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

Topics Discussed

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

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

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

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

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

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

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

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

All right.

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Looks like we are live,

ladies and gentlemen.

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Thank you everybody.

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And, uh, welcome to our live Q and A

and today we're planning on discussing

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what is going on, broadly speaking

in the macro markets today, and the

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impact specifically to the managed

future strategies of trend and carry.

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And, um, yeah, I mean, if you

guys haven't heard of us already,

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uh, my name's Rodrigo Gordillo.

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President and Portfolio Manager at

Resolve Asset Management Global.

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And today I'm joined with Corey

Hoffstein, Chief Investment Officer

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of Newfound Research, along with

Adam Butler, CIO of Resolve Global.

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And everybody here today are co-founders

of the Return Stacked ETFs and Return

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Stack Portfolio Solutions Ventures.

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So thanks gents for joining us today.

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Uh, and we.

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Turn this around quite quickly.

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I know everybody's been hard at

work trying to get a handle on

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what's going on in the markets

in the last few weeks and days.

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

us set the stage, uh, a little bit

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on what's going on in the markets.

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I mean, in the last few weeks, um,

we've had European regulation reforms,

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the surprise German fiscal stimulus.

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The Atlanta Feds negative Q1 GDP.

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Now print.

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Not to mention the tariff

battles, you know, between

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Canada and Mexico and Europe.

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Now we have systematic.

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Now it, it, the, the reality is that

systematic managers that we are,

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we generally don't talk about these

fundamental things very much, but I do

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want to kind of pick your brain 'cause I

know we talk about it a lot internally.

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What have been the biggest market moving

stories in the, in the recent weeks?

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Corey Hoffstein: Hey Rod, I wanna, I

wanna point out, you said all that's

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happened in the last couple weeks.

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All that happened in the last three days.

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

that every day feels like a week.

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Look to me, the, these are

all big stories, right?

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Tariff pressure leading

to a massive negative one.

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Q, Q1 GDP forecast, print

is huge for the US economy.

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These European regulatory reforms are

huge for European growth prospects,

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but to me that, like the big one that

was a surprise and and feels like a, a

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bazooka is the German fiscal stimulus.

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For folks who, who haven't read about

it or, or looked into it, the proposed

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fiscal stimulus is really focused on

infrastructure and defense spending.

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In particular it, it allows

Germany to lift their budget cap

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for any defense related spending.

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And so the amount of fiscal

stimulus that it captures is

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between 10 or 20% of Germany's GDP.

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Right.

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So to put that into context, that's

about how much the US unleashed as a

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percent of GDP during covid, right?

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When we shut down the economy,

we did a fiscal stimulus

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package of 10 to 20% of our GDP.

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Germany just went, let's do it.

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Right.

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And so you saw massive moves

in the German fund, right?

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Uh, rates there jumped 30 bips, which

is the last time they jumped 30 bips was

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again, during covid, during ex, you know,

expectations that, uh, the government

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was gonna have to pay for this somehow.

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You saw huge moves in, um, the German.

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Uh, Dax, right?

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The equity market, uh,

both up and down, right?

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Uh, lots of volatility there, right?

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And you saw moves in, in

the Euro versus the dollar.

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And so I think in terms of like something

that had a true cross market impact, that

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

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For Germany is just so

massive relative to their GDP.

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It, it feels, and again, I feel like

we use the word unprecedented every

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time something happens in the markets.

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But, but for not having, uh, a

covid like economic shutdown to

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just say we're unleashing 10 to

20% fiscal stimulus is, is huge.

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People should be aware, appreciated.

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I also appreci just one

comment real quick, Adam.

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

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The, I think the vote is March 24th.

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So in terms of what markets are

trying to digest, there's also a

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probabilistic reaction here and you

know, if markets overshoot that this

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is gonna get implemented, you could

see a whipsaw effect in, in late March.

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Adam Butler: Yeah, I actually,

just in terms of whipsaws.

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I mean, this has been an

environment dominated by Whipsaws.

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I remember coming into, February,

the tariffs were announced.

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The currencies of the target

economies are decimated, which

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was in the direction of carry.

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It was in the direction

of the prevailing trend.

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Started out being a

phenomenal day, February 1st.

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And By the end of the day, it was,

announced effectively that, the tariffs

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were not gonna come into effect, or

at least they were gonna be delayed.

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There were options for target

countries actions they could take

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in order to avoid this outcome.

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So market is completely reversed and we've

seen these kinds of policy reversals over

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and over, over the last few weeks, and

it is this strange binary outcome, right?

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25% tariffs or on Canada and Mexico on top

of 20% across the board, tariffs to China.

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That is a completely different global

world in 6 to 12 months than not

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having those tariffs in place, right?

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So investors are having

to sort of price in this,

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double-headed this binary distribution,

where, you know, you've gotta price in

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the probability of one or the other.

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And it's not like it can be the

average of the two, it's gonna

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be one or the other, and markets

are just vibrating between them.

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Right?

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

uh, the size, the magnitude of this,

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um, change in Europe, you know, uh,

legislation was put in place on the

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formation of the European Monitoring

Union to enforce fiscal prudence, largely

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driven by the Bundas Bank by Germany,

which, which is typically the most, uh.

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Uh, austerity or fiscal prudence

oriented country and, and,

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and governance, uh, structure.

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Um, but it was applied broadly to

the Eurozone, broadly to the EMU.

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And, um, those rules are

not easily overturned.

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Some of them require

unanimous consent from all EMU

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participants in order to to pass.

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So, you know, while Germany has changed

their views, obviously, you know,

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180 degrees over the last few days

even yet, we still need to, we, the

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Scandinavian countries also need to

validate any major changes in rules.

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Uh, it also takes a two thirds majority

to change the, the laws around the debt

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break in Germany that would allow them to

engage in this level of fiscal expansion.

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And keep in mind, this is 10

to 20 times the level of fiscal

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expansion that is currently allowed

under Germany's debt break policy.

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So it's not just that, you

know, the politicians have

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announced their objectives or

their goals or what have you.

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

the markets are saying there's a

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reasonable probability that, that these

rules will get completely repealed or

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substantially modified in the very near

future, which will unleash a completely

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different economic environment in Europe.

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And that's what's being priced here.

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Rodrigo Gordillo: Yeah.

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And, and I think, you know, talk

about unprecedented, you know, the,

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the last time that the yields move

this quickly in Germany was 1990.

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So it's been a while since we've

seen a single day move like this.

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And so I, I just wanna kind of

go through, 'cause we're gonna be

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talking about systematic strategies.

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Um, and you know, just as a

reminder, systematic strategies.

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In, in the managed future space,

invest across all equity markets,

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you know, or large swath of equity

markets, large swath of bond

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markets, commodities and currencies.

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And I just wanna, I'm gonna go take

some time to go through some of

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the major ones so that we can get a

feel for what type of the magnitude

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of moves in the last few days.

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Um, and so why don't I

begin with currencies here.

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You know, the US dollar is up 8%

against major markets from September

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to, uh, 2024 to January, 2025.

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Down 4% from mid-January

through to March, fall.

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That's the type of whip

saw we're seeing, right?

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That the German, sorry, the, uh,

the UK uh, currency is up 2.5%

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and the euro is up 4% in the last three

days, representing a 99 percentile in 99.9

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percentile three-day move.

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Right.

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Again, this is gonna be a, a

common theme as I go through these.

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Adam Butler: Yeah.

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So just, just to put that

in perspective, right.

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A 99.9

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percentile move is expected to happen

about once every thousand days.

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Rodrigo Gordillo: Yeah.

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And so when I move on here

to, what do we just do?

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The currencies, German bonds,

we just talked about them.

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A 3% move in the last three days.

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That is a less than 0.1

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percentile outcome.

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

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A one percentile outcome equities.

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The German stock market, uh, we

look at 25% increase since, uh, two

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thousand, 2024 in the last two days.

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It's been incredibly

volatile with a negative 3.5%

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on March 4th and a positive five, 3.5%

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on March 5th, right?

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Again, talking about these Whipsaws

S and P 500 NAS and, and Nasdaq.

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Strong trends in 2024, now negative

for the year in 2025, and we're

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definitely kind of seeing some

short term shift in momentum, uh,

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away from US equities and towards

European equities on the energy front.

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We're looking at a very strongly

positive 10 to 20% moves across a

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variety of contracts from the lows in

September, 2024 through mid-January.

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And the, the, um, Brent crude move

in the last three days of negative

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5% is in the fifth percentile.

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Most energies are now negative for

2025, with the exception to natural

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

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It's up 35%.

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Um, all right.

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Metals, trends in gold and other precious

metals are generally strong from 2024

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through 2024 at five, even, even to date.

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Um, copper, this is the big winner here,

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

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like a massive big one day 5% move.

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That's a 99.5

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percentile outcome.

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Right.

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And that's, uh, that's

due to the tariffs, right?

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That, that we're announcing copper.

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

another announcement that has come,

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you know, we focus so much on equity

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

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Adam Butler: One can be excused for

missing, um, a policy announcement.

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

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Rodrigo Gordillo: And then in grains and

sauce, the big movers were coffee up 15 to

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

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Okay.

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

dealing with, and that's the magnitude.

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And again, focusing on how rare

these moves are, single day, three

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

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Assessing what those broad

market impacts are to systematic

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strategies like carry and trend.

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Uh,

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Adam Butler: I think it's important too

to remind people, like listeners, when you

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talk about managed future strategies, many

people don't realize that we're allocating

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to all of these different markets.

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Like the reason why we're talking about

how cocoa and copper and the DAX and

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the BUN and all these different markets

have been behaving is because these

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are, uh, for the most part constituents

of managed futures portfolios, right?

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So while typically investors' attention

is on what's going on in maybe in the

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s and p or maybe some are watching

the US tenure rate, uh, and maybe the

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

take a global multi asset perspective.

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Rodrigo Gordillo: Yeah,

that's a good point.

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So let's start talking about some

of these managed future strategies.

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Let's start with carry,

um, multi-asset carry.

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To be specific, not everyone is really as

familiar with carry as with multi-asset

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carry models as they are with Trend.

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So Adam, you literally, uh, recently wrote

a large white paper for Resolve on carry.

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Can you give us a 30,000 foot review

as to how the strategy operates?

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Adam Butler: It's not that

large or intimidating.

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Definitely digestible and

approachable and worth reading.

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

parenthetically call carry yield, right?

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carry is the return you expect to get on

an investment if the price doesn't change.

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I mean, you know, obviously.

219

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We're used to in this environment

getting the vast majority of our

220

00:14:07,213 --> 00:14:08,733

returns from changes in prices, right?

221

00:14:08,733 --> 00:14:12,003

Stocks go up, indices go up, et cetera.

222

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But there is another source

of returns and that is yield.

223

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And in equities it's the dividend yield.

224

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In bonds it's the coupons

that are paid, quarterly or,

225

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bi-annually or annually on bonds.

226

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In currencies, you can borrow in a

currency with low interest rates to

227

00:14:31,018 --> 00:14:38,308

invest in the short term, government

bills of a, of a currency or a government

228

00:14:38,308 --> 00:14:40,198

with higher interest rates, right?

229

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

in a domestic currency, and then invest.

230

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Overseas in, a country that's yielding

2% and earn that 1% spread in currencies.

231

00:14:52,083 --> 00:14:56,523

and then in commodities there's

also a yield, a convenience,

232

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real yield, a roll down yield.

233

00:14:58,953 --> 00:15:05,043

the idea in commodities being that,

the futures markets are helping to

234

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ensure large investments by commodity

producers by giving them a price

235

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today for their production, which

probably won't come online for many

236

00:15:15,933 --> 00:15:19,673

years in the future, but by the

futures markets giving them a price.

237

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Today, They're able to lock in

a much better financing rate on

238

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building out those large projects

to, to build those, into production.

239

00:15:30,353 --> 00:15:33,183

And, therefore their cost

of financing is lower.

240

00:15:33,543 --> 00:15:36,873

the economics on these

projects are more attractive.

241

00:15:36,993 --> 00:15:39,783

And so it's this win-win in

commodity markets, right?

242

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So it's really just dividends on

equities, coupon payments, in bonds.

243

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Interest rate differentials in currencies

and this insurance and convenience yield

244

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in commodities that we are harvesting.

245

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Again, the price doesn't really need

to change though in futures markets.

246

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It ends up that the price changes

just in terms of how futures roll

247

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up or roll down the curve coming

into the maturity of the contract.

248

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But the simplest way to

think about it is just.

249

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Picking up coupons or,

or picking up dividends.

250

00:16:14,868 --> 00:16:15,228

Rodrigo Gordillo: Okay.

251

00:16:15,378 --> 00:16:20,898

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

so that's the concept of carry, but

252

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let's talk about the idea of those carry

measures as signals to try to predict

253

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future price movement of these assets.

254

00:16:28,668 --> 00:16:28,938

Adam Butler: Yeah.

255

00:16:28,938 --> 00:16:30,168

So in general, you wanna be

256

00:16:30,948 --> 00:16:34,218

Rodrigo Gordillo: flipping coupons in

front of a steam roll roller rather than

257

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using it as, um, as a predictive measure.

258

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Adam Butler: Sure.

259

00:16:39,998 --> 00:16:45,243

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

you're gonna expect to get a higher

260

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return from an asset with high carry,

you're gonna expect to get a negative

261

00:16:49,653 --> 00:16:52,563

return from an asset with negative carry.

262

00:16:52,563 --> 00:16:54,663

What is positive carry or negative carry?

263

00:16:54,663 --> 00:16:59,733

Well, typically carry is whatever

the, the rate of return is above

264

00:16:59,733 --> 00:17:01,743

the cost of financing, right?

265

00:17:01,743 --> 00:17:07,233

So you need to borrow money in

order to purchase, uh, an asset.

266

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So if the rate that you are borrowing at

is lower than the rate that you expect,

267

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expect to get paid on, on that asset,

you're expecting to earn a positive carry.

268

00:17:17,673 --> 00:17:21,843

So let's say this is actually not the

case in in many global equity markets

269

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at the moment, but let's say that,

that the expected dividend yield on

270

00:17:26,703 --> 00:17:32,898

an equity index is 5% and the current

interest rate that you would would need

271

00:17:32,898 --> 00:17:37,458

to borrow at in order to invest in that

equity index, you only have to pay 2%.

272

00:17:38,088 --> 00:17:42,138

Well, you would expect that, um,

you expect to earn about a 3%

273

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premium over that, the duration

of holding that instrument, right?

274

00:17:47,193 --> 00:17:52,923

If instead, as actually is the case

today, the dividend yield is, is

275

00:17:52,923 --> 00:17:55,143

actually lower than the financing rate.

276

00:17:55,143 --> 00:17:59,853

So let's say the dividend yield is 2%

and it costs four or 5% to finance it.

277

00:18:00,213 --> 00:18:05,238

Well, actually, you probably want

to be short that, um, asset and

278

00:18:05,658 --> 00:18:11,178

long cash effectively in order to

earn the, that differential, right?

279

00:18:11,538 --> 00:18:15,948

And so in that way, what we sort

of, uh, assume or expect and what's

280

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validated over decades of empirical

evidence is that markets tend to rise

281

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in price to match the expected carry.

282

00:18:27,198 --> 00:18:27,468

Right.

283

00:18:27,468 --> 00:18:32,058

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

difference between the cost of financing

284

00:18:32,388 --> 00:18:36,468

and the coupon or dividend yield or what

have you that you're expected to get

285

00:18:36,468 --> 00:18:43,008

paid, then the price will sort of rise

in order to deliver that 3% premium or

286

00:18:43,008 --> 00:18:47,388

in the, in the case of being short, the

price will fall in order to deliver that,

287

00:18:47,448 --> 00:18:52,923

that premium, and we're measuring that

premium, that carry premium every day,

288

00:18:52,923 --> 00:18:57,273

and it changes every day depending on

changes in interest rate differentials or

289

00:18:57,513 --> 00:18:59,223

the slope of the yield curve, et cetera.

290

00:18:59,583 --> 00:19:04,623

Um, and we're adjusting every day

to try to get maximum exposure to

291

00:19:04,653 --> 00:19:09,663

markets that appear to have the

highest expected carry and the largest

292

00:19:09,663 --> 00:19:11,043

short exposure to markets that have

293

00:19:11,268 --> 00:19:13,638

the greatest expected negative carry.

294

00:19:14,298 --> 00:19:17,358

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

summarize it maybe in like one sentence.

295

00:19:17,388 --> 00:19:17,448

Yeah.

296

00:19:17,688 --> 00:19:17,868

Right.

297

00:19:17,868 --> 00:19:19,728

Because I think what's important

here, when we talk to people

298

00:19:19,728 --> 00:19:22,488

about carry strategies, they often

think about clipping coupons.

299

00:19:23,058 --> 00:19:25,998

What's critical about a multi-asset

carry strategy is it's using carry

300

00:19:25,998 --> 00:19:30,198

as a signal to try to forecast

the total returns of each market.

301

00:19:30,993 --> 00:19:34,683

Rather than a strategy that's

trying to isolate and extract

302

00:19:34,683 --> 00:19:36,183

the carry on its own right.

303

00:19:36,183 --> 00:19:40,083

So just like trend use a trend signal

to go long and short markets and you're

304

00:19:40,083 --> 00:19:44,403

trying to forecast the total return carry

strategies can do something similar.

305

00:19:45,873 --> 00:19:46,143

Rodrigo Gordillo: Yep.

306

00:19:46,803 --> 00:19:52,323

So let's then with that understanding,

um, if anybody wants to get something,

307

00:19:52,383 --> 00:19:56,763

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

other, uh, videos and, uh, papers on

308

00:19:56,763 --> 00:19:59,223

it and, and you can go return stack.com

309

00:19:59,223 --> 00:20:02,253

and read some of the,

uh, blog posts in there.

310

00:20:02,433 --> 00:20:04,893

But, uh, let's talk about what,

how carry has been affected

311

00:20:04,923 --> 00:20:06,393

in this market environment.

312

00:20:06,483 --> 00:20:11,193

So, broadly speaking, how were

multi-asset carry models, positioning,

313

00:20:11,313 --> 00:20:12,693

positioned, entering this week.

314

00:20:14,298 --> 00:20:14,538

Adam Butler: Yeah.

315

00:20:14,538 --> 00:20:19,878

So keep in mind, right, just

think about the evolution of the

316

00:20:19,938 --> 00:20:22,488

economic environment since say 2020.

317

00:20:22,668 --> 00:20:22,908

Right?

318

00:20:23,688 --> 00:20:30,708

So we had this large stimulus from

Covid, um, that contributed to a

319

00:20:30,708 --> 00:20:33,918

surge in inflation, can argue about

what other factors contributed,

320

00:20:33,918 --> 00:20:35,808

but surge in inflation we had.

321

00:20:36,438 --> 00:20:41,778

The Fed raised rates aggressively

and therefore short-term yields

322

00:20:42,078 --> 00:20:45,978

rose above long-term yields now,

that the yield curve is inverted.

323

00:20:46,458 --> 00:20:48,648

So that when the yield curve is

inverted, you're actually getting

324

00:20:48,648 --> 00:20:55,038

a lower expected, uh, return on the

10 year than you are on owning cash.

325

00:20:55,248 --> 00:20:57,348

And so that implies from a

carry standpoint, that we

326

00:20:57,348 --> 00:20:59,238

should be short bonds, right.

327

00:21:00,033 --> 00:21:06,513

Indeed the carryr strategy was short bonds

for much of the 2022, 2023 period, right.

328

00:21:06,963 --> 00:21:08,403

And through much of 2024.

329

00:21:09,303 --> 00:21:13,683

And then as the economy began to

cool, the Fed began to, and global

330

00:21:13,683 --> 00:21:18,933

central banks began to, to talk

more dovishly about rates imply

331

00:21:18,933 --> 00:21:21,483

rate cuts actually have rate cuts.

332

00:21:21,843 --> 00:21:25,533

The curves have normalized and, and

in many parts of the world, um, are

333

00:21:25,533 --> 00:21:27,153

now back to being upward sloping.

334

00:21:27,183 --> 00:21:27,453

Right?

335

00:21:27,663 --> 00:21:28,143

So.

336

00:21:28,533 --> 00:21:31,773

Over the last six months or so,

our, our bond exposure and the

337

00:21:31,773 --> 00:21:35,793

carry strategy has tended to be on

average more sort of long bonds.

338

00:21:36,033 --> 00:21:38,073

Now, what happened?

339

00:21:38,073 --> 00:21:43,173

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

there were changes in currency markets as

340

00:21:43,443 --> 00:21:46,413

different economies ob uh, experienced.

341

00:21:46,743 --> 00:21:52,383

Changes in, or moderation in

inflation rates at different, um,

342

00:21:52,653 --> 00:21:56,973

rates over time or at different,

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

343

00:21:57,183 --> 00:22:02,763

And therefore, the currency markets,

um, changed in, in order to reflect

344

00:22:02,763 --> 00:22:05,943

those changes in return expectations

and therefore changes in interest

345

00:22:05,943 --> 00:22:06,873

rates, short term interest rates.

346

00:22:06,933 --> 00:22:07,173

Right?

347

00:22:07,863 --> 00:22:12,123

So now we come into the

most recent episode.

348

00:22:12,633 --> 00:22:15,723

Um, the Trump administration

announces that.

349

00:22:16,218 --> 00:22:20,148

America is no longer in a position

to continue to fund the Ukraine

350

00:22:20,148 --> 00:22:24,138

war, to continue to support NATO

to the extent that they have.

351

00:22:24,888 --> 00:22:26,628

Europe is gonna need to

stand on their own two feet.

352

00:22:26,838 --> 00:22:32,058

Um, so-called strategic autonomy

that motivates this enormous,

353

00:22:32,058 --> 00:22:34,518

basically overnight change in.

354

00:22:35,583 --> 00:22:41,373

Both the public's perception of the

necessity of, uh, major fiscal spending,

355

00:22:41,583 --> 00:22:46,983

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

changes to the legislation that would

356

00:22:46,983 --> 00:22:51,483

be required in order to, uh, actually

operationalize those fiscal expansions.

357

00:22:52,113 --> 00:22:56,823

So the market goes from perceiving

that Europe is kinda locked into

358

00:22:56,823 --> 00:23:00,153

this low growth environment because

they've got all these regulations that

359

00:23:00,153 --> 00:23:02,433

prevent major expansionary policies.

360

00:23:03,198 --> 00:23:04,908

Overnight that's flipped on its head.

361

00:23:05,148 --> 00:23:06,828

We're getting a massive expansion.

362

00:23:07,128 --> 00:23:11,178

Therefore, nominal growth

expectations jump effectively

363

00:23:11,178 --> 00:23:14,058

overnight in Europe and Glo.

364

00:23:14,088 --> 00:23:17,628

Uh, European bond markets are

repriced higher in terms of rates,

365

00:23:18,318 --> 00:23:22,188

um, in order to reflect these

higher nominal growth expectations.

366

00:23:22,908 --> 00:23:31,698

So that was a, as Corey mentioned, a

highly irregular shock to both short and

367

00:23:31,698 --> 00:23:35,808

long-term rates on, on European government

bonds to the tune of between 20 and

368

00:23:35,808 --> 00:23:37,548

30 basis points, basically overnight.

369

00:23:38,118 --> 00:23:42,258

And as we know, when interest

rates go up, bond prices go down.

370

00:23:42,498 --> 00:23:43,608

So we're long bonds.

371

00:23:43,608 --> 00:23:45,918

The carry strategy, because

carry the, the slope of the

372

00:23:45,918 --> 00:23:47,448

yield curve has been normalizing.

373

00:23:47,748 --> 00:23:51,438

In general, we're expecting positive

returns over cash from holding bonds.

374

00:23:51,918 --> 00:23:54,318

We get this kind of overnight rate shock.

375

00:23:54,828 --> 00:23:55,308

Um.

376

00:23:55,638 --> 00:23:59,328

That obviously is highly punitive and

that was the major explanatory variable

377

00:23:59,328 --> 00:24:03,348

in terms of why we experienced that

large, uh, negative return yesterday.

378

00:24:03,738 --> 00:24:07,788

Wasn't just that there were also

sort of secondary effects too, as the

379

00:24:07,998 --> 00:24:12,948

interest rates changed between Europe

and the us, there also was then that

380

00:24:12,948 --> 00:24:18,813

made the Euro more attractive as a

currency for, you know, uh, global

381

00:24:18,813 --> 00:24:21,003

savers to hold their savings in.

382

00:24:21,453 --> 00:24:25,203

So there was a flight from

US dollars into the Euro.

383

00:24:25,263 --> 00:24:26,763

So the Euro rose.

384

00:24:27,123 --> 00:24:33,273

We were also net short the Euro because

the interest rates in, in the US have

385

00:24:33,273 --> 00:24:36,603

been structurally higher than in most

of the rest of the world over the

386

00:24:36,603 --> 00:24:39,273

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

387

00:24:39,453 --> 00:24:43,758

So we've been structurally long, the US

dollar and short uh, foreign currencies.

388

00:24:44,028 --> 00:24:47,898

So we were positioned, we were,

we were, uh, short the Euro.

389

00:24:48,048 --> 00:24:50,178

Now the Euro kind of

crashes higher, right?

390

00:24:50,178 --> 00:24:52,278

So that was also at the

margin, a bit of a hit.

391

00:24:53,088 --> 00:24:58,638

Add in the Trump tariffs, copper jumps,

meanwhile, copper, uh, is suggesting

392

00:24:58,668 --> 00:25:02,538

negative carry properties, so we were

short copper on the wrong side of that.

393

00:25:02,928 --> 00:25:08,568

And oil is reflecting supply

demand dynamics where the, um,

394

00:25:08,598 --> 00:25:10,368

oil market is in backwardation.

395

00:25:10,608 --> 00:25:13,848

So we're also offside a

major collapse in oil.

396

00:25:13,848 --> 00:25:20,928

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

a, a, a constellation of large

397

00:25:20,928 --> 00:25:26,298

surprises that went against the

prevailing tailwind that we normally

398

00:25:26,298 --> 00:25:28,728

expect to get on our carry positions.

399

00:25:29,298 --> 00:25:32,928

Rodrigo Gordillo: So that's,

um, that's very helpful.

400

00:25:32,928 --> 00:25:33,468

Thank you Adam.

401

00:25:34,098 --> 00:25:39,618

Um, I think a lot of people in the last

three days may be thinking, okay, this

402

00:25:39,618 --> 00:25:45,648

is the typical carry strategy that has

a, um, a negative tail risk, right?

403

00:25:45,678 --> 00:25:49,818

This idea of the young carry trade

going against you at the worst of times.

404

00:25:50,358 --> 00:25:55,588

Um, do you think that idea is

true here for a multi-asset carry.

405

00:25:56,068 --> 00:26:01,588

Um, what are your thoughts on, on this

concept of, of the, uh, picking up

406

00:26:02,758 --> 00:26:05,608

pennies in front of the steamroller

for, for carry, broadly speaking?

407

00:26:06,508 --> 00:26:11,188

Adam Butler: Well, I mean, if you look

back historically at, uh, recessions

408

00:26:11,548 --> 00:26:16,728

and, uh, the concept of kind of

a, a typical procyclical strategy.

409

00:26:16,728 --> 00:26:20,748

Pro cyclical meaning it does well

when the economy is in an upcycle

410

00:26:20,748 --> 00:26:23,778

and, and does poorly when, when looks

like we're falling into recession.

411

00:26:24,018 --> 00:26:27,708

So think sort of the reaction

function of global equities.

412

00:26:28,158 --> 00:26:29,868

Um, you just don't see it.

413

00:26:29,868 --> 00:26:33,108

So because we're trading all of these

different markets, we're trading

414

00:26:33,408 --> 00:26:36,768

global bonds, global currencies, global

commodities and global equity markets,

415

00:26:37,218 --> 00:26:43,068

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

sort of strategically short, uh, on

416

00:26:43,068 --> 00:26:45,498

average global equities for many months.

417

00:26:45,888 --> 00:26:46,308

Right.

418

00:26:46,608 --> 00:26:50,928

So, you know, if, if sadly equities

kind of didn't fall yesterday, right?

419

00:26:50,933 --> 00:26:51,023

Yeah.

420

00:26:51,028 --> 00:26:54,768

So we, that was also a strange situation.

421

00:26:55,038 --> 00:26:56,928

Um, equities are down today.

422

00:26:57,048 --> 00:27:00,018

The carry strategy is, is

benefiting from that, right?

423

00:27:00,198 --> 00:27:06,438

But, you know, this is not a,

uh, a procyclical type of hit

424

00:27:06,948 --> 00:27:08,328

on the carry strategy, right?

425

00:27:08,328 --> 00:27:14,148

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

getting hit by a major growth shock.

426

00:27:14,793 --> 00:27:16,683

In the Euro zone, right?

427

00:27:16,803 --> 00:27:22,773

And if you look back historically, the the

carry strategy doesn't have any pattern.

428

00:27:22,803 --> 00:27:28,773

You know it if it happens to be

positioned in some bear markets.

429

00:27:29,373 --> 00:27:33,243

So that it's kind of long equities

or short rates that it can get hit

430

00:27:33,243 --> 00:27:35,043

for a time while equities get hit.

431

00:27:35,283 --> 00:27:38,583

But there are lots of times when

it runs in reverse and carry ends

432

00:27:38,583 --> 00:27:42,963

up being a wonderful diversifier

by rising substantially as

433

00:27:42,963 --> 00:27:44,643

equities fall in bear markets.

434

00:27:44,673 --> 00:27:46,863

So there's just no clear pattern.

435

00:27:46,893 --> 00:27:51,828

You know, I, I understand that many

people who've been around markets

436

00:27:51,828 --> 00:27:56,208

for 30 or 40 years kind of think of

carry as currency carry where you're

437

00:27:56,208 --> 00:28:01,488

borrowing in, say the yen or the dollar

to invest in the Mexican peso or the

438

00:28:01,488 --> 00:28:05,538

Brazilian real or what have you, to

pick up this interest rate differential

439

00:28:05,538 --> 00:28:07,728

against emerging market currencies.

440

00:28:07,998 --> 00:28:10,548

That is clearly a pro-cyclical strategy.

441

00:28:10,758 --> 00:28:12,588

It is in theory, it is empirically.

442

00:28:12,588 --> 00:28:16,818

You see them, you know, they get hit

when equity markets get hit, but because

443

00:28:16,818 --> 00:28:21,198

we're applying this concept to all

these different markets and sectors,

444

00:28:21,858 --> 00:28:24,588

theoretically, there's no reason

why it should have that profile and

445

00:28:24,588 --> 00:28:25,848

empirically we just don't observe it.

446

00:28:26,238 --> 00:28:26,628

Rodrigo Gordillo: Right?

447

00:28:26,718 --> 00:28:30,678

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

look, we've had a shock.

448

00:28:30,678 --> 00:28:37,818

We've had a macro shock in the last few

days, and we have seen periods where

449

00:28:37,818 --> 00:28:38,993

the carry strategy has been caught.

450

00:28:39,498 --> 00:28:40,068

Offite.

451

00:28:40,308 --> 00:28:43,488

Um, can we talk a little bit

about historical context?

452

00:28:43,548 --> 00:28:48,018

Where, where the strategy is positioned

against the policy shock, and then

453

00:28:48,018 --> 00:28:49,518

what happened and what happened after?

454

00:28:50,058 --> 00:28:52,788

Uh, give us, can we go through

some, some examples there?

455

00:28:53,598 --> 00:28:54,318

Adam Butler: Yeah, sure.

456

00:28:54,318 --> 00:28:57,468

I mean, think about

the 1994 bond massacre.

457

00:28:57,558 --> 00:29:01,428

Uh, so Greenspan, he's,

he's newly in office.

458

00:29:01,788 --> 00:29:07,518

He wants to, um, set a

standard as a, a hard liner.

459

00:29:07,998 --> 00:29:15,468

Uh, so he, he enforces this very large,

uh, surprise interest rate raise.

460

00:29:16,098 --> 00:29:22,098

And, um, you know, that that was actually

the, the, until this period, the largest

461

00:29:22,338 --> 00:29:27,223

drawdown in the carry strategy, just

this unexpected major adjustment.

462

00:29:27,783 --> 00:29:33,723

To, uh, in that case rates, it was

rates again, this time that caused a,

463

00:29:33,843 --> 00:29:40,083

a material decline took kind of a, a, a

year or so to recover from those losses.

464

00:29:40,473 --> 00:29:44,523

Uh, equities and metals also

contributed to losses in that period.

465

00:29:44,763 --> 00:29:48,498

But eventually, you know, because the,

there's not, nothing changed about the

466

00:29:48,498 --> 00:29:50,343

long-term expectation of this premium.

467

00:29:50,558 --> 00:29:53,103

It went on to, uh, to new highs.

468

00:29:53,403 --> 00:29:57,678

There were, uh, steel tariffs

introduced in March of 2002.

469

00:29:58,278 --> 00:30:02,508

The carry strategy was caught offside,

uh, some commodities in that year

470

00:30:02,658 --> 00:30:05,868

and, uh, and struggled for a couple

of of quarters, but actually ended

471

00:30:05,868 --> 00:30:09,708

up 20% on the year in 2016 to 2018.

472

00:30:10,098 --> 00:30:15,393

We also had, you'll remember the fed

tried some policy normalization during

473

00:30:15,393 --> 00:30:19,863

that period, and then markets kind

of had a temper tantrum in, in 2018.

474

00:30:19,863 --> 00:30:21,483

2018 was a very rocky year.

475

00:30:21,843 --> 00:30:28,563

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

uh, central banks began this normalization

476

00:30:28,563 --> 00:30:34,833

policy and markets weren't expecting it,

we had another, um, substantial drawdown.

477

00:30:35,013 --> 00:30:37,053

There was also a round

of tariffs on China.

478

00:30:37,113 --> 00:30:41,763

So another sort of similar context

to the, the current situation.

479

00:30:42,408 --> 00:30:46,158

Um, so carry, carry experienced

about a 20% drawdown then, right?

480

00:30:46,488 --> 00:30:53,178

And there was also kind of a post pandemic

inflation while the market was digesting

481

00:30:53,478 --> 00:31:00,018

what the, um, how the Fed was going

to normalize rates after raising them.

482

00:31:00,498 --> 00:31:05,178

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

of a sideways to down move, right?

483

00:31:05,598 --> 00:31:08,178

Uh, it obviously in all

of these prior periods.

484

00:31:08,823 --> 00:31:14,103

Things normalized and carry went

on to actually, um, in many cases

485

00:31:14,103 --> 00:31:19,773

and kind of on average to emerge

from these troughs with a surge of

486

00:31:19,773 --> 00:31:21,363

better than average performance.

487

00:31:21,738 --> 00:31:24,468

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

seen across every one of these as the,

488

00:31:24,468 --> 00:31:30,318

uh, uh, very strong outsized recovery,

um, coming out of these situations.

489

00:31:30,318 --> 00:31:35,148

So that is important to understand here,

but, um, just going back to the last three

490

00:31:35,148 --> 00:31:40,368

days, uh, a lot of people are asking,

have there been any adjustments, um,

491

00:31:40,428 --> 00:31:42,348

made as a system adjusting in any way.

492

00:31:42,438 --> 00:31:47,898

Uh, can we talk a little bit about

how often a multi carry strategy

493

00:31:47,898 --> 00:31:49,458

described in your paper as, uh.

494

00:31:49,863 --> 00:31:53,253

Is adjusting and then how the adjustments

have happened in the last three days.

495

00:31:54,213 --> 00:31:55,293

Adam Butler: So we're looking at.

496

00:31:56,043 --> 00:31:59,763

The changes in the interest rate

differentials and the slope of the

497

00:31:59,763 --> 00:32:03,513

cash yield curve and the term structure

of commodity futures, et cetera.

498

00:32:03,873 --> 00:32:06,363

Uh, we're looking at that every

day and we're making adjustments

499

00:32:06,363 --> 00:32:08,163

to the portfolio every day.

500

00:32:08,283 --> 00:32:13,023

Um, and so yeah, there has been

at the margin, uh, some reduction

501

00:32:13,023 --> 00:32:16,563

in energy exposure, equity

markets, uh, metal exposures.

502

00:32:16,803 --> 00:32:19,443

There's been a marginal

reduction in European bonds.

503

00:32:19,743 --> 00:32:23,703

What's happened is, um, there's

been an obviously a, a, an increase

504

00:32:23,703 --> 00:32:28,908

in, in volatility, which at the

margin would expect a position to

505

00:32:28,908 --> 00:32:33,528

contract, but because the yield

curve has has steepened in Europe,

506

00:32:33,858 --> 00:32:35,538

also the expected carry has gone up.

507

00:32:35,718 --> 00:32:40,983

And so to some extent expectation

of, of higher future performance

508

00:32:41,253 --> 00:32:45,633

by holding European bonds has

offset the increase in volatility.

509

00:32:45,813 --> 00:32:49,983

So there hasn't been a, a very large

reduction in European bond exposure.

510

00:32:50,163 --> 00:32:52,083

There has been some at the margin, right.

511

00:32:52,473 --> 00:32:58,593

Um, there's actually been a small increase

in exposure to US bonds, but generally

512

00:32:58,593 --> 00:33:04,473

the exposures in carry tend to, uh,

to change a little bit more slowly.

513

00:33:04,473 --> 00:33:09,918

You know, major changes to things

like, um, uh, global yield curves,

514

00:33:09,918 --> 00:33:15,018

global currency, uh, differentials, et

cetera, tend to happen over a period

515

00:33:15,018 --> 00:33:16,578

of sort of several weeks and months.

516

00:33:16,968 --> 00:33:21,738

And so we expect the strategy

to adapt on those timeframes

517

00:33:21,738 --> 00:33:24,678

more than via overnight shocks.

518

00:33:24,978 --> 00:33:28,368

And if you look back on average,

over very short horizons

519

00:33:28,368 --> 00:33:29,718

after these types of shocks.

520

00:33:30,123 --> 00:33:33,483

That actually, that strategy has actually

paid off because you, you tend to see an

521

00:33:33,513 --> 00:33:38,253

overreaction in the very short term to

this type of shock or this type of news.

522

00:33:38,793 --> 00:33:41,643

The market then moderates

that reaction a little bit.

523

00:33:41,643 --> 00:33:44,523

So we tend to get back a

little bit of what we lost.

524

00:33:44,913 --> 00:33:49,383

And then once the market

stabilizes, the, the, um, carry

525

00:33:49,383 --> 00:33:50,913

signals have also stabilized.

526

00:33:51,123 --> 00:33:56,433

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

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

527

00:33:56,433 --> 00:34:01,083

of the carry portfolio, and we're better

positioned for what emerges going forward.

528

00:34:02,433 --> 00:34:02,883

Rodrigo Gordillo: Perfect.

529

00:34:02,913 --> 00:34:07,473

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

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

530

00:34:07,473 --> 00:34:09,303

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

531

00:34:09,333 --> 00:34:14,013

Let's flip over to trend, uh,

following managed futures.

532

00:34:14,013 --> 00:34:17,402

Corey, maybe you can help us

out here get some, uh, better

533

00:34:17,402 --> 00:34:18,693

understanding of what's been going on.

534

00:34:19,322 --> 00:34:19,862

Um.

535

00:34:20,217 --> 00:34:23,007

Trend following strategies generally

succeed when they catch these very

536

00:34:23,007 --> 00:34:27,027

strong sustained moves and they tend

to struggle in these type of reversals

537

00:34:27,027 --> 00:34:27,928

that we've been talking about.

538

00:34:28,288 --> 00:34:32,068

So over the last three days, uh, why

don't you give us an overview of which

539

00:34:32,068 --> 00:34:34,318

markets have contributed the most and why.

540

00:34:35,068 --> 00:34:37,318

Corey Hoffstein: Yeah, and I think it's

always interesting to think about when you

541

00:34:37,318 --> 00:34:40,697

have these big reversals in some cases.

542

00:34:40,697 --> 00:34:46,007

In other cases it's been substantial

extensions of the trend are how much are

543

00:34:46,007 --> 00:34:49,308

those surprises really priced in versus

how much was the market predicting?

544

00:34:49,308 --> 00:34:52,398

And we, we can talk a little bit

about that, but just in terms of, you

545

00:34:52,398 --> 00:34:56,268

know, what we saw over the last couple

days, obviously gains in European

546

00:34:56,268 --> 00:34:58,503

equities were strong though volatile.

547

00:34:58,773 --> 00:35:03,243

And we've been overexposed to European

equities, largely underexposed to US

548

00:35:03,243 --> 00:35:08,043

equities as US equities have been flat

to negative over the last three months.

549

00:35:08,043 --> 00:35:11,013

We've been seeing a moderation of

that position while European equities

550

00:35:11,013 --> 00:35:15,483

have been very strong, plus 10 to 15%

depending on which market you look at.

551

00:35:15,483 --> 00:35:17,843

So we continue to see

positive trends there.

552

00:35:18,613 --> 00:35:21,423

we've been long metals,

gold, silver, copper.

553

00:35:22,113 --> 00:35:24,003

And continue to see strong trends there.

554

00:35:24,243 --> 00:35:28,113

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

and it depends on particularly where

555

00:35:28,113 --> 00:35:29,553

in the energy complex we've been.

556

00:35:30,063 --> 00:35:32,943

You know, we had some gains

in net gas that were offset

557

00:35:32,943 --> 00:35:34,903

by losses in, crude right.

558

00:35:34,903 --> 00:35:36,433

And, RBO gasoline.

559

00:35:36,453 --> 00:35:39,423

So, that's sort of a mixed

bag over the last couple days.

560

00:35:39,833 --> 00:35:46,623

Bonds, we've been short and so, while

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

561

00:35:46,623 --> 00:35:49,773

bonds have been a, I mean, bonds have

just been a struggling trade for the last.

562

00:35:50,628 --> 00:35:53,868

I don't know, call it 18 months

almost as they just get whipsaw

563

00:35:53,868 --> 00:35:57,498

back and forth by different, the

market digesting policy decisions

564

00:35:57,498 --> 00:36:01,428

and what's happening with inflation

and, economic impacts of tariffs.

565

00:36:01,538 --> 00:36:05,088

but we did get the benefit from

bonds and then probably the

566

00:36:05,088 --> 00:36:06,468

biggest loss was in currencies.

567

00:36:06,468 --> 00:36:06,648

Right?

568

00:36:06,648 --> 00:36:10,038

We have been predominantly long, the US

dollar, as you mentioned at the beginning,

569

00:36:10,038 --> 00:36:12,348

Rodrigo, the dollar as a basket was up.

570

00:36:12,678 --> 00:36:14,118

8% last year.

571

00:36:14,118 --> 00:36:14,958

It's not a surprise.

572

00:36:14,958 --> 00:36:19,248

We were long the dollar against a good

cross section of other G10 currencies.

573

00:36:19,578 --> 00:36:22,848

And then we had these very rapid

repricing, particularly in the British

574

00:36:22,848 --> 00:36:28,608

pound and the Euro that led to a, pretty

substantial, you know, one or two day

575

00:36:28,608 --> 00:36:32,308

loss, not, substantial in knocking the

whole portfolio off sides, but substantial

576

00:36:32,308 --> 00:36:34,518

in the size of that individual position.

577

00:36:35,418 --> 00:36:39,948

Rodrigo Gordillo: And so since these we've

seen extreme volatile moves here in the

578

00:36:39,948 --> 00:36:44,568

last few days, uh, have we seen any major

adjustments in positioning as a result?

579

00:36:45,258 --> 00:36:47,298

Corey Hoffstein: Yeah, and, and

when we think about, again, we're,

580

00:36:47,298 --> 00:36:48,768

evaluating trends every single day.

581

00:36:48,798 --> 00:36:52,338

When we think about trend following,

there's, two drivers for us.

582

00:36:52,338 --> 00:36:56,478

There's the volatility component where we

are volatility targeting these positions.

583

00:36:56,478 --> 00:37:00,948

So as volatility expands, we'll

naturally reduce the size long, will get

584

00:37:00,948 --> 00:37:03,018

less long, short will get less short.

585

00:37:04,068 --> 00:37:08,148

And if trends change materially,

right, that can change the direction

586

00:37:08,148 --> 00:37:10,368

or moderate how much exposure we have.

587

00:37:10,368 --> 00:37:15,408

So, again, with weakening US equity

and increased equity volatility,

588

00:37:15,408 --> 00:37:18,708

we've seen some of our equity

position to continue to come down.

589

00:37:19,038 --> 00:37:22,158

We've actually seen a marginal

increase in the metals as gold,

590

00:37:22,158 --> 00:37:24,288

silver, and copper continue to perform.

591

00:37:24,738 --> 00:37:27,288

We've seen a marginal

decrease in energies.

592

00:37:27,948 --> 00:37:31,113

trends continue to reverse

from popositive and somef them

593

00:37:31,113 --> 00:37:32,463

are showing as negative now.

594

00:37:32,853 --> 00:37:35,263

We have increased our short bond exposure.

595

00:37:35,663 --> 00:37:41,513

bond prices have been trending negatively

since around September last year, and,

596

00:37:42,013 --> 00:37:47,433

the trend continues and so we'll, press

the shorts there and, we've been reducing

597

00:37:47,493 --> 00:37:52,483

long US dollar exposure now reducing here.

598

00:37:52,483 --> 00:37:52,763

Right.

599

00:37:52,763 --> 00:37:55,203

I, think when we look at a couple

multi-day changes, you know,

600

00:37:55,203 --> 00:37:56,823

our bond exposure has jumped up.

601

00:37:57,363 --> 00:37:58,413

40%.

602

00:37:58,713 --> 00:37:59,003

Right?

603

00:37:59,003 --> 00:38:02,403

But it's, important to keep in mind

vol of a five year treasury is very

604

00:38:02,403 --> 00:38:03,693

different than vol of equities.

605

00:38:04,023 --> 00:38:07,893

Currencies have dropped, you

know, about 20 percentage points.

606

00:38:07,893 --> 00:38:11,963

But again, vol of the Euro is

very different than vol of equity.

607

00:38:11,963 --> 00:38:16,143

So on a, risk basis, there haven't

been really substantial changes

608

00:38:16,143 --> 00:38:17,193

from these last couple of days.

609

00:38:17,193 --> 00:38:19,083

But as markets continue to digest.

610

00:38:19,683 --> 00:38:22,173

The probability of these

things going into effect.

611

00:38:22,293 --> 00:38:23,913

That's where trends can emerge, right?

612

00:38:23,913 --> 00:38:26,313

I think that's a really

important point here is people

613

00:38:26,313 --> 00:38:28,023

often ask, why do trends exist?

614

00:38:28,713 --> 00:38:34,473

We talk about this one day change with the

German fiscal policy proposal that has to

615

00:38:34,473 --> 00:38:38,673

go to vote, and Adam talked about all the

potential risks of this going to vote.

616

00:38:38,973 --> 00:38:44,373

The market over the next month will

start to price in the probability

617

00:38:44,373 --> 00:38:50,013

of realizing that the first move was

just recognizing that it could occur,

618

00:38:50,433 --> 00:38:53,943

and then as it becomes more or less

likely, if it becomes less likely that

619

00:38:54,033 --> 00:38:57,813

those moves will likely revert as it

becomes more likely they might continue.

620

00:38:57,873 --> 00:39:01,053

And again, that's how those trends

can persist as markets price in the

621

00:39:01,053 --> 00:39:04,818

probability of, these bimodal events.

622

00:39:05,238 --> 00:39:05,448

Rodrigo Gordillo: Right.

623

00:39:05,448 --> 00:39:09,768

So let's talk about just the same thing

as, as carry, like historically we've

624

00:39:09,768 --> 00:39:13,158

seen similar geopolitical movements

affect trend in different ways.

625

00:39:13,878 --> 00:39:18,468

Um, what lessons from those kind of

past events can we apply to the price

626

00:39:18,468 --> 00:39:20,148

movement of managed future trend today?

627

00:39:20,988 --> 00:39:21,138

Corey Hoffstein: Yeah.

628

00:39:21,138 --> 00:39:26,778

Not surprisingly, it's actually a lot of

the same events that happened in Cary.

629

00:39:27,528 --> 00:39:29,148

We're trend events as well.

630

00:39:29,178 --> 00:39:29,538

Right?

631

00:39:29,538 --> 00:39:34,128

And it's because a lot of these events

that catch their carry or trend offside,

632

00:39:34,338 --> 00:39:37,908

it's not because trendy carry actually

historically are similar signals.

633

00:39:37,908 --> 00:39:39,678

They're actually quite dissimilar,

and that's what makes them

634

00:39:39,678 --> 00:39:40,578

such a great compliment.

635

00:39:41,028 --> 00:39:45,558

But it's because the policy or

market shift has been so against

636

00:39:45,558 --> 00:39:47,538

the prevailing expectation.

637

00:39:48,528 --> 00:39:50,688

That you get this sudden

reversal in these markets.

638

00:39:50,688 --> 00:39:57,318

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

the interest rate, uh, event in 94

639

00:39:57,378 --> 00:40:00,738

with a massive unexpected rise in rates

caused trend to have a negative year.

640

00:40:00,738 --> 00:40:04,638

Steel tariffs in 2002, 2015 through 2018.

641

00:40:04,638 --> 00:40:08,748

Just a struggling period for

trend in general as it was.

642

00:40:09,158 --> 00:40:13,358

Sort of these ambiguous central bank

decisions around the world as to whether

643

00:40:13,358 --> 00:40:17,378

they were or were not gonna come off of

the, you know, zero interest rate policy.

644

00:40:17,918 --> 00:40:22,628

Um, you know, start and stop growth in

global economies in the early 2000 tens,

645

00:40:22,628 --> 00:40:27,428

again, causing, causing, uh, struggles

for a lot of, uh, trend strategies.

646

00:40:27,428 --> 00:40:27,848

And then.

647

00:40:28,533 --> 00:40:30,003

2021 to 2024.

648

00:40:30,003 --> 00:40:36,543

Obviously 2022 was a very strong

trend year, but then we had post 2022

649

00:40:36,753 --> 00:40:41,643

again trying to renormalize trends

to post pandemic inflation 2023 in

650

00:40:41,643 --> 00:40:44,133

particular, being very tough in bonds.

651

00:40:44,313 --> 00:40:47,913

I mean, I think the majority of losses

last year were in bonds, but we can

652

00:40:47,913 --> 00:40:49,833

highlight the move in the yen as well.

653

00:40:49,833 --> 00:40:53,673

Last year as being a big driver,

a sudden surprise, a big sudden

654

00:40:53,673 --> 00:40:56,913

policy surprise that went against

the prevailing positioning.

655

00:40:57,473 --> 00:40:58,943

The last thing I'll add there is.

656

00:41:00,033 --> 00:41:02,883

While some of these moves can go

against the prevailing positioning,

657

00:41:02,883 --> 00:41:06,873

right, the trend is your friend

until it ends, you can still net

658

00:41:06,873 --> 00:41:10,173

make money on trend following, even

if the end is a violent reversal.

659

00:41:10,233 --> 00:41:13,773

And if you look at a lot of trend

following p and l last year, the

660

00:41:13,773 --> 00:41:17,223

yen was a violent reversal in

August that caused a lot of pain.

661

00:41:18,033 --> 00:41:21,393

But the net p and l for the year

on the Y trade was still positive.

662

00:41:21,673 --> 00:41:23,983

'cause the performance was

tro so strong before that.

663

00:41:24,013 --> 00:41:28,003

And so some of these can be very

painful when they occur simultaneously.

664

00:41:28,033 --> 00:41:31,033

Trend actually hasn't really been

that bad over the last couple of days.

665

00:41:31,063 --> 00:41:31,183

No.

666

00:41:31,183 --> 00:41:32,443

Especially compared to carry.

667

00:41:32,863 --> 00:41:36,943

Um, but again, some of these things when

they are trend surprises can be painful,

668

00:41:37,033 --> 00:41:39,928

but you have to consider it in the

position, you know, in, in the context of

669

00:41:39,928 --> 00:41:43,693

the larger trend in p and l that you've

generated over the last six to 12 months.

670

00:41:44,323 --> 00:41:47,563

Rodrigo Gordillo: Yeah, and, and look,

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

671

00:41:47,563 --> 00:41:50,353

was a very heavy investor in trend.

672

00:41:51,363 --> 00:41:54,453

You know, we're talking about three

days and when Lehman happened,

673

00:41:54,513 --> 00:41:59,493

the volatility in trend was just

insane over those three days.

674

00:41:59,553 --> 00:42:01,983

And, um, it wasn't necessarily favorable.

675

00:42:02,958 --> 00:42:05,268

Again, this is, the thing about

all of these is that there's a,

676

00:42:05,538 --> 00:42:07,308

there's a period of adjustment.

677

00:42:07,548 --> 00:42:11,118

Um, and, uh, we saw it in

2020 during Covid, right?

678

00:42:11,268 --> 00:42:14,448

That first leg, it just, the trend

happened to be positioned in the

679

00:42:14,448 --> 00:42:16,488

opposite of the prevailing trends.

680

00:42:16,488 --> 00:42:21,273

And so the first week or so, it had a

similar reaction to what was happening

681

00:42:21,273 --> 00:42:24,828

in global markets, but then it quickly

transitioned the other way, right?

682

00:42:24,828 --> 00:42:28,578

So the, the adaptability of

this is something to remember.

683

00:42:28,618 --> 00:42:32,098

But in any given day, you know, really

whether we're gonna be on the right

684

00:42:32,098 --> 00:42:35,878

or wrong side of a geopolitical move

will depend broadly on whether that

685

00:42:35,878 --> 00:42:41,638

geopolitical move is in the, in, in the

prevailing, uh, trends or against it.

686

00:42:41,638 --> 00:42:44,668

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

687

00:42:44,698 --> 00:42:49,198

We gotta talk about it, we gotta put

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

688

00:42:49,198 --> 00:42:50,758

remember the big picture ultimately.

689

00:42:50,818 --> 00:42:53,668

So let's talk a little bit about just

kind of comparing this, uh, trend

690

00:42:53,668 --> 00:42:54,958

following and multi-asset carry.

691

00:42:55,078 --> 00:42:57,478

Um, you know, they're both

trading the same contracts.

692

00:42:58,188 --> 00:43:02,868

Um, what, uh, why do we have

those two different signals?

693

00:43:02,868 --> 00:43:08,178

And, and how did, how do they tend to

relate to each other, especially, um,

694

00:43:08,208 --> 00:43:13,878

when they react slightly different

to, uh, global macro events?

695

00:43:14,058 --> 00:43:15,468

Any, anybody grab that one?

696

00:43:16,973 --> 00:43:20,628

Adam Butler: I mean, they're

mechanically, they're similar.

697

00:43:21,798 --> 00:43:24,978

In so far as you know, we're,

we're, we're broadly trading

698

00:43:24,978 --> 00:43:27,078

the same universe of markets.

699

00:43:27,738 --> 00:43:33,108

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

optimally diversified portfolio of those

700

00:43:33,108 --> 00:43:37,998

markets based on the trend and or carry

signals at, at the end of every day.

701

00:43:38,628 --> 00:43:43,068

Um, and, you know, they're,

they're systematic, right?

702

00:43:43,158 --> 00:43:48,468

And the other thing to recognize

that, that Corey has hinted at, um.

703

00:43:49,158 --> 00:43:53,538

Is that systematic strategies, at

least the ones that carry and and

704

00:43:53,538 --> 00:43:57,468

trend rely on, are relying on.

705

00:43:58,398 --> 00:43:59,928

Changes in prices.

706

00:43:59,928 --> 00:44:04,818

You know, for, for trend it's the

change in effectively the rolled front

707

00:44:04,818 --> 00:44:07,648

month, um, futures contract for carry.

708

00:44:07,668 --> 00:44:14,028

It's changes in the prices of, of

contracts along the, um, along the curve,

709

00:44:14,028 --> 00:44:15,978

the futures curve or along the spa curve.

710

00:44:16,698 --> 00:44:20,328

Um, but we're taking signals

from the market itself.

711

00:44:20,608 --> 00:44:26,248

So, you know, as, as market participants

are, are shifting capital away

712

00:44:26,248 --> 00:44:31,288

from one market and toward another

trend and carry are picking up

713

00:44:31,288 --> 00:44:33,268

on that, why do we rely on that?

714

00:44:33,298 --> 00:44:39,328

Well, it's because we do assume that

at the margin participants making

715

00:44:39,358 --> 00:44:42,088

decisions in markets on average.

716

00:44:42,588 --> 00:44:44,628

Reflect information, right?

717

00:44:44,868 --> 00:44:51,258

So we are picking up on the information

that the market is transmitting via its

718

00:44:51,258 --> 00:44:57,648

price movements and just by virtue of the

fact that these movements are basically

719

00:44:57,648 --> 00:45:03,343

impossible to decipher narratively or

using, using some kind of, uh, clinical.

720

00:45:03,918 --> 00:45:08,328

Framework, just in your mind, you

know, we are forming portfolios

721

00:45:08,328 --> 00:45:11,508

based on all these different signals

across 27 different markets, right?

722

00:45:11,508 --> 00:45:17,268

But it's all just reacting to or digesting

information that the market is giving us.

723

00:45:17,268 --> 00:45:22,998

So when the market is not doing a

very good job of adjusting because

724

00:45:23,028 --> 00:45:28,548

it is confused or uncertain, or

doesn't know what is likely to happen.

725

00:45:28,998 --> 00:45:33,168

These are the periods when our,

when the trend and carry strategies

726

00:45:33,168 --> 00:45:34,398

are most likely to suffer.

727

00:45:34,488 --> 00:45:36,048

And that's exactly what

we're seeing today.

728

00:45:36,378 --> 00:45:40,488

We're in a period of extreme

policy ambiguity, right?

729

00:45:40,878 --> 00:45:44,118

We won't always be in a period

of extreme policy ambiguity.

730

00:45:44,178 --> 00:45:48,288

Once that sort of settles out, either

the market will get used to the way

731

00:45:48,288 --> 00:45:53,208

that, for example, Trump communicates

and be able to, you know, read the tea

732

00:45:53,208 --> 00:45:57,738

leaves and, and anticipate what his true

intentions are and adjust towards that.

733

00:45:58,068 --> 00:46:03,468

Sort of over the intermediate term

or just, you know, Trump may get

734

00:46:03,468 --> 00:46:07,188

what he wants and therefore there

won't be the same number of these

735

00:46:07,548 --> 00:46:09,468

policy changes, um, happening.

736

00:46:09,468 --> 00:46:13,788

But at some point there will be, the

market will adapt to the new environment.

737

00:46:13,788 --> 00:46:17,658

There will be a new equilibrium,

and these strategies will continue

738

00:46:17,658 --> 00:46:21,798

to go on and do what they've always

done, which is just deliver on

739

00:46:21,858 --> 00:46:23,898

this nice, uncorrelated premium.

740

00:46:26,973 --> 00:46:31,893

Rodrigo Gordillo: So the, let's,

let's just kind of discuss,

741

00:46:32,313 --> 00:46:36,483

you know, the difference here

between market moves on headlines.

742

00:46:37,173 --> 00:46:40,398

Uh, just kind of wrap it up really,

you know, what are the strateg, the,

743

00:46:40,863 --> 00:46:42,453

the strategies operate on principles.

744

00:46:42,513 --> 00:46:47,323

And, uh, the question is whether

recent returns are a feature or a bug.

745

00:46:47,673 --> 00:46:53,358

Um, and so which is it like,

is this a feature or a bug?

746

00:46:53,358 --> 00:46:56,358

What we're seeing in these,

in these, um, two strategies?

747

00:46:57,558 --> 00:46:57,678

Corey Hoffstein: Yeah.

748

00:46:57,678 --> 00:46:57,858

Right.

749

00:46:57,858 --> 00:47:01,608

So we have these systematic strategies

that we talk about trying to harvest these

750

00:47:01,608 --> 00:47:03,588

premium that we believe exist, right?

751

00:47:04,668 --> 00:47:05,868

Trend following in carry.

752

00:47:05,868 --> 00:47:08,418

And we believe that there are,

particularly with carry, I think there's

753

00:47:08,418 --> 00:47:11,448

a very strong argument that there's,

that's tied to intrinsic risk premia that

754

00:47:11,448 --> 00:47:13,458

exists in the market carry of a trend.

755

00:47:13,458 --> 00:47:16,668

You might argue there's some risk

premia there, some behavioral right,

756

00:47:16,668 --> 00:47:20,748

but they can be caught off side by

these sudden market headline movements.

757

00:47:20,748 --> 00:47:24,528

And I, and I think that's just the

reality of any investment strategy.

758

00:47:24,528 --> 00:47:30,348

Certainly it's never fun for something

like a carry strategy to be down 5% in

759

00:47:30,348 --> 00:47:33,888

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

and four and a half percent in one day.

760

00:47:34,218 --> 00:47:37,849

Um, but we see that happen

in other markets, right?

761

00:47:37,913 --> 00:47:39,318

Not just alternative strategies.

762

00:47:39,318 --> 00:47:42,258

We see, we've seen that happen

in equity markets frequently.

763

00:47:42,588 --> 00:47:44,898

We've seen that happen in bond markets.

764

00:47:45,198 --> 00:47:48,483

Rarely over the last 20 years,

but it has happened right.

765

00:47:48,483 --> 00:47:51,963

And those sort of things happen

when there is a fund, the market is

766

00:47:51,963 --> 00:47:56,733

fundamentally repricing something

that it, it didn't get right.

767

00:47:56,763 --> 00:48:01,383

And a strategy can do the same thing

where the strategy can be offsides.

768

00:48:02,013 --> 00:48:06,153

Um, because again, in our case if

we're trend and, and carry relying

769

00:48:06,183 --> 00:48:11,433

on market derived signals, and those

market derived signals are just

770

00:48:11,433 --> 00:48:14,853

not capturing or didn't anticipate.

771

00:48:15,258 --> 00:48:18,198

These sudden rapid, in

this case, policy changes.

772

00:48:18,198 --> 00:48:20,838

So the reality is it,

it's a feature, right?

773

00:48:20,838 --> 00:48:24,468

The thing I always say is, if a strategy

becomes too easy to hold over the

774

00:48:24,468 --> 00:48:28,368

long run, everyone would hold it and

all the premium gets squeezed out.

775

00:48:28,668 --> 00:48:30,108

It's not a fun answer.

776

00:48:30,108 --> 00:48:31,968

It's a little flippant, frankly.

777

00:48:32,598 --> 00:48:35,658

But you know, I've said time and

time again, no pain, no premium.

778

00:48:35,658 --> 00:48:38,628

If we believe there's a risk premium

here that's different than equities

779

00:48:38,628 --> 00:48:42,348

and bonds it, we should expect it

to behave like equities and bonds.

780

00:48:42,348 --> 00:48:44,838

And no one really questions.

781

00:48:44,868 --> 00:48:47,508

Equities dropping by

5% over a couple days.

782

00:48:47,538 --> 00:48:48,198

It's happened.

783

00:48:48,198 --> 00:48:49,698

It'll happen again in the future.

784

00:48:50,028 --> 00:48:52,638

But when it happens in an alternative

strategies, the sudden question

785

00:48:52,638 --> 00:48:54,108

is, well, is the strategy broken?

786

00:48:54,858 --> 00:48:56,748

And I think a lot of that

just comes from a lack of

787

00:48:56,748 --> 00:48:58,128

transparency in these strategies.

788

00:48:58,488 --> 00:49:01,938

Going back to the beginning of this

call, we rattled off all these markets.

789

00:49:02,763 --> 00:49:04,653

That impacted carry, especially, right?

790

00:49:04,653 --> 00:49:09,633

Just carry, just fundamentally, this

week was on the on wrong side of three

791

00:49:09,633 --> 00:49:14,163

or four massive policy announcements

that came out of nowhere, right?

792

00:49:14,523 --> 00:49:18,453

You got the Canada Mexico tariffs, you

got the copper tariff, you have European

793

00:49:18,453 --> 00:49:22,713

deregulation, you have the German fiscal

policy announcement all happening in

794

00:49:22,713 --> 00:49:26,733

a two or three day period, and carry

was on the wrong side of all of those.

795

00:49:27,798 --> 00:49:31,788

And that un, that's unfortunate, but a

lot of people don't even realize when

796

00:49:31,788 --> 00:49:34,908

they're investing a strategy like this

because again, it changes over time.

797

00:49:35,208 --> 00:49:40,163

They might be long the Dax, long the

dollar, you know, long German bundts.

798

00:49:40,323 --> 00:49:42,663

That's where the beneficial

diversification comes in,

799

00:49:42,663 --> 00:49:43,833

hopefully over the long run.

800

00:49:44,223 --> 00:49:46,413

But that can, that can cut

in the short run as well.

801

00:49:46,773 --> 00:49:50,523

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

are a feature, but losses are a reality.

802

00:49:50,598 --> 00:49:54,603

Rodrigo Gordillo: And, and so are, you

know, large positive gains that offset

803

00:49:54,603 --> 00:49:59,103

losses in your traditional portfolio

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

804

00:49:59,193 --> 00:50:02,853

'cause everybody wants to focus on what,

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

805

00:50:03,393 --> 00:50:07,413

The wrong is the pain that

you're paying for that premium.

806

00:50:07,923 --> 00:50:12,153

Uh, one of the questions here was, you

know, this, the, the drawdown in carry

807

00:50:12,153 --> 00:50:14,193

has recently, recently been pretty large.

808

00:50:14,763 --> 00:50:17,643

Um, and you know, one of the biggest

challenges for advisors here is to

809

00:50:17,643 --> 00:50:20,103

help clients stick to strategies

through different market environments.

810

00:50:20,463 --> 00:50:24,363

And a, a good way to set expectations

here, and I, I bring this up over and

811

00:50:24,363 --> 00:50:26,433

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

812

00:50:27,198 --> 00:50:31,368

You are taking risk in equities, you're

taking risk in bonds, you're taking risk

813

00:50:31,368 --> 00:50:33,198

in a carry strategy or trend strategy.

814

00:50:33,618 --> 00:50:36,958

A good rule of thumb for me

has always been, what, are my

815

00:50:36,958 --> 00:50:39,468

expectations of the best and worst?

816

00:50:39,918 --> 00:50:41,178

Let's focus on the worst year, right?

817

00:50:41,178 --> 00:50:44,278

So if you have a strategy like

the carry strategy that we discuss

818

00:50:44,278 --> 00:50:48,678

as a, on an average volatility of

standard deviation of around 10%.

819

00:50:49,458 --> 00:50:53,673

Well, I think the expectation here needs

to be that there will be a negative three

820

00:50:54,003 --> 00:50:56,163

standard deviation move in that strategy.

821

00:50:56,373 --> 00:50:58,533

It is broadly normally distributed.

822

00:50:58,983 --> 00:51:02,643

You need to expect those types of

moves to happen every so often.

823

00:51:03,183 --> 00:51:07,653

It happened back in 1994 during

the, bond massacre in 94.

824

00:51:08,443 --> 00:51:13,443

it happened, in the mid noughts and we're

seeing a little bit of it again today.

825

00:51:13,443 --> 00:51:18,933

And what's a three standard deviation

for a 10%, volatility, strategy, you

826

00:51:18,933 --> 00:51:21,363

know, assuming a sharpe ratio of 0.5?

827

00:51:21,743 --> 00:51:24,683

That's a 25% drawdown is a

three standard deviation, right?

828

00:51:24,683 --> 00:51:27,313

It's probably gonna go plus

or minus that at some point.

829

00:51:28,253 --> 00:51:29,093

that's the risk.

830

00:51:29,123 --> 00:51:32,423

That is the kind of the long-term risk

that you're gonna take in order to see

831

00:51:32,423 --> 00:51:37,533

it then in every case, it's rebounded

pretty aggressively from that bottom.

832

00:51:37,653 --> 00:51:41,963

And, you know, this is the

behavioral side that I think, you

833

00:51:41,963 --> 00:51:43,463

know, I want to bang the table on.

834

00:51:44,273 --> 00:51:48,693

This is where you might

want to start thinking about

835

00:51:48,693 --> 00:51:51,683

allocating if you have it, right?

836

00:51:51,683 --> 00:51:54,963

if, you believe that it's normally

distributed, you believe that it's,

837

00:51:54,963 --> 00:51:57,253

it's going to revert back to its mean.

838

00:51:58,083 --> 00:52:01,653

it might not be a bad idea to start

seriously thinking about allocating here.

839

00:52:01,893 --> 00:52:02,193

Um,

840

00:52:02,223 --> 00:52:04,383

Adam Butler: This is where

you earn your premium, right?

841

00:52:04,383 --> 00:52:07,803

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

stick around and get paid for it, right?

842

00:52:08,068 --> 00:52:09,603

I, I also like to think about.

843

00:52:10,398 --> 00:52:13,128

With these trend and carry strategies,

I think it works for others as well.

844

00:52:13,128 --> 00:52:16,068

But the, I just bring it back

to middle school science.

845

00:52:16,428 --> 00:52:18,618

It's potential energy and kinetic energy.

846

00:52:18,858 --> 00:52:22,178

Kinetic energy is when you're

getting, when the bets that

847

00:52:22,178 --> 00:52:23,928

you're, making are paying off.

848

00:52:24,048 --> 00:52:24,408

Right?

849

00:52:24,828 --> 00:52:29,208

But in carry, you're building

potential, potential energy as,

850

00:52:29,238 --> 00:52:33,108

okay, you're, in bonds because

they've got high rates versus cash.

851

00:52:33,798 --> 00:52:38,538

Well, there's a loss on that position,

which means that rates just went up.

852

00:52:39,378 --> 00:52:45,858

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

but your expected return is higher, right?

853

00:52:46,098 --> 00:52:49,218

And so you've, got this sort

of negative kinetic energy

854

00:52:49,218 --> 00:52:51,018

translating into potential energy.

855

00:52:51,528 --> 00:52:56,238

And so the potential return on the

portfolio, is probably considerably

856

00:52:56,238 --> 00:53:03,258

higher now because, you know, the, rate

differentials have, widened the, slope of

857

00:53:03,258 --> 00:53:04,908

the yield curve has steepened, et cetera.

858

00:53:05,298 --> 00:53:10,128

And so you just have to wait for this

potential energy to translate into

859

00:53:10,368 --> 00:53:15,318

kinetic energy once it's unleashed

in, you know, the next regime, right?

860

00:53:15,378 --> 00:53:17,418

Um, it really is just a waiting game.

861

00:53:17,928 --> 00:53:20,748

This is where you pay and

the payoff happens later.

862

00:53:22,533 --> 00:53:22,923

Rodrigo Gordillo: Yeah.

863

00:53:23,313 --> 00:53:29,583

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

things up, any parting words from any

864

00:53:29,583 --> 00:53:36,423

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

how to kind of help advisors talk to

865

00:53:36,423 --> 00:53:41,673

clients with regard to this type of

environment with rapid policy shifts.

866

00:53:41,703 --> 00:53:43,623

Uh, we talked a little bit

about no pay, no premium.

867

00:53:43,623 --> 00:53:44,763

Any, any other thoughts?

868

00:53:45,123 --> 00:53:47,283

Adam Butler: Well, I, I have one thing

and somebody mentioned it about, you

869

00:53:47,283 --> 00:53:52,773

know, um, how much trend versus carry

would you recommend in, in a portfolio?

870

00:53:52,803 --> 00:53:53,163

Right.

871

00:53:53,523 --> 00:53:54,123

Um.

872

00:53:54,678 --> 00:53:58,158

And I mean, in general, we, we

have about the same expectation

873

00:53:58,158 --> 00:53:59,268

for both, at least I do.

874

00:53:59,328 --> 00:54:01,728

You know, I'm not sure whether

everyone would come down in the

875

00:54:01,728 --> 00:54:05,268

same exact place, but I think about

about the same expectation for both,

876

00:54:05,568 --> 00:54:09,648

especially over, you know, a five

or 10 or 20 year investment horizon.

877

00:54:10,308 --> 00:54:12,228

Um, I have about equal expectation.

878

00:54:12,258 --> 00:54:16,428

So, and what's great is that off,

you know, they're uncorrelated,

879

00:54:16,428 --> 00:54:20,358

they're reacting to different,

information at different times.

880

00:54:20,898 --> 00:54:25,518

So, you know, I always say you

should, if you own trend, you

881

00:54:25,518 --> 00:54:28,038

should 100% also own carry.

882

00:54:28,038 --> 00:54:32,868

They are, they're tremendously

good diversifiers for one another.

883

00:54:33,228 --> 00:54:37,488

They're, it's like having two eyes

and being able to, view things in 3D

884

00:54:37,488 --> 00:54:40,843

through binocular vision, you're, getting

information from the term structure.

885

00:54:40,863 --> 00:54:43,698

You're getting information from

price, momentum, and together

886

00:54:43,758 --> 00:54:45,478

it's just a really fine.

887

00:54:46,728 --> 00:54:52,428

well-crafted dish and the experience

of them together is just so much

888

00:54:52,698 --> 00:54:57,768

smoother and more palatable than

holding either of them on their own.

889

00:54:59,928 --> 00:55:03,468

Corey Hoffstein: Yeah, I mean, I, I

have a tremendous amount of sympathy

890

00:55:03,468 --> 00:55:07,158

for advisors who particularly

have line item sensitive clients.

891

00:55:07,158 --> 00:55:10,458

When any line item goes through

a big one day drawdown, you

892

00:55:10,458 --> 00:55:11,898

know, they've gotta field calls.

893

00:55:11,898 --> 00:55:12,198

Right.

894

00:55:12,198 --> 00:55:14,748

And that's, and you can't

rent conviction, right?

895

00:55:14,748 --> 00:55:19,428

So if an advisor isn't truly

understanding what this strategy is, I,

896

00:55:19,428 --> 00:55:21,228

I understand the desire to get out of it.

897

00:55:22,338 --> 00:55:25,608

And frankly, I felt the same way

yesterday looking, looking at our,

898

00:55:25,803 --> 00:55:29,673

you know, the carry strategy I have,

I, you know, we eat our own cooking.

899

00:55:29,673 --> 00:55:34,323

I have a substantial amount of,

my portfolio has a carry overlay.

900

00:55:34,443 --> 00:55:37,143

But to Adam's point, I also

have a trend overlay and I

901

00:55:37,143 --> 00:55:38,673

have other overlays that I add.

902

00:55:38,673 --> 00:55:41,853

I have a huge amount of overlay on

my core stock and bond position.

903

00:55:42,363 --> 00:55:47,653

Carry is just a slice and somehow

despite loss, substantial losses in

904

00:55:47,653 --> 00:55:50,183

carry yesterday, my PA was positive.

905

00:55:50,523 --> 00:55:50,823

Rodrigo Gordillo: Yeah.

906

00:55:51,243 --> 00:55:51,513

Corey Hoffstein: Right.

907

00:55:51,513 --> 00:55:52,688

And, and so I go back to.

908

00:55:54,063 --> 00:55:57,183

Even I have to check myself,

like I can become over line item

909

00:55:57,183 --> 00:56:01,293

focused, but at the portfolio

level, like diversification worked.

910

00:56:01,893 --> 00:56:05,703

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

of the portfolio down, but there was other

911

00:56:05,703 --> 00:56:12,183

stuff that was substantially up that net

offset it because I wasn't so dramatically

912

00:56:12,303 --> 00:56:14,823

overweight that one particular trade.

913

00:56:14,823 --> 00:56:18,423

And so again, it is one risk

premium that we have high

914

00:56:18,423 --> 00:56:20,613

confidence in, but it's one of many.

915

00:56:21,258 --> 00:56:25,788

And it's one that is gonna operate well

or not well in different environments.

916

00:56:25,788 --> 00:56:29,028

The same way stocks and bonds operate

well and not well in other environments,

917

00:56:29,028 --> 00:56:30,868

trend may operate well and not well.

918

00:56:31,368 --> 00:56:36,228

And, for me, trying to market time or,

determine when these things do well

919

00:56:36,228 --> 00:56:42,408

or not, is totally, undermining the

potential benefits of diversification.

920

00:56:42,408 --> 00:56:46,998

And when you have diversification

across a huge swath of different

921

00:56:46,998 --> 00:56:50,508

strategies, the hurdle rate for

market timing just goes up so much.

922

00:56:50,508 --> 00:56:55,758

And so for me, I just go back to

those basic principles of do I have

923

00:56:55,758 --> 00:56:57,768

conviction in the strategy long term?

924

00:56:58,698 --> 00:57:01,548

Is it appropriately sized in my portfolio?

925

00:57:01,698 --> 00:57:05,208

Yesterday was a great test and for

me it was, you know, and what else do

926

00:57:05,328 --> 00:57:09,358

I have next to it that I do believe

is truly diversifying and, did it

927

00:57:09,358 --> 00:57:10,878

behave in a diversifying manner?

928

00:57:10,908 --> 00:57:13,728

And so I looked at my PA yesterday

and I said, it did exactly

929

00:57:13,728 --> 00:57:14,418

what I thought I would do.

930

00:57:15,318 --> 00:57:17,898

Rodrigo Gordillo: Yeah, and, and

again, I think what we've seen

931

00:57:18,318 --> 00:57:23,193

is that these strategies are

non-correlated to equities, bonds,

932

00:57:23,193 --> 00:57:25,293

and themselves in the last three days.

933

00:57:25,353 --> 00:57:29,673

And we've certain, like, look, an

another acute moment of pain for managed

934

00:57:29,673 --> 00:57:32,313

futures was during the SVB fiasco, right?

935

00:57:32,328 --> 00:57:37,983

The, the, um, Silicon Valley drop trend

had a, it was just caught really offside.

936

00:57:38,923 --> 00:57:41,693

Carry was not, it was

a non-event for carry.

937

00:57:41,773 --> 00:57:43,573

Slightly up, I think, during that period.

938

00:57:43,573 --> 00:57:43,783

Right.

939

00:57:43,783 --> 00:57:46,303

So again, it's, it, it,

it can be the opposite.

940

00:57:46,303 --> 00:57:51,073

Right now carry's struggling more than

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

941

00:57:51,073 --> 00:57:56,623

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

across different areas of your portfolio.

942

00:57:57,253 --> 00:58:03,168

Um, and they all tend to have a positive

expected return, and we're gonna be in

943

00:58:03,168 --> 00:58:07,038

around that over time in different ways,

which is exactly what we're looking for.

944

00:58:08,148 --> 00:58:13,218

Okay, so with that, um, sorry

we weren't able to get into

945

00:58:13,218 --> 00:58:15,618

any fund specific content.

946

00:58:15,618 --> 00:58:20,628

Here we are, um, restricted from, uh,

speaking to, uh, with regard to the

947

00:58:20,628 --> 00:58:25,673

funds, due to regulatory restrictions,

but I, I hope that this was useful in

948

00:58:25,793 --> 00:58:30,203

providing some context on the macro

environment and the kind of managed

949

00:58:30,203 --> 00:58:31,553

future strategies that are out there.

950

00:58:32,243 --> 00:58:36,623

Um, if you do have any questions,

you can reach out to us directly,

951

00:58:36,623 --> 00:58:39,083

you can go to return stacked.com

952

00:58:39,113 --> 00:58:42,323

and go to the contact section

and talk to any one of our reps.

953

00:58:42,683 --> 00:58:45,683

If you want to go directly to

us we are on Twitter and pretty

954

00:58:45,683 --> 00:58:47,153

active there, or LinkedIn.

955

00:58:47,228 --> 00:58:47,978

These days.

956

00:58:48,338 --> 00:58:49,418

So look us up.

957

00:58:49,538 --> 00:58:53,328

Um, uh, Corey is Cho at choffstein.

958

00:58:53,348 --> 00:58:58,628

Adam is at Gestalt U and

I am at Rod Gordillo.

959

00:58:58,658 --> 00:59:01,118

P Um, all right.

960

00:59:01,208 --> 00:59:02,978

Any, any parting thoughts?

961

00:59:03,223 --> 00:59:05,888

Adam, I know you needed

to go 15 minutes ago.

962

00:59:05,888 --> 00:59:06,908

Thank you for sticking around.

963

00:59:07,268 --> 00:59:09,248

Thank you everybody for

sticking around this long.

964

00:59:09,278 --> 00:59:14,528

Really appreciate your, uh, time

today and, uh, looking forward to

965

00:59:14,528 --> 00:59:16,148

seeing you in our next live q and a.

966

00:59:16,968 --> 00:59:17,238

Adam Butler: Thanks.