Shownotes
In this week’s Systematic Investor episode, Niels and Andrew Beer explore how a broken 60/40 paradigm is forcing wealth managers into a new world of “other” diversifiers. Andrew reflects on the Goldman Sachs report about private wealth flows, the rise of liquid alts and why big houses are suddenly launching trend ETFs. The conversation dives into replication versus traditional CTAs, the true cost of complexity, and Simplify’s new index-based product built on Andrew’s strategy. Along the way they debate pods, Bitcoin, and Andrew’s evolving metaphor of managed futures as a cloudy, but occasionally crystal-clear, macro crystal ball.
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Episode TimeStamps:
00:00 - Intro and Thanksgiving reflections, gratitude and mood after the holiday
01:14 - Goldman report: trillions from wealthy investors and a seismic shift away from 60/40
03:38 - Why bonds stopped diversifying and the growth of the “other” bucket in portfolios
05:44 - Liquid alts vs illiquid alts and the timing of big firms launching trend ETFs
08:25 - Odd Lots, pods and Dalio’s skepticism on multi-strats’ future
09:22 - Bitcoin’s volatile run and rumors of a manipulated pullback
10:59 - November performance: zigzags in trend indices and short-term traders’ struggles
12:55 - How DBMF positioned: concentration, short yen, euro pain and being contrarian post “Liberation Day”
16:05 - Are we still “replication”? Alternative data beta, tracking error and what’s really being delivered
18:16 - Targeting “space beta” plus cost savings: is complexity in CTAs adding or destroying value?
22:14 - Indexing the replication strategy and using swaps: Simplify’s new "low" headline fee ETF built on Andrew’s index
30:49 - The fee and cost debate: headline fees, trading costs, swaps and what investors should really ask
34:33 - Implementation costs, incentive fees and tax efficiency versus simple fee labels
45:08 - A better story for managed futures: from black box trend to “cloudy crystal ball”
51:22 - How trend taps local information: “someone knows something” and prices as detectors
58:03 - Takeaways from the Stockholm roundtable: short vs long term, exotic markets and heterogeneity
01:01:07 - Alpha-beta separation, core CTA beta vs high-conviction managers and where the space is heading
01:03:44 - Closing thoughts: civilized disagreement, common mission and why every portfolio needs this exposure
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Transcripts
You're about to join Niels Kostrup Larson on a raw and honest journey into the world of systematic investing and learn about the most dependable and consistent, yet often overlooked investment strategy.
Speaker A:Welcome to the Systematic Investor Series.
Speaker B:Welcome or welcome back to this week's edition of the Systematic Investor series with Andrew Beer as well as myself, Nils Koster Blaassen, where each week we take the pulse of a globe global markets through the lens of a rules based investor.
Speaker B:Andrew, it is wonderful to have you back on the podcast this week.
Speaker B:How are you doing?
Speaker B:And Happy Thanksgiving.
Speaker C:Happy Thanksgiving to you.
Speaker C:I'm, I'm, I'm, I'm in a wonderful mood this Friday morning and thrilled to be here.
Speaker C:So, so thank you for having me.
Speaker B:Of course, Absolutely.
Speaker B:It's fantastic.
Speaker B:And we've got a great conversation lined up with some more detailed and some new ground to cover, so I'm very excited about it.
Speaker B:Now, before we get into all of that, as you, I'm always curious in terms of things that we are not going to talk about today, what else has kind of passed your radar in the last few weeks since we last spoke?
Speaker C:Well, it's very uninteresting from, from an investment perspective, but I, Thanksgiving's my favorite holiday.
Speaker C:I mean it's, it's, it's an opportunity to sit back and just, I, I mean, I, I, it's just take a break from everything and just think about all the things you could be grateful for.
Speaker C:And, and, and then I start kind of going back and get, you know, I go even deeper and deeper and like we're alive, you know, how great is that?
Speaker C:We're healthy, we're able to have these kinds of conversations, you know, surrounded by, by, by family and friends.
Speaker C:I was in, having a Thanksgiving dinner in Brooklyn last night in like, you know, in the middle of Mandani, you know, like, like, like socialism central, which I don't necessarily agree with, you know, economically or, or, or politically, but, but the energy around it was wonderful.
Speaker C:You know, it's, it's, I mean you've got a generation of people who, who are getting excited about politics for the first time.
Speaker C:And so I don't know.
Speaker C:So I'm, that's, this will last for a few days, but there's this definitely this halo of, of just sort of general gratefulness and happiness today.
Speaker B:And I know you're too modest to say so, but I will say given the success that, that your firm and your trend for all your CTA products has had ETF this year, there's A lot of things to be grateful for, for sure.
Speaker B:Now, on my side, I shared with you an article, and I wasn't sure whether this was a good time to bring it up or later, but, but maybe we should just sort of talk a little bit about it because I know you have some views and I think this is something that you've actually been, you know, focusing on for some time without getting into the topics that we're going to be dealing with later.
Speaker B:But it was this article based on, I think, on a new Goldman Sachs report about the, you know, it's, it's titled Rich People have Trillions of Dollars they Want to Give to Hedge Funds.
Speaker B:And it talks about this kind of shift that we are seeing in terms of how private wealth is being managed and the doors that it's opening, according to their estimates, into our world.
Speaker B:I would say.
Speaker B:So I don't know if you remember the article and some of the takeaways, but I know it's been something that you and I have talked about over the years.
Speaker C:Well, I hope they're right.
Speaker C:First of all.
Speaker B:So do I. Yeah.
Speaker C:Look, I think, and this is something we've talked about over the past few years is there really has been a seismic shift in asset allocation and wealth management in that the playbook of 60, 40 just stopped working.
Speaker C:And the interesting thing about when a paradigm shifts is that most people don't like to talk about maybe the fact that the paradigm that they were invested in broke in some fashion and this is what's prompting the change.
Speaker C: lutions by Thomas Kuhn in the: Speaker C:And so what's happened really this decade is bonds have not worked as a diversifier.
Speaker C:That was the playbook.
Speaker C:And in fact, what they've looked like is pretty lousy equity exposure, less returns, not much better on a drawdown perspective, volatility's jumped a lot.
Speaker C:And so I think everybody out there on the wealth management side is thinking, how do we build a portfolio given the fact that we can't pretend that this hasn't happened?
Speaker C:And so that's causing this, you know, the, the idea of just you've now got stocks, bonds, the bond allocation shrinks, and then you've got an other category, a diversifying category, et cetera, when that has been growing in a lot of portfolios.
Speaker C:And what we'll talk about is I think still zero in a lot of portfolios.
Speaker C:And.
Speaker C:But as that expands, then it, it, it creates, it opens the doors for private equity, private credit, et cetera, et cetera, into, into broader and broader groups of investors.
Speaker C:And I think what I'm hoping is that, you know, managed futures is one of those really statistically obvious allocations.
Speaker C:If you give them easy and efficient ways of investing to it, it'll just become part of the playbook, which I think still today, it's still an afterthought for a lot of those allocators.
Speaker B:Yeah.
Speaker B:If I'm remembering the article correctly, it also seems to appear to me that they were actually expecting more money going into liquid alternative.
Speaker B:Not so much these illiquid alternatives where there seems to be a lot of money tied up that can't get out.
Speaker B:So I felt at least that the light was shining a little bit more on our side of the old smart alternative investment industry compared to the private side.
Speaker B:And not to steal any thunder for an upcoming conversation that Alan and I had with BlackRock, which we'll publish in a couple of weeks on the 10th of December.
Speaker B:But as one of the largest asset managers in the world, very interesting to hear Jeff's point of view about why they are suddenly coming out with trend ETFs, just like some of the other big asset managers like Fidelity and Invesco.
Speaker B:Um, so that was one of my questions to him, you know, why, why this now and, and, and, and, and the timing of it.
Speaker B:So anyways, I want to, I don't want to steal his thunder about it, but I wish you.
Speaker C:I can't wait.
Speaker C:I can't wait to see it.
Speaker B:Well, this is, this is the point of a teaser, Andrew.
Speaker C:When they came in, when they launched that etf, I was probably happiest person in America when I saw that.
Speaker B:Yeah, that was.
Speaker B:The point of the teaser is actually to make you Turn on on 10th December when it comes to somebody would.
Speaker C:Tell Vanguard to do the same thing and then I'll be truly thrilled.
Speaker B:Yes, well, we don't want too much competition, do we?
Speaker B:Anyways, so the other thing that crossed my radar this week was actually I listened to one of my favorite podcasts myself is the Odd Lots podcast, and I was listening to actually an episode with Cliff Asness that was recorded a few weeks ago.
Speaker B:He's always funny and insightful, so great episode.
Speaker B:The other one was with Ray Dalio.
Speaker B:And a lot of what Ray said is something I'd heard him say before.
Speaker B:But then they asked him about the multistrad, the pot shops, and what his prediction was for them.
Speaker B:And actually he was not particularly bullish about their ability going forward, maybe not this year, tomorrow, whatever.
Speaker B:But I think he was less bullish on pot shops as a concept for the future, maybe to do with kind of cultural things in terms of how they operate inside.
Speaker B:And they're not very collegial.
Speaker B:They're kind of competition between each pot and all that, you know.
Speaker B:Anyways, I thought it was kind of interesting because at the moment, as you and I know, pot shops are kind of the hot thing in, in, in the alternative investment world.
Speaker C:Well, I think, I think, I think, I mean, just to comment on the pod shots for a second and he, look, he may be right.
Speaker C:I mean, obviously it's, but, and I think it's, I mean, if you look at it from the outside, you got a lot of dollars of inflows.
Speaker C:You know, I can't believe that your 300th team is as good as your fifth team that you've hired.
Speaker C:You know, you have an incentive structure where you can just, you get this insane competition for, for talent.
Speaker C:But the thing is, you could have made that argument like five years ago.
Speaker C:And, and I think at that point people were saying with all the leverage, the risk controls will break down, they'll blow up.
Speaker C:He's got, what they've done is spectacular.
Speaker B:Yeah.
Speaker C:And so, so they have defied the naysayers year after year after year.
Speaker C:And honestly, I mean, I, I, I, I hope they do, I hope they continue to do it.
Speaker C:It's, it's, at least for now, they've, they've invented a return stream that, you know, people have talked about in theory as being theoretically impossible.
Speaker C:And, and they've been delivering it.
Speaker B:So, yeah, the final thing that kind of crossed my, my, my, my radar, something that people will be certainly familiar with.
Speaker B:It's just what's going on in bitcoin.
Speaker B:I find it interesting.
Speaker B:It's been pretty volatile and I have seen some, some articles.
Speaker B:I don't want to get into them because I don't want to, you know, blame anyone.
Speaker B:But there are some, definitely some articles going around about, you know, how this may have been a manipulated pullback in the, in, in bitcoin that I found interesting.
Speaker B:And that's probably all I, I dare to say about it as it's some pretty big names that's involved in it.
Speaker B:But yes.
Speaker B:Anyways, let's go back to something we know a little bit more about and that is the trend following CTA World.
Speaker B:You and I are recording on the last trading day of November.
Speaker B:It's been an interesting month.
Speaker B:I'm sure it's been another great month for dbmf, but it's been an interesting month for the traditional world because it's been a bit of a zigzag.
Speaker B:Pretty good start to the month, pretty weak middle part of the month with some reversals and dragging the sort of traditional indices back into negative territory for the month.
Speaker B:And then the last few days have actually improved and we'll see how it all ends in a few hours.
Speaker B:Any takeaways from what you've seen your portfolio do in the month, has it been a lot of change so far or has it just been really fairly easy for you guys to maintain the exposures you had coming into November?
Speaker C:I don't think, I mean, I think we've seen some de risking of equity risk.
Speaker C:So it's sort of been gradual for the past couple of months.
Speaker C:I mean we've, one of the things in our portfolios is obviously we're more concentrated in our positions and usually sometimes there's idiosyncratic risk associated with that.
Speaker C:So I'm sure we probably have more short yen exposure than a typical, more diversified, you know, sort of bottom up CTA or strategy.
Speaker C:It's helped us recently.
Speaker B:Yeah, yeah, for sure.
Speaker C:You know, on the other hand, flip side is earlier this year we had more exposure to the euro when being short the euro, when the euro decided to rearm it, it hurt us.
Speaker C:So we, I mean every, I think, you know, I think my broad thing about the CTA this year is just how contrarian it was to maintain this kind of bullish position in the let it run hot trade after Liberation Day.
Speaker C:I just, I mean I saw a lot of human strategists who were throwing in the towel and were predicting that we would go into, you know, an imminent recession or inflation was about to take off.
Speaker C:I think one of the most florid remarks was a self inflicted economic nuclear winter was, was upon us.
Speaker C:And it's kind of remarkable that and just, and then throw in a full frontal assault on the Fed in the middle of that.
Speaker C:And, and you know, what's sort of remarkable is actually the world hasn't changed and the, you know, the, the people who maintain this kind of view that interest rates would remain low, it would be good for equities.
Speaker C:Gold obviously has been On a historic run this year.
Speaker C:It's just those.
Speaker C:And now sort of the dollar is restrengthening after, you know, kind of the, the panic around the end of the American exceptionalism trade.
Speaker C:Like, I mean just as a strategist, it would have been really gutsy to take that position four or five years ago.
Speaker C:And so the rebound of the space which has been really pronounced is, is really attributable to being kind of contrarian and early.
Speaker B:Yeah, yeah.
Speaker B:And do you generally attribute your outperformance this year of the index to as you say, maybe position, concentration like gold yen or is there anything else?
Speaker B:I mean of course also the time, the slowness may be around April time I would imagine would have been great because I noticed that short term managers have struggled this year and even, I mean even though we think maybe at.
Speaker B:When you look at performance of trend followers this month, that's pretty flat.
Speaker B:You would think, oh, that's been a quiet month.
Speaker B:But I noticed that some short term managers have had real challenges in November, which the surface numbers don't really explain.
Speaker C:Well.
Speaker C:Yeah, I mean, I mean given what we do and again, for anybody who is not familiar with what we do, we basically, you know, try to in a sense synthesize or distill on a weekly basis the broad exposures of the space down to 10 major markets.
Speaker C:So relative to an index of hedge funds or the broader mutual fund category, we're going to have three primary points of divergence.
Speaker C:One is going to be the simplicity of our portfolio means that sometimes not being in other positions helps us and sometimes it hurts us.
Speaker C:And my impression was, you know, sort of historically wide outperformance this year and about 500 basis points have been occurred in the days after Liberation Day.
Speaker C:And so the first thing you observed was that as volatile as it was in the major markets, it was a lot more volatile in secondary and even more volatile in because really people knew had no idea what's going to happen to the global economy.
Speaker C:And so you know, what we think happened is that complexity actually hurt portfolios the more positions you had in more esoteric markets.
Speaker C:If you're getting whipsawed, you're getting whipsawed more there.
Speaker C:And then secondly, you made a point about slowness.
Speaker C:So the second factor is that we will, because we're always looking back in a pretty short rear, I mean it's a rear view window, but it's a pretty short rear view window.
Speaker C:We can be a little bit slower to de risk.
Speaker C:And that definitely helped us because when Trump changed His mind, it looked like we had some residual risk on which added a couple of points of returns.
Speaker C:And then, and then the third is, is, is just noise, right?
Speaker C:And so is sometimes, and this is.
Speaker C:Happens to every manager, sometimes you trade with.
Speaker C:So we rebalance on Mondays.
Speaker C:Sometimes it feels like a great decision.
Speaker C:Sometimes, you know, you, you really wish you'd rebalance the prior Thursday or the next Tuesday or something.
Speaker C:But I think, I think when you take it like the big drivers have really been the first two, you know, going back to the first point, the idiosyncratic risk issue, I think we've, you know, we've funded four points on the end this quarter.
Speaker C:I'd be surprised if other CTAs have made, if CTAs have made that much on it.
Speaker C:So anyway, like, you take, you take all those things together and we've had a terrific relative performance tailwind this year.
Speaker B:Can I test something in the most friendly way I can possibly do?
Speaker B:You know, when you and I started this journey a number of years ago and we talked about replication and so on and so forth, and in a sense, I wonder whether you've changed something the way you think about it.
Speaker B:But of course, replication, the way I understood it, and maybe I misunderstood it back then, was, all right, that's going to be pretty close to the index.
Speaker B:That's what we're trying to do.
Speaker B:Plus, there could be an advantage over lower fees.
Speaker B:So I completely get that.
Speaker B:Now, as you rightly put this year, there's been a very big dispersion between your returns and the index.
Speaker B:And probably there's been other periods where that's been the same.
Speaker B:So I was thinking about this, and I think we will talk later today about whether, you know, managed futures should be labeled differently to what it is.
Speaker B:But I was thinking about what you're doing and what you're delivering, and I was thinking, well, maybe instead of it being a replication strategy, to me, maybe it's kind of an alternative data strategy, if you know what I mean.
Speaker B:I mean, you're taking other kind of data than we would because you're taking the performance of an index, but you're still.
Speaker B:And then you put it through your model and you're delivering a CTA like return.
Speaker B:But to me, it's.
Speaker B:I don't know if I feel that the tracking error makes it more difficult for me to think of it as replication, because as soon as I hear that word, I'm thinking, yeah, it's going to be a tracking error plus, minus, you know, 1%, whatever.
Speaker B:Because that's what we kind of understand from the equity world that if you're, if you track a fund or replicate, you know, you're, you're pretty close.
Speaker B:I mean would it be wrong, do you think, to think of you as an alternative data cta?
Speaker B:I know you may not want it for, because you have to change all your marketing material.
Speaker B:But, but, but is it wrong to think about it like that or, or do you still think.
Speaker B:No, no, we, we are replica, we just want to X plus, you know, X hundred basis points.
Speaker C:Well, so you, you start off with saying maybe your think your thinking has changed.
Speaker C:This, my thinking is always changing.
Speaker C:Right.
Speaker C:So, and it's as I learn and I, and, and I think about it.
Speaker C:So you say alternative data, we are trying to be the beta of the space.
Speaker C:Right.
Speaker C:And that.
Speaker B:Well, you're trying to be the beta plus some alpha fees or.
Speaker C:Well, so, so the, the original idea was basically when we looked at the hedge fund index.
Speaker C:Yeah, right.
Speaker C:The hedge fund index we thought was reported if you kind of added up management fees, incentive fees to use very, very simplistic and you know, implementation costs, which again these are very, very actively traded portfolios.
Speaker C:And 10 years ago it seemed like 200 basis points was kind of a conservative but probably pretty low estimate of what the all in cost would be of a typical constituent of something like the soc gen CTA index or somebody who's running a complicated strategy.
Speaker C:So we thought, so we really tried to aim for StockGen CT Index +400 basis points and we didn't know how much of that we would get.
Speaker C:If we try to do that in equity longshore relative value in other areas of the hedge fund space, we're not going to get all 400 if we think those are the costs.
Speaker C:But what happened is over time it turned out that we were getting all 400 and sometimes more.
Speaker C:That has raised a lot of sort of interesting questions as to, to me the, the question is what is.
Speaker C:So the narrative around replication was always and even a, a year ago, I mean I was having this conversation was always that there was a signal that was being picked up by actual CTAs which would come from 70 markets, then it expanded to 120 markets and now it's sometimes multiple hundreds of markets.
Speaker C:And, and that was the true signal of the space.
Speaker C:That was the alpha generating signal that people would get out of bed and, and, and want to invest in.
Speaker C:And I think one of the, one of the intellectual questions of a replication is if you can get.
Speaker C:And when I say the Same signal, I mean, the same beta to the two equities, the same crisis alpha or however you want to return.
Speaker C:Characterize it the same low correlation or zero correlation of stocks and bonds.
Speaker C:If you can get that same statistical characteristics of only 10 instruments, then is the signal itself of the space really a major market signal?
Speaker C:And in fact, and that is my current conclusion is that, and this will get into the whole narrative concept around what it is when you're investing in a cta, what are you hoping for people in this space to be able to do?
Speaker C: what I think has happened in: Speaker C:The other way you could look at it is you could say actually that things that hedge funds are doing are detracting more from value than expected.
Speaker C:In other words, they're taking this major market signal and doing different things.
Speaker C:Whether it's shorter term models or volume controls that are de risking at the wrong time or alternative markets that are or less liquid markets that are getting whips out after liberation day.
Speaker C:Are those things actually detracting from value in the same way that you would say, well okay, this guy, this manager picked the wrong stock at the wrong time.
Speaker C:He underperformed the S&P 500.
Speaker C:We don't know the answer to that.
Speaker C:And we're actually not going to know the answer to that for a few years.
Speaker C:But I no longer think that we're picking up a grayish version of this light, this crystal white signal out there and that it's somehow a diluted version of it.
Speaker C:Rather, I actually think it's, I would actually argue it's almost more of a technological innovation of finding a way to capture that signal, but just being able to deliver it with a very, very significant efficiency advantage.
Speaker C:9 out of 10 of your, of your, of your, of your industry participant listeners will vociferously disagree with that statement, but that's why we do this.
Speaker B:That's, that's very interesting.
Speaker B:Anyway, we'll probably come back to touch on some of those points in the later on.
Speaker B:All right, quick update on performance.
Speaker B:This is probably as of Wednesday evening since yesterday was Thanksgiving.
Speaker B:So B top 50 is basis point 0.18.
Speaker B:It's up 1.05% so far this year.
Speaker B:The Soc Gen CT index down 66 basis points and down 3.06% so far this year.
Speaker B:The trend index trend index up 10 basis points down 0.79% so far this year.
Speaker B:And the SOC Gen Short Term traders index down 1.51% so far this month.
Speaker B:Down 5.76% so far this year.
Speaker B:And based on their volume, that's a pretty sizable number.
Speaker B:All right, Andrew, you sent me some wonderful points, topics that I'm excited to talk about.
Speaker B:So I'm going to pass it over to you.
Speaker B:I think the first thing you wanted to talk about was a new initiative by Simplify if I'm not mistaken.
Speaker C:Well, yeah, no, so look, I mean so a US ETF company called Simplify filed a prospectus to launch a new ETF that basically take a step back in terms of the evolution of what we've been doing as a business.
Speaker C: was launched in the middle of: Speaker C:We've been doing it since then.
Speaker C:Same 10 factors, same instrument, it's never changed.
Speaker C:And so but when you have, when you.
Speaker C: It was launched in an ETF in: Speaker C:So same strategy, nine and a half year track record, different vehicles.
Speaker C: In: Speaker C:People can create them just overnight and so there's been sort of historically.
Speaker C:Well, we can create an index on Monday.
Speaker C:If it's not working by Thursday, we'll shut it down, we'll launch a new one the following Monday.
Speaker C:So, so there's been a but, but what they've turned out these have turned out to be very, very valuable tools for sophisticated investors who are looking to get exposure to a particular kind of strategy.
Speaker C: e set out for the strategy in: Speaker C:So if you are a wealth manager who do not invest in hedge funds to use the Soc Gen CTA hedge fund index as a benchmark to decide whether you like the space to build your, your your capital markets assumptions around it and to use it to, to benchmark the mutual funds or ETFs that you're investing in.
Speaker C:That's where the disconnect lies.
Speaker C:Because you can't actually.
Speaker C:It's not like if you benchmark a manager to the S&P 500, you have a default.
Speaker C:You can say, well, I can instead invest in the S&P 500 in an efficient way.
Speaker C:So one of the roles of having indices around different asset classes is to give asset allocators the tools to build better portfolios for their clients.
Speaker C:And so the long term vision for what we did was to actually have an index around the strategy so that somebody building a model for their clients could have two decades of data and say, what would have been like if I invested in it?
Speaker C:Now, in the fund world, you can show people hypothetical numbers over time, but people are rightfully skeptical of hypothetical numbers.
Speaker C: ught, you know, Amazon in, in: Speaker C:You know, you can get into kind of like silly stuff, but.
Speaker C: But by: Speaker C:We then could launch an index around it.
Speaker C:And so what we've spent a fair amount of time on over the past year is actually taking our business from just the fund management side to being able to talk to asset managers and institutional investors about, if you like the return profile of the strategy that we run, you can also access it through a swap.
Speaker C:So you don't have to actually hire us as a sub advisor.
Speaker C:You can go to SocGen or your favorite bank and ask them to build a derivative around it.
Speaker C:Now there's a lot of flexibility around that.
Speaker C:It could be a, you know, it could be a note around it.
Speaker C:You could ask them to build a principal protected product.
Speaker C:You could ask them to just do excess returns.
Speaker C: in UCIT's land in the U.S. in: Speaker C: , that works much better post: Speaker C:Say.
Speaker C: s a firm that was launched in: Speaker C:Works for this intersection between ETFs and derivatives.
Speaker C:So, you know, they now have a $10 billion plus business where they've got 35 or 40 underlying ETFs, the vast majority of which I've been able to see incorporate some kind of derivative underlying strategy.
Speaker C:And so in the US ETF world we obviously manage a, we sub advise an ETF that we've talked about which, whatever I don't like to, I can't talk about too specifically on a format like this.
Speaker C:But, but Simplify has the second largest ETF which is very different.
Speaker C:It's called CTA and it, it's run by a guy named Charlie Magara who's based in London.
Speaker C:And, and they have put up absolutely terrific numbers and I think they've got around a billion two in AUMs.
Speaker C: as they launched this in, in: Speaker C:And it was my view that we could actually turn this into a strategic allocation across the ETF world.
Speaker C:Anyway, so Simplify has been doing it but with a very, very different kind of product.
Speaker C:They only trade two of the four different asset classes.
Speaker C: % or something in: Speaker C:I mean it's very, very different return profile.
Speaker C:So what Simplify has basically decided to do is to try to create a low cost index based, arguably more tax efficient version of in a sense this idea of building the beta of the space, a way of accessing exposure to space.
Speaker C:And so we are not a sub advisor to this.
Speaker C:We are not involved in setting up the etf.
Speaker C:Rather it's as though this was an MSCI index or something.
Speaker C:Simplify is basically saying we, we'd like to create a vehicle for clients get exposure to it and they've priced it very low, a 20 basis point management fee and then a 15 basis points of acquired fund expenses.
Speaker C:So for me it's a very interesting development in that we want asset managers to use the indices and products that we've created so that there is more widespread usage of this underlying strategy that we've developed.
Speaker C:Let me pause for a second.
Speaker C:And obviously other things.
Speaker B:Yeah, no, I mean, and, and that's all good and that's fine.
Speaker B:But you know, in, I think, in fairness, I think on, on the podcast when we talk about it, I don't want to make it sound like this is a low cost version of dbmf.
Speaker B:It's, it's not right because there are other costs.
Speaker B:It's just that they're not reported when you use swaps.
Speaker B:So in order for them to get exposure to the, your returns there is, you know, the normal cost that would otherwise be.
Speaker B:Because when I read the articles about it I was kind of shocked.
Speaker B:I said wow, that's very different.
Speaker B:But I think you've explained to me that.
Speaker B:No, no, I mean there are some other costs, but it's just that it's not what shows up when people say what are the costs of this ETF that they're launching.
Speaker B:Is that correctly understood?
Speaker C:Yeah, yeah.
Speaker C:Well, yeah.
Speaker C:So first of all, and I think one of the starting point for me when I started working on this is that, is that we're penalized.
Speaker C:Dbmf.
Speaker C:The ETF we run, the US as well as our products in Europe are penalized because investors don't fully examine the, the, the all in costs of investment strategies in general that if you're trading 10 deeply liquid futures contracts less frequently than, than funds who trade sometimes dozens or hundreds of underlying contracts, your, your implementation costs are going to be much lower.
Speaker C:Right.
Speaker C:So, so the strategy that we built, I mean the reason the outperformance is so pronounced, I mean think about 350 basis points of annual outperformance over a decade.
Speaker C:The reason it's so pronounced is because there are efficiencies that we've tapped into.
Speaker C:But if you're only comparing headline fees, you are willfully ignoring that.
Speaker C:So I compete with again, so where I saw this is if I'm competing with a mutual fund in the US that has 150 or 170 basis points of expenses, but trades hundreds of instruments, has a 25 page long list of positions in their mutual fund filings.
Speaker C:I've yet to find an allocator who's terribly concerned about the costs of trading 57 different forward contracts on Hungarian interest rate swaps.
Speaker C:So I think, look, if we create a debate around the true, true cost of investing investment, that would be wonderful for allocators.
Speaker B:Yeah, no, and I'm very happy to take that discussion, but I think we need to in fairness separate it a little bit.
Speaker B:I'm talking about fees firms are charging to manage the money because you could say yeah, it costs 300 basis points to implement this CTA strategy, but that's not money that the CTA is making.
Speaker B:Right.
Speaker B:So that's just the cost for the Strategy.
Speaker B:And I think it is fair, as you point out, that when people analyze these things they should look at all of that for sure.
Speaker B:And I certainly know in my daily meetings and all that we do get asked, so what are the implementation costs and trading costs and all that?
Speaker B:For sure.
Speaker B:But I do think though there is a bit of a difference.
Speaker B:When you go out publicly and talk about a product and you have to disclose who gets paid what I think the managers, whether they're sub managers or swap advisors or benchmark advisors or whoever, I think we all need to know what are we getting paid?
Speaker B:What are these people getting paid?
Speaker B:And this is where, when you just mentioned before that Simplify, and that's perfectly correct to say that they've come out charging very low fees.
Speaker B:But we also need to make sure that people understand that there are other fees.
Speaker B:Because you don't.
Speaker B:You're not doing this for free either?
Speaker C:No, of course.
Speaker C:And things Niels, people should ask the question, right?
Speaker C:Look, first of all, I didn't write the articles.
Speaker C:I fully encourage everyone looking at any investment product to think through the implementation costs, including not just how managers are getting paid, but the operating costs of the entities that flow through.
Speaker C:If somebody's charging an incentive fee, then build that into your cost.
Speaker C:But you and I both know that investors have different preference functions.
Speaker C:And what my primary focus is, I don't want to compete with Managel or Winton for allocations from a sovereign wealth fund.
Speaker C:They are much better dealing with those investors than we will ever be.
Speaker C:When you say the statement, what is the asset manager making in this?
Speaker C:You know, to the penny how much Simplify is making in it.
Speaker C:They are the asset manager.
Speaker C:They do not have to buy a swap on us.
Speaker C:They could buy a swap on somebody else.
Speaker C:They could do different things.
Speaker C:I think they think probably our strategy is the best strategy upon which they can buy a swap and therefore they will do it.
Speaker C:But you can then ask the question.
Speaker C:But my point is that you then should ask the question broadly.
Speaker C:My point is that.
Speaker C:So look, Abby Capital is a fantastic firm, right?
Speaker C:They are pioneers in the multi manager space.
Speaker C:We do about 350 basis points better than them over time.
Speaker C:Okay, three reasons.
Speaker C:One is there's about a, in the ETF we have in the US about 100 basis point performance differential.
Speaker C:Right?
Speaker C:They're also, we're also a bit more volatile.
Speaker C:Okay, so, so some of it may just be some volatility associated, you know, kind of being in a rising market.
Speaker C:But, but there's at least another 150 or something basis points in there that doesn't get explained by just the difference in management fee.
Speaker C:And, and if you look at our, you know when somebody comes in, you give $100 to a CTA.
Speaker C:Okay, who's who has short term models, volume controls and lots of different instruments.
Speaker C:Your $100 might turn over 20 times during the course of a year.
Speaker C:20 times like that may turnover on a notional basis.
Speaker C:I don't think people realize how much these portfolios trade.
Speaker C:So I think a really good question to ask is okay, you used to have 70 instruments a decade ago, you've got 190 today.
Speaker C:Okay, what is your give me a serious assessment of the implementation costs of position 190 because I want to know how you are going to.
Speaker C:And how much does that market have to trend to be able to cover that?
Speaker C:Okay, maybe it's the Chinese egg market.
Speaker C:Okay, let's talk about that market.
Speaker C:How are you a multibillion dollar fund?
Speaker C:How much do you have in this strategy?
Speaker C:These, of course these are questions that allocators should be asking.
Speaker C:But from a simplified perspective, I don't think that's who their target audience is.
Speaker C:I think their target audience is what I've seen which is that if you look at the US ETF world, something like 80% of the assets have expense ratios still below 20 basis points.
Speaker C:That world is a passive world, right, where people have put together ETF only portfolios where between stocks and bonds and that's really all you have for stocks and bonds is you know, your all in expense ratio is below 20 basis points.
Speaker C:It's almost all index based, it's generally tax efficient and they've got no diversifiers despite the change in the world that we just talked about.
Speaker C: basis points,: Speaker C:It doesn't help you all those different characteristics.
Speaker C:And you have models that have both mutual funds and ETFs in them.
Speaker C:I can make a compelling case for that.
Speaker C:Every single person that I talk to also has over here the unspoken part is a huge and rapidly growing ETF model portfolio that is zero exposure.
Speaker C:So they believe in the space, they believe in the diversification benefits.
Speaker C:But because of some weird constraints that were put in and how they ended up messaging it to clients, they'll never touch something that can benefit their clients.
Speaker C:Look, of the people that I've spoken to in this industry, you know, I think, look, I think the senior leadership and Simplify have always been of the view that it's almost like a missionary zeal about the diversification benefits of strategy.
Speaker C:But how do you go into the frontier from an altar sector?
Speaker C:Goldman's report is not talking about ETF model portfolios.
Speaker C:Goldman's talking about their prime brokerage clients with equity long short funds and those going up into portfolios.
Speaker B:I mean, we have other things to cover.
Speaker B:I think my, my last thoughts on this, and this is not for you to defend because it's not, as you say, it's not your product and it's not really specifically about this particular product.
Speaker B:It could be anyone doing it.
Speaker B:But firstly, before I do that, let me just say that I know you mentioned appy and all of that and of course, you know, I don't know anything about their products or anything like that.
Speaker B:I just want to say that that's something I usually don't get into too much.
Speaker B:And also, just based on my own experience, even when you have products that have had a certain outperformance for a decade, it obviously I need to make sure that people understand there's no guarantee that these things continue in the future.
Speaker B:But with that being said, I guess where I struggle a little bit and that is.
Speaker B:And I guess, you know, in a sense someone could come to Don and say, oh, we want to take your strategy, but we'll buy it as a swap so we don't have to show the fact that we pay you to do it.
Speaker B:And so we're just going to show our fees.
Speaker B:And I know it's legal and I know these are the rules and all of that, but I just feel that, as you rightly say, it is good for people to know what are these costs associated with these various strategies.
Speaker B:And I completely agree with that in terms of implementation costs and all of those things.
Speaker B:That would be wonderful.
Speaker B:But, but I just don't want people to walk away with thinking, oh, now they can actually get Your returns for 35 basis points.
Speaker B:Because that's not what they're getting as far as I can tell.
Speaker B:But I think we've probably.
Speaker C:But, but there.
Speaker C:But okay, but let me ask you, I mean, sort of a pointed question, right?
Speaker C:So how much do you think you should earn over cash over time before.
Speaker C:Before any fees?
Speaker B:How much should we earn over cash before any fees?
Speaker B:Yeah, I don't know about the future.
Speaker B:I Can only see what, what has been delivered.
Speaker B:Of course, yeah.
Speaker C:Okay, so, so net of fees, the Soc Gen CT index has done 300 basis points over cash.
Speaker C:Right?
Speaker C:So, so let's say Pre fee, that's 500 basis points and you're a leverage version of it.
Speaker C:Right.
Speaker C:How should people look at your incentive fees?
Speaker C:Should, should you go to them and say, hey, think we, we're going to earn 500 basis points over cash, but we're going to charge a 25 basis point incentive fee.
Speaker C:So you should really assume that over a market cycle we're going to have 125 basis points or whatever the number is of fees associated with our strategy.
Speaker C:This happens.
Speaker C:This is, it relates to incentive.
Speaker C:I completely agree with you.
Speaker C:It relates to incentive fees, but it relates to having a low management fee but having more expenses in operating costs of a fund.
Speaker C:It relates to a million.
Speaker C:There.
Speaker C:This is these, of course, these are the questions that allocators should be asking.
Speaker C:My only point is, and if somebody doesn't give you a clear answer to it, you don't invest with them.
Speaker C:But another angle of it is, and this is my theory around, around swaps and derivatives on indices is I believe that there is a lot more flexibility on the structuring side that can also solve things on the tax side for people.
Speaker C:And so how do you factor in the tax effectiveness of a strategy?
Speaker C:These are all totally relevant questions for people to ask.
Speaker C:And you can look at the returns of the indices that we have, you can ask what the all in costs are, you can figure out whether that's fair or reasonable.
Speaker C:You can still look at the returns before that, you can look at returns after that.
Speaker C:People have the capacity to do this.
Speaker C:But my point is that in the shades of gray in this business, there's a guy, Dave Nadig, who's a friend of mine who runs ETF.com, has this example of kind of white hat and black hat.
Speaker C:Okay, this is white hat with a gray band around it.
Speaker C:I mean you are still saving.
Speaker C:However you calculate it, you're saving hundreds of basis points relative to other ways of implementing the strategies.
Speaker C:And so look, so again, I don't think there's anything and I don't think anybody's hiding it.
Speaker C:I don't think there's anything wrong with it.
Speaker C:I just think it's, it's, it's.
Speaker C:And I'm fully in favor of people doing an apples to apples comparison on every product in the space.
Speaker C:And look, we talked about it before.
Speaker C:You've got people who report Zero transaction costs.
Speaker C:Because the UCITS rules are so bad around calculating transaction costs.
Speaker C:Yeah, that's weird that they report zero transaction costs on their kids because.
Speaker C:Because they're able to do it under reporting standard.
Speaker B:Let's leave, let's leave the costs for now because there's something much more important that you also wanted to talk about and that is a better way to talk about managed futures and managed futures Alpha.
Speaker B:So let's talk about that because there was also, if we have time, which I hope we do, maybe a little bit about kind of stuff you experienced on your last trip to the Nordic countries.
Speaker C:So what I love about this, I'm spending a lot of time and this has been kind of a recurring conversation.
Speaker C:I don't think I've gotten it fully right yet, but I'm so envious of other asset classes that have a wonderful two word description of it.
Speaker C:I almost went into the LBO business.
Speaker C:Now it's called private equity.
Speaker C:Junk bonds became high yield.
Speaker C:I don't know what they'll do with Bitcoin.
Speaker C:It used to be cryptocurrencies, now it's, you know, whatever, you know, digital gold or something.
Speaker C:But, but you know, asset classes have a way of kind of constructing a narrative around it.
Speaker C:And I, I think what, what I find.
Speaker C:So I spent a lot of times thinking like, what is it I love about this space?
Speaker C:Right.
Speaker C:That and, and what I love about the space is that every now and then it's contrarian early and Right.
Speaker C: ng Treasuries in September of: Speaker C:How early were we.
Speaker C:You know, we were shorting the yen just as it was breaking out of its 105, 110 band that had been in for five years.
Speaker C:Yeah, we were buying gold at below 3,000.
Speaker C:You would talk about a few instances where you truly nailed it.
Speaker C:And why.
Speaker C:Because we're in the business of selling crystal balls.
Speaker C:That people make a bet on somebody because they think that they have some kind of a view into the future.
Speaker C:And the whole narrative around managed futures is it's fascinating hearing people talk about it in that everything is hedged with all these weird caveats like trend following.
Speaker C:And that's not a bad thing because trends sometimes continue more than you would expect.
Speaker C:It doesn't sound contrarian and earthly and.
Speaker C:Right.
Speaker C:It sounds like you're Part of the crowd who's getting in at exactly the wrong time.
Speaker C:So I think the way to talk about the strategy is not to talk about it as a black box, but to talk about it as a crystal ball.
Speaker C:And it's a cloudy crystal ball.
Speaker C:This year it's been a lot more snow globe than it's been perfectly clear crystal ball.
Speaker C:But then the question is why?
Speaker C:And how do you explain that to people?
Speaker C:How do these guys see the future from only looking at prices?
Speaker C:And the narrative there is that again.
Speaker C:So 20 plus years ago, I started what's now a great commodity business called Pinnacle Asset Management.
Speaker C:And in those markets, I got to know a lot of people who traded and made money constantly in those markets.
Speaker C:And so a price is hovering around 10 for a period of time and it goes to 11, right?
Speaker C:If you liked it at 10 and it goes to 11, you're surprised.
Speaker C: g, something, then it goes to: Speaker C:What's the question you ask yourself?
Speaker C:Someone knows something.
Speaker C:What do they know that I don't know?
Speaker C:And so to me, what I think the whole concept of trend following is not that CTAs themselves have special knowledge, but that in all of these local markets around the world, like if you have special knowledge about one of these markets.
Speaker C:And what do I mean by special knowledge?
Speaker C:Okay, a price of an asset is going to change either because the information changes, good or bad, or sentiment around it changes.
Speaker C:They're not equal.
Speaker C:Right.
Speaker C:I wouldn't be in a business where I thought just kind of predicting next month's sentiment changes on these different asset classes work.
Speaker C:What matters is because sentiment doesn't drive something, doesn't drive the yen from 110 to 160, it's a change in information around inflation, around policy, around these big things.
Speaker C:So What I think CTAs have done is they've built these global detectors around these local markets to get an early warning sign that something big is changing.
Speaker C: lpha generation, the space in: Speaker C:It plays out in the yen treasuries and crude oil just as much as it played out in 100 different markets at the same time.
Speaker C:And so I think if the space, because I go back to, okay, so I'm talking to somebody who has no exposure to the space and it's not their call.
Speaker C:They're not a Sharpe ratio maximizer.
Speaker C:They need to Convince somebody to look at this 3 or 5% of their portfolio and be happy about it, that it's adding something to what they're doing.
Speaker C:Would I rather have a be hearing about somebody's making money on a breakout in wheat for that, or would I rather have somebody say, look, it's really hard to predict the future, but we have a strategy here that's sort of like a crystal ball and it's a cloudy one and it doesn't work a lot of the time, but every now and then it works really well.
Speaker C:So I think if you can give somebody a metaphor they can hold on to.
Speaker C:What happens is when you describe something with all these caveats and we'll talk about this when I talk about my adventures in Stockholm.
Speaker C:They feel the need to ask all these questions, what am I missing?
Speaker C:They just tell me, private credit, they don't feel the need to.
Speaker C:Then tell me, tell me that what are the default rates and the lack of covenants and only the worst companies are going down and raising money in these routes or something like that.
Speaker C:It's not hedge, it's high yield.
Speaker C:It's like you start with the benefit.
Speaker C:And the benefit of the space to me in some ways is that every now and then it's a crystal clear crystal ball.
Speaker C:And yeah, I don't know if this.
Speaker B:Is going to help your story as you develop it.
Speaker B:I hope so.
Speaker B:I'm thinking of the following.
Speaker B:So let's imagine that you have this crystal ball that would always be right, okay?
Speaker B:So you go and ask the lady or the man who has the crystal ball, where is the price of Apple going to go?
Speaker B:And he says, well, it's going to go from 200 to 400.
Speaker B:Okay?
Speaker B:But the thing is, if you're a trend follower, if that is correct, then you know it's going to go from 200 to 201, from 201 to 202, 202 to 203 and so on and so forth.
Speaker B:And the way we approach the markets is that we will automatically, without having the crystal ball, but we will automatically, if the crystal ball is right, we will pick that up.
Speaker B:That is our signal.
Speaker B:So we don't need the crystal ball, actually.
Speaker B:We just need to continue, as you say, to have our detectors out and, and pick up all of these movements.
Speaker B:I'm not talking about, you know, the replica, I'm just talking about the underlying models here.
Speaker B:And so I think the beauty of it is that instead of us actually having the crystal ball where we know in reality it could be wrong.
Speaker B:We can just latch onto when it's right now we'll have some losses when it's, when there's whipsawing.
Speaker B:All that.
Speaker B:I understand, but I look at it in that context that you don't need all the people on CNBC to tell you what's going to happen because they'll probably, most of them be wrong anyways.
Speaker B:But if they are right and if it's a market that we trade, then we'll be fine.
Speaker B:We'll, we'll, we'll, we'll be there.
Speaker B:That's what I'm trying, I don't know, it was not very well explained, but I, no, no.
Speaker C:And I, and I think that's the, I agree.
Speaker C:That's the pitch.
Speaker C:Right.
Speaker C:So you don't need insight like I was, I've used this analogy with, with when they track insider buys and sells of companies.
Speaker C:Right.
Speaker C:You don't need to know what they know, you just need to know that they're buying or selling their own stock.
Speaker C:Yeah, right.
Speaker C:I agree.
Speaker C:And that's my narrative when I'm talking to somebody who's a bit more sophisticated.
Speaker C:Okay.
Speaker C:I'm talking about somebody who may or may not know what an ETF is, who somebody has to sit across from them and tell them in a sentence why $100,000 of their hard earned money is going into this thing.
Speaker C:And I think there needs to be a metaphor around it that makes them feel good to have it.
Speaker C:Now I have tried, I've tried earthquake detectors as you may recall.
Speaker C:Right.
Speaker C:Trevor, I've tried and I think it's advancing that narrative with look, and I believe, I mean part of our growth is, I think I'm winning hearts and minds around certain of these themes.
Speaker C:I think even focusing on why studying historical prices, which academics tell us it shouldn't work, why it's worked for 50 years.
Speaker C:Right.
Speaker C:And that gets.
Speaker C:And who are you taking?
Speaker C:Who are you taking the alpha from?
Speaker C:Right.
Speaker C:And that's sort of the construction of the argument that it's not us against you, against everybody else in the space, it's all of us against them.
Speaker C:And them is every institutional model that when the world changes, is not going to change.
Speaker C: exposure to bonds going into: Speaker C:Those are the people who give the alpha.
Speaker C:That's why we as an allocation within a typical model portfolio is so valuable because we're filling a gap in what they cannot do themselves.
Speaker C:They're built to be Slow to not be nimble.
Speaker C:And the information comes from somebody knows something.
Speaker C:I don't need to know what they know or why.
Speaker C:I just need to know that they're voting on it with their portfolio.
Speaker C:And in a sense, I've used these terms.
Speaker C:It's almost like Mr. Market is your PM.
Speaker C:Mr. Market's going to tell you where you should look.
Speaker C:I'm just trying to get one step further because all of those are technical discussions among technical people of various levels.
Speaker C:I'm trying to think about how do you take this space which ultimately generates its value in a big way.
Speaker C:And what everyone really cares about is like, it's going to be annoying in other years, like this year and last year.
Speaker C:It's going to work.
Speaker C:Sometimes it's not work, et cetera.
Speaker C:But what everyone really cares about is that period when it shines.
Speaker C:And Katie came up with a great expression, crisis alpha.
Speaker C:But I'm talking to people who don't know what alpha is.
Speaker C:And a crisis for them is maybe, maybe, I don't know, kids get thrown out of school or something.
Speaker C:Like, it's not.
Speaker C:It's just you're already in a language.
Speaker C:And so look, so to me, what happens then, right?
Speaker C:Is that the trend that you say you do pick it up at 205 on its way to 400, but that move is because the world changes.
Speaker C:There's something different about the stock.
Speaker C:There's something different about the economy.
Speaker C:There's something different about interest rates or the geopolitical situation.
Speaker C:Situation.
Speaker C:And anyway, so to me, there's something in the positivity of a crystal ball because all those people who get on cnbc, they're still on cnbc.
Speaker C:We're in the business of selling crystal balls in some fashion.
Speaker C:And so anyway, so this is gonna, I mean, plenty of people are gonna hate it and feel like it's too abstract and too weird.
Speaker C:I'm going to.
Speaker C:I think about it from the perspective I've got to help people who want to have this allegation have a way of explaining it to people who no one wants to get into a conversation about.
Speaker C:How about this long, short, derivative based, leveraged quantitative black box?
Speaker B:Yeah, no, I completely agree with that.
Speaker B:Now, unfortunately, because we are running a little bit out of time today, it's actually me with a hard stop.
Speaker B:But I do want to get maybe a couple of minutes takeaways from your adventures in the Nordics without stealing anything away from what will be published about it.
Speaker B:But if there was something that you felt you could share.
Speaker C:Yeah, that would be super well, so first I'd say like so to Cameron and Hejnori, thank you so much for having me.
Speaker C:I find these to be incredibly interesting and incredibly valuable.
Speaker C:It was basically, it was a, it was a roundtable in Stockholm with, I was there but then senior people at Lynx Aspect, Trans Friend, Gresham Campbell, Alpha Simplex, Jerry Parker was there, Moritz Hayden was there.
Speaker C:And it's really just kind of a free form debate about the space, talking about things that are happening.
Speaker C:What I find again, I'm always a bit of an outsider, I'm not a quant building these models myself and I'm always sort of observing it sort of almost anthropologically.
Speaker C:And what I found really interesting this year, I went for the first time last year and a lot of it was who are these ETF based interlopers into our world?
Speaker C:And so that was kind of the energy was around that.
Speaker C:This year it was much more about people talking about some of the things I've just described.
Speaker C:So shorter term versus longer term models, more esoteric markets versus the core markets, various risk controls, even things like using AI or alternative data sources like what AQR is doing.
Speaker C:And what I found fascinating, I did make a comment on this at the end of the day was that you can have two really smart people on other sides of the table looking at essentially the same data and disagreeing about it.
Speaker C:And one saying, well we love this and it's working for us.
Speaker C:The other thing, I couldn't make it work.
Speaker C:Now from my perspective, what's fascinating about that is that by the time that strategy, that implementation, that enhancement is put in front of the client, my experience is it's presented with a certainty, you know, we are adding short term models because by the time it's, it's presented that because we will get into trades earlier and when the inevitable inflection point hurts, we'll you, you know, we'll get out earlier and, and it's presented sort of obvious at that point, you know, of course you'd want to do it and there's, and there's supporting material, here's a nice sine wave and look how much earlier we'll get in and how faster we'll get out and think about oh, we're going to make more money on it and yet there's somebody else who's equally smart who doesn't think it works in the same way.
Speaker C:Right.
Speaker C:And so to me what I took away from it is again, it's one of the paradox of this business is it's wrapped up in math and markets and price data, et cetera.
Speaker C:It's ultimately a totally human business.
Speaker C:It is humans making judgment calls about what they decide to include in their portfolios and why and what they think is going to work.
Speaker C:And small changes in assumptions around implementation costs or speed or things like that can have an enormous impact on people do it.
Speaker C:And I think the healthy thing is that's also the heterogeneity of the space.
Speaker C:And by the way, so Harold and Transtrend and I were kind of going at it a year ago and I think we were weirdly agreeing this year, which makes me think there's something fundamentally upside down in the universe.
Speaker C:But, but, but it was about the heterogeneity of the space is having a lot of different people looking at these different things and making different decisions around how they should focus their time and resources.
Speaker C:And, and what it goes back to, to me is the evolution of space is, is an alpha beta separation that, that you, you will eventually have consensus around.
Speaker C:There's a signal here broadly that again we're hoping to pick up and deliver in an efficient way.
Speaker C:And then I think what you'll see is allocators looking once they feel they can get that efficiently.
Speaker C:Right now allocators don't feel they can get that efficiently.
Speaker C:So they'll take four of the six or four of the eight people in the room and put them together into a portfolio to try to cancel out a lot of these differences and decisions over time to get something that looks and feels more index like.
Speaker C:But you end up with a lot of what I would call sort of beta adjacent strategies bolted together, which to me is just not very efficient.
Speaker C:And on the other hand, I think what you'll see is people being.
Speaker C:If you feel like you can get access to the core more efficiently, you'll be able to go.
Speaker C:You'll feel more comfortable taking a bet on aqr who has been, who's very different from what anybody else is doing.
Speaker C:And they've been an incredible run for the past five years.
Speaker C:But make no mistake, the prior six years it was a train wreck.
Speaker C:But you can take more single manager risk if you feel you have the beta solved.
Speaker C:I think it's good for you, I think it's good for Dunn.
Speaker C:You can take more volatility, you can take more commodity exposure if you feel like you have a core allocation.
Speaker C:So to me where the space should evolve and by the way, I think this simplifies master plan basically is people don't often want two allocations in a space to just to reduce somewhat, even if it's a passive versus an active, to give them something to talk about in different regimes when one thing's working better than the other thing, to give them some sort of a narrative context, a little bit of diversification.
Speaker C:And so anyway, so my impression from it was that we're going to be going down a path as the investor base gets more sophisticated.
Speaker C:We'll be seeing more of this alpha beta separation on a going forward basis, which I think is healthy.
Speaker B:Yeah, well, it is super exciting and it's always great to have you on the podcast even if you don't agree on everything it is.
Speaker B:What I may, I think I really truly enjoy about our conversation is that we can have these very civilized conversations.
Speaker B:And at the end of the day, the most important thing is that more people learn about our wonderful world and they can choose how they want to implement it.
Speaker B:And either way they get something in their portfolio that the portfolio truly needs.
Speaker B:And that's the, that's the main goal.
Speaker C:Who doesn't want a crystal ball?
Speaker B:That as well.
Speaker B:That is true.
Speaker B:Anyways, my crystal ball tells me that next week I'll be joined by Alan and I'm pretty sure that's a pretty good prediction.
Speaker B:So if you have any questions for for Alan, send them to info toptradersonblock.com we'll do our very best to to get them in front of him.
Speaker B:And of course, if you want to just show some appreciation for Andrew and all the work that he does.
Speaker B:And in preparing for these conversations, I strongly encourage you to go and find your favorite podcast platform and leave a rating and review that helps more people discover the conversations that we are having every week.
Speaker B:So from Andrew and me, thanks ever so much for listening.
Speaker B:We look forward to being back with you next week.
Speaker B:Happy Thanksgiving.
Speaker B:And of course, in the meantime, until we speak again, so to speak, take care of yourself and take care of each other.
Speaker A:Thanks for listening to the Systematic Investor podcast series.
Speaker A:If you enjoy this series, go on over to itunes and leave an honest rating and review.
Speaker A:And be sure to listen to all the other episodes from Top Traders Unplugged.
Speaker A:If you have questions about systematic investing, send us an email with the word question in the subject line to infooptrader traders unplugged.com and we'll try to get it on the show.
Speaker A:And remember, all the discussion that we have about investment performance is about the past and past performance does not guarantee or even infer anything about future performance.
Speaker A:Also understand that there's a significant risk of financial loss with all investment strategies, and you need to request and understand the specific risks from the investment manager about their products before you make investment decisions.
Speaker A:Thanks for spending some of your valuable time with us, and we'll see you on the next episode of the Systematic Investor.
