd be

happy to have not taken, the other trades.

856

:

Adam Butler: Yeah.

857

:

No, no, I totally agree.

858

:

I mean, you could, again, you could

go even, even further down the, the

859

:

rabbit hole and you could trade the.

860

:

First principle component of

the rates complex and the second

861

:

principle component, right, which is

just how is the curvature changing?

862

:

And, and you know, so they're, they're

kind of like both two synthetic

863

:

instruments that you're trading and

sometimes they might offset one another.

864

:

But anyways, it's there.

865

:

It's just trade-offs in

either direction, right?

866

:

you may be leaving some risk on the

table by not putting on the full rate

867

:

complex if it is a parallel shift,

but by the same token, you are not

868

:

running the risk that you're offside a,

a twist in the curve structure by, by

869

:

Moritz Seibert: Yeah,

870

:

Adam Butler: approach, right?

871

:

So it's just trade offs.

872

:

Moritz Seibert: I've, and you know, Moritz

has a PhD in statistics and mathematics.

873

:

I, I don't, but you know, we've written

papers about like, our journey in trading.

874

:

Like at some point, I was obsessed

with complexity, and this is probably

875

:

15 years or so ago, and all the stuff

that you've just mentioned, like, you

876

:

know, PCA and Covance matrices and

all that type of stuff, it's very easy

877

:

as a quantitative trader to think.

878

:

That obviously with the toolbox

that we have, there's always

879

:

ways to improve something, right?

880

:

Because, you know, your Python code

is there, your Excel spreadsheet

881

:

is there, your feed of the data.

882

:

you take all the tools that you've,

learned at, at university and you

883

:

want to, you know, you, you think

there it must be able to do better

884

:

and you must be able to improve it.

885

:

Obviously you're getting very easily

into, you know, data fitting and,

886

:

and overfitting and over optimizing.

887

:

and we stripped ourselves from that,

requirement or that necessity to,

888

:

um, you know, search for complexity

or find the solution and complexity.

889

:

The sometimes, you know, oftentimes

the simplest things work best.

890

:

they have the least degrees of freedom.

891

:

They're the most resilient.

892

:

They are inconvenient though.

893

:

This is the, one of the byproducts

that they have, is that this type

894

:

of trading produces inconvenience

in the form of erraticness.

895

:

It's not smooth.

896

:

It does have, you know, losses.

897

:

It can get you into

relatively large drawdowns.

898

:

We're keeping losses small,

that is very important.

899

:

We're protecting our capital.

900

:

but I guess this is one of the edges

that we have is that we've learned to

901

:

work with that inconvenience, because

most people, quite frankly, I think Adam,

902

:

are no longer capable of doing that.

903

:

That is also what we're seeing in the

investor behavior in that spectrum

904

:

is, you know, people live in Dave Dr

coined the term Sharpe Ratio World.

905

:

I think all of the institutional

investors live in Sharpe Ratio World

906

:

or in some other, fantasy world

where volatilities are constant.

907

:

Correlations never change and tails

don't exist, and everything oscillates

908

:

in kind of like a perfect equilibrium

around the mean of the distribution.

909

:

And that is just not the case.

910

:

We all know it.

911

:

We can all observe the daily returns.

912

:

We have all seen WTI go negative.

913

:

We have all seen power prices

in Europe, go through the roof.

914

:

we've all seen cocoa do what it has done.

915

:

And, and yet people discount this and they

want to put it back into a statistical

916

:

framework where these events that we

have seen with our own eyes cannot exist.

917

:

You can't capture them with these tools.

918

:

So we just, it, it's simply wrong,

therefore to use them to begin with.

919

:

And any of the other things be that

PCA or most of these statistical

920

:

toolbox that is, at our disposal.

921

:

One way or another works with these

type of assumptions that returns have a

922

:

certain distribution that is forecastable

and that is simply not the case.

923

:

and you know, I'm not saying

that we weren't affected by that.

924

:

Like I said, 15 years ago, we were

definitely, or I was definitely

925

:

in that camp where I thought,

okay, let's, you know, put another

926

:

indicator, another parameter,

another overlay, another filter,

927

:

another two, bum, bum, bum, bum, bum.

928

:

Make it more complex.

929

:

Obviously the back test tells

you, oh yes, this looks fantastic.

930

:

But what you've completely overlooked

is that you've completely over

931

:

optimized it and it's not resilient.

932

:

It's not robust.

933

:

You're building something that has worked

in the past, but essentially has a zero

934

:

probability of working in the future.

935

:

So then if you then do the follow the

simpler approach, the true and tested

936

:

time tested ways of keeping loss of

small, letting winners run, rolling with

937

:

the punches, you will experience that

inconvenience of erraticness and draw

938

:

down and loss and all that type of stuff.

939

:

And because most people today can no

longer cope with that pain because

940

:

we've been trained that we can now

volatility control everything down to

941

:

8% and everything needs to be smooth.

942

:

And, you know, institution investors,

they feel nothing more than a surprise

943

:

and a drawdown, a lot of money, a lot of

flows have been moving into that space

944

:

where everything becomes controlled and

overlaid and all that type of stuff.

945

:

and we think that a part of our

edge is in this pain resistance,

946

:

that we know that every once in

a while we have to toughen up.

947

:

take it on the chin.

948

:

But we also need to explain

that to our investors.

949

:

If, if I may just add this, I think that

is a very positive thing for us at the

950

:

moment and, and also in the past, is that

we know every single one of our investors,

951

:

nobody is allowed to invest with us

unless they have a personal conversation

952

:

with me and Moritz and the team.

953

:

And, this is not just to say

thank you, you know, for being

954

:

interested in Tucker Hay.

955

:

This is for us to figure out whether

they understand the way that we will

956

:

trade, whether they understand that,

you know, there will be losses,

957

:

especially when you're trading

between 25 and 35% volatility.

958

:

It all looks very easy when you zoom out.

959

:

When you look at the fact sheet and the

historical return chart and you zoom

960

:

out and you look at it from a distance,

even the most volatile return stream

961

:

looks kind of nice 'cause Yeah, well,

you know, these blips, I mean, yes, you

962

:

could've, you know, work them out and

waited them out and, When it happens,

963

:

when there is this month where you're

down 15% or where there in, when there

964

:

is this day where you're down 6% and

this happens, that is inconvenient.

965

:

And then they, their opinion

changes very quickly from, oh yeah,

966

:

I wanna be a long-term investor

to being scared and a short-term.

967

:

So we just wanna make sure that

they really understand this, that

968

:

they're not carried away with just

pure optimism and that everything is

969

:

just going to be going to the moon.

970

:

it is a journey that will take years.

971

:

Um, when you trade the way that we trade.

972

:

you shouldn't be, viewing this

as a couple of month investments.

973

:

you know, we make, maybe 2, 3, 4, 5

years, but over that period of time, very

974

:

likely we will make a positive return.

975

:

Never a guarantee, but it's very likely

that we will make a positive return.

976

:

And you can look at the historical

charts of the CTA industry that

977

:

is by and large what has happened.

978

:

but.

979

:

Getting from point A to point

B can be tough and that's,

980

:

our, our line of business.

981

:

Adam Butler: Yes, it.

982

:

Moritz Heiden: I think one thing is also

to add sort, is that we are taking away

983

:

the complexity actually from some things

where we don't think it's necessary.

984

:

Because, for example, the heuristics

that we are applying, actually they're

985

:

very close to what I would say is

top-notch statistical research where

986

:

you can apply all kinds of fancy stuff

that you can optimize parameters.

987

:

Endlessly, right?

988

:

You can do hierarchical portfolio

optimization, you can do cluster

989

:

based stuff, and in the end, if

you apply some simpler heuristic,

990

:

you're actually back to that.

991

:

But without all the complexity that

you have to explain, first of all,

992

:

that you have to optimize where you can

fine tune the parameters if you, and we

993

:

are able to bring that down to a level

where we have done that work actually.

994

:

And we have brought that down

to some just simpler rules.

995

:

And I think that's also what

rules-based investing and especially

996

:

trend following should be about.

997

:

Kind of like breaking this down again

to something simple and avoiding the

998

:

over-complexity that actually adds

to the robustness of of the system.

999

:

Because if we are doing that and

we are doing the analysis as well.

:

00:55:31,780 --> 00:55:35,942

I Moritz might not, uh, like that,

but, I still like the, complex

:

00:55:35,942 --> 00:55:39,062

systems at least for, uh, playing

around and toying around, right?

:

00:55:39,062 --> 00:55:43,652

So they are not, not out of my mind

and also not, uh, completely away

:

00:55:43,652 --> 00:55:46,022

from my machine, but I don't use them.

:

00:55:46,022 --> 00:55:49,352

But I'm looking at how do these

actually compare to what we are doing?

:

00:55:49,352 --> 00:55:53,522

And I find that actually what we are

doing is so close to that, but with much

:

00:55:53,522 --> 00:55:58,545

less effort and much more robustness

that I can kind of like trade that

:

00:55:58,545 --> 00:56:00,285

with a higher level of confidence.

:

00:56:00,758 --> 00:56:03,848

Moritz Seibert: we have a very

large graveyard of systems.

:

00:56:03,968 --> 00:56:06,928

I think a couple of months ago,

we wrote an inside piece about

:

00:56:06,928 --> 00:56:10,468

immune reversion system applied

to the s and p 500 and, um, I.

:

00:56:11,488 --> 00:56:14,698

Some US bond futures contracts

now most of the time.

:

00:56:14,698 --> 00:56:18,088

And kinda like everything that we

find in academic papers or you know,

:

00:56:18,088 --> 00:56:21,148

things that we see published on

the internet about trading systems.

:

00:56:21,448 --> 00:56:24,898

We usually take that up,

code it and see how it works.

:

00:56:24,928 --> 00:56:29,168

And, you know, we run it every once in

a while, to see if it continues to work.

:

00:56:29,288 --> 00:56:32,848

And most of the things, once they

have been published, surprise,

:

00:56:32,848 --> 00:56:34,798

surprise, they start decaying.

:

00:56:34,858 --> 00:56:39,058

Most of the trading systems, especially

the complex ones, they decay and

:

00:56:39,058 --> 00:56:40,708

some of them decay really fast.

:

00:56:41,338 --> 00:56:45,088

The one that we wrote an inside piece

about, which people can find on our

:

00:56:45,088 --> 00:56:50,338

website is a statistical alarmy because

it has been published by Quest Partners,

:

00:56:50,338 --> 00:56:54,088

which is another CTA, it's a New York

based CTA, it's a mean reversion system.

:

00:56:54,328 --> 00:56:57,508

And that system continues to work

even though it has been published.

:

00:56:57,508 --> 00:57:00,848

And, it's kinda like this,

buying the dip is a thing that I.

:

00:57:00,848 --> 00:57:04,253

It doesn't seem to be going

away in the s and p 500.

:

00:57:04,793 --> 00:57:07,853

So yeah, we're monitoring these

things, but believe me, most of the

:

00:57:07,853 --> 00:57:12,033

systems, they, they have one, one

place where they live, and that's the

:

00:57:12,033 --> 00:57:14,073

graveyard because they don't work.

:

00:57:14,733 --> 00:57:19,803

And only the simple ones, the ones where

you maybe originally or at the outset

:

00:57:19,803 --> 00:57:24,933

think how can something as simple as

that work, they continue to work because

:

00:57:24,933 --> 00:57:30,473

of that cleanliness, the pureness that,

pureness of design, without any of the

:

00:57:30,473 --> 00:57:32,783

complexities that makes them strong.

:

00:57:33,667 --> 00:57:37,147

I'm very grateful to some of

the, people in the CTA industry

:

00:57:37,357 --> 00:57:38,257

that I've been in touch with.

:

00:57:38,257 --> 00:57:40,357

Like, you know, bill Dry, Jerry Parker.

:

00:57:40,417 --> 00:57:44,347

You know, we've talking to these

people for years, worked with

:

00:57:44,347 --> 00:57:46,767

them, they understand all of this.

:

00:57:47,197 --> 00:57:51,037

and they, they stay away from any

of these complexities as well.

:

00:57:51,757 --> 00:57:53,377

It's the right path to travel.

:

00:57:54,417 --> 00:57:57,787

Adam Butler: Yeah, I mean, I've always

thought it would be a really fun to have

:

00:57:57,787 --> 00:58:03,047

a lot more conversations, between people

from sort of the different schools of

:

00:58:03,047 --> 00:58:07,337

the different systematic, areas, because

I think they would bring different.

:

00:58:07,727 --> 00:58:14,657

Strengths, weaknesses, blind spots,

niche strengths to, to the conversation.

:

00:58:14,657 --> 00:58:17,177

And everyone would learn something.

:

00:58:17,237 --> 00:58:21,587

and I, I, I think, you know,

we would learn something from

:

00:58:21,797 --> 00:58:22,937

what's in your graveyard.

:

00:58:22,937 --> 00:58:25,967

You would learn something from

what's in our graveyard, and there's,

:

00:58:26,687 --> 00:58:29,777

there's, I think there's a lot of

complimentary knowledge that that

:

00:58:29,777 --> 00:58:33,927

might be, shared and, and people who

would listen, would learn a lot from.

:

00:58:33,927 --> 00:58:36,397

And, but it's just very difficult

because everybody's kind of got

:

00:58:36,397 --> 00:58:39,277

their own, first of all, you can

only talk about so much without

:

00:58:39,277 --> 00:58:42,097

giving some of the secret sauce away.

:

00:58:42,097 --> 00:58:45,807

And, also there's a,

there's a branding issue.

:

00:58:45,807 --> 00:58:49,587

You know, you, you don't kind of want

to be seen as coming out a little bit

:

00:58:49,587 --> 00:58:53,367

behind or a little bit ahead and like,

it's, it's just too complicated from

:

00:58:53,442 --> 00:58:53,982

Moritz Seibert: sure.

:

00:58:53,982 --> 00:58:56,502

It's, it's the ratio of PhDs to a UM.

:

00:58:56,502 --> 00:58:59,832

We've, we've all seen this and, you

know, you need to have a staff of 200

:

00:58:59,862 --> 00:59:01,722

people, all of them focused on research.

:

00:59:01,802 --> 00:59:04,412

Adam, to be quite frank, the,

the business that we run, it

:

00:59:04,412 --> 00:59:05,792

doesn't need that many people.

:

00:59:05,972 --> 00:59:09,512

Probably the most important one is

the, the Labrador dog that I mentioned

:

00:59:09,512 --> 00:59:13,032

that, you know, keeps us away from

doing silly things during the day.

:

00:59:13,602 --> 00:59:16,842

but we're trading

relatively liquid markets.

:

00:59:16,872 --> 00:59:20,082

If something were to happen to Moritz

or myself, then people will get

:

00:59:20,082 --> 00:59:22,722

their money back and, you know, it's

like, what's the, what's the deal?

:

00:59:22,722 --> 00:59:25,662

I mean, hopefully we will have

had a good time and your portfolio

:

00:59:25,752 --> 00:59:27,552

ideally will be at a new equity high.

:

00:59:27,992 --> 00:59:30,992

you know, I just, uh, by the way,

we don't charge management fees.

:

00:59:31,022 --> 00:59:32,402

Our management fee is zero.

:

00:59:32,502 --> 00:59:34,762

and, we live and die by the sword.

:

00:59:34,942 --> 00:59:37,852

You know, institutional investors

sometimes go like, oh, we want you

:

00:59:37,852 --> 00:59:41,122

to earn a management fee because

we want you to stay in business,

:

00:59:41,152 --> 00:59:43,732

um, when you are in a drawdown.

:

00:59:43,732 --> 00:59:48,292

And my response to that is, well, you

know, we should have some reserves.

:

00:59:48,322 --> 00:59:49,852

We should be keeping costs low.

:

00:59:49,852 --> 00:59:51,472

The business needs to take care of itself.

:

00:59:51,472 --> 00:59:54,562

We really only want to get compensated

if we make our clients money.

:

00:59:54,592 --> 00:59:56,902

And that's a true statement that

we need to make them more money

:

00:59:56,902 --> 00:59:58,312

than the risk-free rate of return.

:

00:59:58,312 --> 00:59:59,932

We have a hurdle rate on top of that.

:

01:00:00,532 --> 01:00:03,022

We don't wanna be compensated

just for sitting here.

:

01:00:03,092 --> 01:00:06,762

we wanna be compensated, if and when

we make money for our investors.

:

01:00:06,762 --> 01:00:08,172

And I think all hedge funds.

:

01:00:08,172 --> 01:00:09,492

It should operate that way.

:

01:00:09,912 --> 01:00:13,332

And in a way, hedge funds

used to be that way.

:

01:00:13,412 --> 01:00:16,832

you know, when we go down memory lane, I

mean obviously a hedge fund is supposed

:

01:00:16,832 --> 01:00:21,212

to produce alpha, otherwise, you know,

if you wanna have beta buy an ETF, even

:

01:00:21,212 --> 01:00:24,152

though there's now different types of

ETFs, but you know where I'm getting like

:

01:00:24,152 --> 01:00:26,072

the price of beta theoretically is zero.

:

01:00:26,072 --> 01:00:26,312

Right?

:

01:00:26,962 --> 01:00:30,982

but if, if you, if you invest in a

hedge fund, what you don't want is beta.

:

01:00:31,202 --> 01:00:37,112

what you want is a skill-based return

that is independent and uncorrelated

:

01:00:37,202 --> 01:00:41,342

to other things that you have in your

portfolio and which is therefore valuable.

:

01:00:41,702 --> 01:00:45,602

And if that hedge fund that produces

that return is actually doing

:

01:00:45,602 --> 01:00:48,992

it, they deserve a compensation,

which is the incentive fee.

:

01:00:48,992 --> 01:00:51,122

And I think this is how

that business should be run.

:

01:00:51,272 --> 01:00:53,642

We've decided to run

our business that way.

:

01:00:54,242 --> 01:00:58,202

And in a way, what we're critiquing is

that over the past quarter of a century,

:

01:00:58,202 --> 01:01:02,822

it is now since we're following that

space, and like when I started to look

:

01:01:02,822 --> 01:01:08,162

into, into the CTA space or the hedge

space, more generally around:

:

01:01:08,222 --> 01:01:13,202

most of these funds were trading at a

relatively higher level of volatility

:

01:01:13,202 --> 01:01:15,542

compared to what they have today.

:

01:01:16,022 --> 01:01:19,872

you know, when Bill Dunn started

trading, in the:

:

01:01:19,872 --> 01:01:22,962

the longest track record of everyone

in that space, their volatilities

:

01:01:22,962 --> 01:01:27,342

were north of 30, even when, you

know, a HL and, and Winton had higher

:

01:01:27,342 --> 01:01:29,592

volatilities in their earlier years.

:

01:01:29,872 --> 01:01:34,057

think about Dave Drews a tactical

investment management, bill, Dr.

:

01:01:34,057 --> 01:01:36,140

Paul Mulvaney, to name a few.

:

01:01:36,938 --> 01:01:40,268

There's only a handful and it's

really only a handful, maybe

:

01:01:40,268 --> 01:01:42,938

just four managers, us included.

:

01:01:43,808 --> 01:01:47,628

BMORE is one, a relatively newer

entrant like us to that space.

:

01:01:47,658 --> 01:01:51,843

trading at a relatively higher level

of volatility that live in that space.

:

01:01:51,943 --> 01:01:55,573

and everybody else has decayed

their volatilities in response

:

01:01:55,573 --> 01:01:58,663

as a response function to

institutional investor demands.

:

01:01:58,663 --> 01:02:02,383

It's kinda like this

God-given present to everyone.

:

01:02:02,383 --> 01:02:05,713

Like you have this big institutional

investor, this pension fund, sovereign

:

01:02:05,713 --> 01:02:09,853

wealth fund, which says, Hey, my minimum

ticket size is a hundred million, but

:

01:02:09,853 --> 01:02:12,043

I'd like to really deploy 500 million.

:

01:02:12,223 --> 01:02:15,803

So, yes, I can understand why you want

to cater that investor, but that is

:

01:02:15,803 --> 01:02:19,733

the investor that lives in sharp racial

world that wants everything to be smooth,

:

01:02:19,763 --> 01:02:22,823

everything to be, you know, steady Eddie.

:

01:02:23,483 --> 01:02:27,503

so now how do you do Steady Eddy

and smooth, you do it by going

:

01:02:27,503 --> 01:02:32,153

down from 25% volatility to 8%

volatility, because at 8% vol, not

:

01:02:32,153 --> 01:02:33,863

that much can really happen, right?

:

01:02:33,863 --> 01:02:38,033

But something has to give, obviously the,

the stuff that gives is the raw return.

:

01:02:38,603 --> 01:02:40,628

Moritzta mentioned, what

buys you your breakfast?

:

01:02:40,628 --> 01:02:42,638

It's not the sharp ratio,

it's the raw return.

:

01:02:43,148 --> 01:02:46,808

We're in this business because we

wanna make money at 8% volatility.

:

01:02:46,808 --> 01:02:48,848

We can't really make the

money that we want to make.

:

01:02:48,928 --> 01:02:49,648

we're here.

:

01:02:49,978 --> 01:02:51,538

I think this is what trading is about.

:

01:02:51,538 --> 01:02:53,758

Trading is about, it

has only one function.

:

01:02:53,848 --> 01:02:55,048

It is to make money.

:

01:02:55,498 --> 01:02:58,648

Everything else is secondary or

shouldn't really exist in that equation.

:

01:02:58,978 --> 01:03:00,808

So making money is the objective.

:

01:03:00,808 --> 01:03:05,958

And when this, when this shift

happened in investor behavior, the

:

01:03:05,958 --> 01:03:09,708

hedge funds and also the CTAs, they

were very happy to respond because

:

01:03:09,708 --> 01:03:14,358

by lowering the volatility, what

you produce is increased capacity.

:

01:03:14,868 --> 01:03:18,828

You're now trading less contracts,

which allows your business to scale

:

01:03:18,828 --> 01:03:22,008

much more easily into the billions,

which many of these funds have done.

:

01:03:22,688 --> 01:03:24,818

I'm not critiquing that

they have done this.

:

01:03:24,818 --> 01:03:27,818

I can completely understand

why this happened, right?

:

01:03:28,148 --> 01:03:30,518

But it's not in the best

interest of the investor.

:

01:03:30,518 --> 01:03:34,328

It all of a sudden started to be in

the interest of the hedge fund because

:

01:03:34,328 --> 01:03:36,008

when you scale him to the billions.

:

01:03:36,533 --> 01:03:42,653

The, you wanna be emphasizing the

management fee, the value add of

:

01:03:42,653 --> 01:03:46,133

your management fee relative to your

performance fee is now much larger.

:

01:03:46,133 --> 01:03:52,073

Because if you're earning 2% on 10

billion, 20 billion, 30 billion,

:

01:03:52,463 --> 01:03:54,353

that is a really nice business.

:

01:03:54,383 --> 01:03:57,983

You kinda like wanna reduce the

dependency on performance fees at that

:

01:03:57,983 --> 01:04:05,303

point, but is this the right thing to do

from kinda like a trading perspective?

:

01:04:05,753 --> 01:04:07,613

Our answer to that is a clear no.

:

01:04:09,173 --> 01:04:12,518

Adam Butler: I mean, I, and I think

that's a, a relatively good place to.

:

01:04:12,998 --> 01:04:13,988

To put a pin in it.

:

01:04:13,988 --> 01:04:17,108

But, you know, we, I think a lot

of managers struggle with this.

:

01:04:17,138 --> 01:04:22,328

How do you both deploy a strategy that

people wanna own, and deploy a strategy

:

01:04:22,328 --> 01:04:28,112

that you feel is intellectually honest

And, the Venn diagram of strategy that

:

01:04:28,112 --> 01:04:31,712

people wanna own and strategy that

you believe is intellectually honest?

:

01:04:32,221 --> 01:04:36,925

I think has been the, the, the

overlap has been diminishing

:

01:04:37,345 --> 01:04:37,645

over

:

01:04:37,735 --> 01:04:42,025

Moritz Seibert: Yeah, so we, we

said goodbye, for better or worse

:

01:04:42,055 --> 01:04:44,215

to one investor category altogether.

:

01:04:44,265 --> 01:04:47,805

we like to stay intellectually honest

and we are now, what that means is

:

01:04:47,805 --> 01:04:50,595

that our investors are no longer,

and they've never been pension

:

01:04:50,595 --> 01:04:52,935

funds or institution investors,

and we won't be catering to them.

:

01:04:52,935 --> 01:04:55,305

Maybe they are following us,

maybe they go on our website,

:

01:04:55,815 --> 01:04:57,105

but hey, we're not for you.

:

01:04:57,105 --> 01:04:57,855

We're not for them.

:

01:04:57,855 --> 01:05:01,904

Don't call us because look, we,

we don't have a hundred PhDs.

:

01:05:01,935 --> 01:05:05,625

We, you know, yes, we, we do

have a DDQ, but we're, we're not.

:

01:05:05,654 --> 01:05:05,895

We're not.

:

01:05:07,154 --> 01:05:09,135

We're not the CTA that you're looking for.

:

01:05:09,404 --> 01:05:12,675

Uh, we're not, we're not

8% volatility steady Eddie.

:

01:05:12,735 --> 01:05:13,065

Right.

:

01:05:13,425 --> 01:05:18,345

So, but also this is great for us

because it means that our clientele, our

:

01:05:18,345 --> 01:05:20,505

investors are people from our network.

:

01:05:20,505 --> 01:05:24,855

People that we know, people that have

been referred to us, people that we have a

:

01:05:24,855 --> 01:05:29,715

personal connection with, their individual

investors and their family offices.

:

01:05:29,805 --> 01:05:33,315

These are people that we

absolutely love to work with.

:

01:05:33,635 --> 01:05:35,765

as I've said, they need to

have a conversation with us.

:

01:05:35,765 --> 01:05:38,404

We wanna make sure that they understand

what it is that we're doing and how

:

01:05:38,404 --> 01:05:42,335

we're risking not, you know, in a silly

way, but in a hopefully smart way.

:

01:05:42,805 --> 01:05:45,565

they're well earned euros

or dollars to make a return.

:

01:05:46,135 --> 01:05:51,145

but these investors, we find it much

easier to work with because they get it.

:

01:05:51,175 --> 01:05:53,695

They don't have the career

risk of an allocator.

:

01:05:53,695 --> 01:05:57,465

They don't have all these secondary,

Pressures that exist in a big

:

01:05:57,465 --> 01:06:00,315

organization when you work for an

institutional, like an insurance

:

01:06:00,315 --> 01:06:01,515

company or something like that, right?

:

01:06:01,515 --> 01:06:04,635

You, you don't wanna be banking, you

don't want to be the person that makes the

:

01:06:04,635 --> 01:06:06,615

silly decision by investing in Tucker Hay.

:

01:06:06,615 --> 01:06:09,915

And then Tucker Hay has a say

20% down month, which, you know,

:

01:06:10,005 --> 01:06:13,035

whatever could happen, we haven't

had this, but it could happen.

:

01:06:13,425 --> 01:06:17,445

And then, you know, this person's boss

goes, how could he possibly have been so

:

01:06:17,445 --> 01:06:19,785

stupid to give money to the two Morzas?

:

01:06:20,035 --> 01:06:23,005

you know, they don't have a hundred

PhDs and now they've lost 20%.

:

01:06:23,404 --> 01:06:26,285

maybe we should, you know, speak about

your career prospects at the firm.

:

01:06:26,285 --> 01:06:28,085

So obviously you don't,

they don't want that.

:

01:06:28,085 --> 01:06:33,965

I understand it, but, private investors,

family offices, they are in a much

:

01:06:33,965 --> 01:06:37,025

better position to understand why

it is that it is what we're doing.

:

01:06:37,595 --> 01:06:39,815

And they also understand

that it's capital efficient.

:

01:06:40,025 --> 01:06:42,665

Look, I mean, we're trading derivatives,

we're trading futures contracts.

:

01:06:42,665 --> 01:06:45,395

We don't even need all your money

to do what it is that we're doing.

:

01:06:45,735 --> 01:06:47,865

we need some of the money to work.

:

01:06:48,435 --> 01:06:52,635

To, to have that, for, for margin

requirements and some kind of like, as a

:

01:06:52,635 --> 01:06:55,845

holdback, you know, for variation margin

and draw down and stuff and, you know,

:

01:06:55,845 --> 01:06:57,585

we're buying, we're buying T-bills.

:

01:06:57,585 --> 01:07:02,654

But, it is actually relatively ca

it is much more cash efficient to

:

01:07:02,654 --> 01:07:04,154

trade at a high level of volatility.

:

01:07:04,154 --> 01:07:05,175

Just give us less money.

:

01:07:05,965 --> 01:07:08,125

you know, we're not charging,

we're not charging management

:

01:07:08,125 --> 01:07:14,154

fees, just invest, you know, half

into Tucker Hay at, uh, 25% vol.

:

01:07:14,542 --> 01:07:16,822

you know, from, on a risk adjusted basis.

:

01:07:16,822 --> 01:07:21,742

It's, it's the same as, uh, as doing,

you know, two times that at at, at 12.5%

:

01:07:21,742 --> 01:07:22,372

volatility.

:

01:07:22,957 --> 01:07:25,942

Adam Butler: It's astonishing

how poorly that sells.

:

01:07:26,645 --> 01:07:30,102

It's a, I mean, it just makes

absolute perfect sense and yet.

:

01:07:30,492 --> 01:07:33,132

You know, people just don't

like the line item risk, right?

:

01:07:33,132 --> 01:07:36,402

I'd, I'd rather put twice as much in

an eight Vol product than half as much

:

01:07:36,402 --> 01:07:40,612

in a 16 Vol product because you're not

gonna make me look bad, in the eight

:

01:07:40,612 --> 01:07:44,721

vol product nearly as often as you'll

make me look bad in the 16 vol product.

:

01:07:44,721 --> 01:07:47,422

And, and it hurts when it hurts to hurt.

:

01:07:47,935 --> 01:07:52,225

So it's, it's a strange, strange business

and strange decision making, obviously.

:

01:07:52,255 --> 01:07:54,685

I mean, there is no

arguing with that point.

:

01:07:54,955 --> 01:07:59,785

It is absolutely unquestionably more

capital efficient, put fewer dollars

:

01:07:59,785 --> 01:08:04,642

in high vol strategies and, deploy

the rest of your capital elsewhere and

:

01:08:04,642 --> 01:08:07,288

other diversifying, managers, but, uh,

:

01:08:07,618 --> 01:08:10,858

Moritz Seibert: and risk reducing,

you know, risk reducing too.

:

01:08:10,918 --> 01:08:13,118

I mean, think about two dimensions.

:

01:08:13,148 --> 01:08:17,707

You have the residual cash that

is invested in say, T-bills, but

:

01:08:17,707 --> 01:08:19,448

not everybody invests in t-bills.

:

01:08:19,448 --> 01:08:24,825

You know, some firms use, bond trading

desks or they, um, would use a different

:

01:08:24,825 --> 01:08:28,545

type of collateral, maybe some that

is, uh, associated with credit risk.

:

01:08:28,545 --> 01:08:29,055

I don't know.

:

01:08:29,729 --> 01:08:33,240

so obviously the lower your volatility,

the more of that residual cash you

:

01:08:33,240 --> 01:08:37,440

have the portfolio, the more of that

can go into other types of investments

:

01:08:37,440 --> 01:08:40,859

that don't have anything to do with the

original trading strategy that you've

:

01:08:40,859 --> 01:08:42,180

been talking about with your client.

:

01:08:42,390 --> 01:08:42,690

Right.

:

01:08:43,350 --> 01:08:43,740

Okay.

:

01:08:44,100 --> 01:08:48,120

And then you have counterparty

risk, MF global whatever.

:

01:08:48,120 --> 01:08:49,590

I mean, yes, it should not happen.

:

01:08:49,590 --> 01:08:52,319

You know, clearing brokers

should be segregating their

:

01:08:52,319 --> 01:08:53,790

assets from their client assets.

:

01:08:53,790 --> 01:08:57,569

But, you know, the global financial

crisis has shown that, everyone's

:

01:08:57,569 --> 01:08:59,069

in a while, things can go wrong.

:

01:08:59,430 --> 01:09:02,850

And where it's definitely not

sitting here and saying it

:

01:09:02,850 --> 01:09:04,350

will never, never happen again.

:

01:09:04,559 --> 01:09:08,130

This is, this is not the word that

you're using in financial markets.

:

01:09:08,130 --> 01:09:11,729

I mean, bad things can happen and

at some point in the future, I guess

:

01:09:11,850 --> 01:09:13,529

something bad will happen again.

:

01:09:14,040 --> 01:09:19,500

Now if you have, in your example, 8% vol,

60% vol, you have twice as much at an 8%

:

01:09:19,500 --> 01:09:24,779

vol manager and you know, that manager is

affected by, some, risk in the financial

:

01:09:24,779 --> 01:09:28,260

markets where you have a systemic risk and

counterparty failures and all this type of

:

01:09:28,260 --> 01:09:32,340

stuff, you know, you have much more money

at risk than you have when you've invested

:

01:09:32,340 --> 01:09:34,229

half of your money at 60% volatility.

:

01:09:34,808 --> 01:09:35,028

Adam Butler: Yep.

:

01:09:35,617 --> 01:09:36,787

just makes complete sense.

:

01:09:37,710 --> 01:09:41,163

more it's HI see your, it's getting dark.

:

01:09:42,033 --> 01:09:42,618

Where, where you.

:

01:09:43,233 --> 01:09:43,292

Moritz Heiden: yeah.

:

01:09:44,893 --> 01:09:45,823

Adam Butler: No, no, it's all good.

:

01:09:45,823 --> 01:09:46,303

It's all good.

:

01:09:46,303 --> 01:09:49,357

I think, it's a, this is a good point

to kind of wind it down anyways,

:

01:09:49,386 --> 01:09:52,370

but, this, I really appreciate you

guys taking time outta your late

:

01:09:52,370 --> 01:09:59,390

afternoon, moving into evening now

to, um, share your philosophies, your

:

01:09:59,390 --> 01:10:03,380

methodologies techniques, your lessons

learned over time and experiences.

:

01:10:03,920 --> 01:10:08,160

I learned some things and I know

that, listeners will learn a lot.

:

01:10:08,580 --> 01:10:12,070

And, you know, I look forward, you

guys were in Cayman a couple years ago.

:

01:10:12,070 --> 01:10:16,240

Any plans to, to revisit or, um,

what conferences are coming up?

:

01:10:16,920 --> 01:10:19,830

Moritz Seibert: Yes, uh, there

is good chance, uh, we will be in

:

01:10:19,830 --> 01:10:25,010

Cayman, as you say, Cayman, around

November, December this year.

:

01:10:25,850 --> 01:10:26,720

Adam Butler: Fantastic.

:

01:10:26,875 --> 01:10:27,095

Moritz Seibert: uh,

:

01:10:27,340 --> 01:10:28,985

Moritz Heiden: And actually

I wanted to point out more.

:

01:10:29,105 --> 01:10:33,658

We saw Adam's, poster in the elevator,

in the building we went to, right?

:

01:10:34,077 --> 01:10:37,258

So we did, we did

advertisement or something.

:

01:10:37,258 --> 01:10:38,638

It was, but we saw your face

:

01:10:38,743 --> 01:10:41,053

Adam Butler: I think it might

have been, I'm on this, I, I was

:

01:10:41,053 --> 01:10:45,283

the event coordinator for the CFA

society here, so I think I might

:

01:10:45,283 --> 01:10:46,543

have been marketing an event.

:

01:10:46,723 --> 01:10:46,934

Moritz Seibert: There you go.

:

01:10:47,648 --> 01:10:48,038

There you go.

:

01:10:48,038 --> 01:10:48,188

Yeah.

:

01:10:48,188 --> 01:10:52,988

We'll, but yeah, we, we have a board

meeting, director meeting, um, for,

:

01:10:52,988 --> 01:10:54,998

you know, the Cayman Fund that we run.

:

01:10:54,998 --> 01:11:00,162

And, there's, auditors are in Cayman,

uh, our legal counselors in Cayman.

:

01:11:00,162 --> 01:11:03,342

So it's, uh, you know, at some point

we like to see these people in person.

:

01:11:03,372 --> 01:11:06,282

So, um, probably in, in

November or December of this

:

01:11:06,282 --> 01:11:07,062

year, we'll be down there.

:

01:11:07,677 --> 01:11:08,217

Adam Butler: Excellent.

:

01:11:08,247 --> 01:11:10,167

Well, let's be sure to get

together when you're here.

:

01:11:10,962 --> 01:11:11,532

Moritz Seibert: Absolutely.

:

01:11:11,532 --> 01:11:12,372

And that would be lovely.

:

01:11:13,107 --> 01:11:16,137

Adam Butler: Alright, well listen, thanks

again guys, and let's do this again soon.

:

01:11:16,582 --> 01:11:17,002

Moritz Seibert: Thank you.

:

01:11:17,420 --> 01:11:18,285

Moritz Heiden: Thank you, Adam.

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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.