This episode goes in-depth into the history of one of the most well-known managed futures firms in the world, Campbell & Company. We explore the beginnings of the company, how they have dealt with challenges a long the way and how they have succeeded to overcome them, as well as the current state of the company and the systematic models their products are built on. Our guest is current President of the company, Mike Harris, and you’ll hear about how he entered the industry as well as his path to becoming Campbell’s President.

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In This Episode, You’ll Learn:

• How Mike explains what he does.
• How his grandfather gave him money to invest in his first stock as a child.
• How his interest in the financial markets started young and how he structured his whole education around working in this industry.
• About his first job out of college.
• About his time as a Futures Broker.
• How he joined Campbell & Company in 2000, starting at the European Trading desk.
• How he came to be President.
• The story of how Keith Campbell started the firm in 1972.
• The history of Campbell & Company.
• How they dealt with drawdowns in 1994 and ’95.
• Why Mike has always been an avid reader.
• How Campbell’s 2nd President, Bruce Cleland ran the business for 20 years and how I met him back in 1993.
• What the company’s product offering looks like today.
• How the company’s 130+ employees are organised.
• How they outsource things on the technology side of the business.
• What he looks for when adding staff to his research team.
• How Mike builds a strong company culture.
• How investors should make sense of the track record of Campbell & Co since they have such a long history.
• Changes they have made to the trading models after 2007 and 2008.
• The ways the company uses long term, medium term, and shorter term systems.
• Where the company wants to grow and how big it wants to get.

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Resources & Links Mentioned in this Episode:

• Learn about a Carry Trades.
• Learn more about short-term mean reversion.

Follow Niels on Twitter, LinkedIn, YouTube or via the TTU website.

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Learn more about the Trend Barometer here.

Send your questions to info@toptradersunplugged.com

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Copyright © 2024 – CMC AG – All Rights Reserved

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Disclaimer

Niels: Welcome to Top Traders Unplugged, where my goal is to give you the clarity, confidence and courage you need when it comes to investing like, or investing with one of the top traders in the world, and I also want to acknowledge you for taking the time out of your busy day to spend some of it with me and today's guest. Almost every day I wake up to a new message or email with very kind and encouraging comments about the podcast and trust me when I say this really does mean a lot, so thank you very much. If I could ask you one favor, it would be to share the podcast with your friends and colleagues via email or social media. Not only will it help me, but it will also help all of my previous and future guests as well as yourself since the bigger the audience, the more great traders would like to come and share their stories on the podcast. So please take a moment now to share the podcast with a handful of your friends and colleagues. On today's show I'm talking to Mike Harris, President of Campbell & Company. Mike has an unusual background in that he has been involved in the managed futures industry every since he left college, so he knows this area pretty well, and has some interesting observations about the strategy as a whole in addition to how Campbell & Company has been able to navigate this approach for more than 40 years. In fact, it's hard to find anyone who has been offering a managed futures strategy as long as Campbell & Company. Needless to say, I feel honored and privileged to continue to bring guests with this kind of depth and knowledge to my podcast and share their stories with you. If you want to read the full transcript of today's episode, just visit the TOPTRADERSUNPLUGGED.COM website and click on the link of today's episode. Now let's get started with part 1 of my conversation. I hope you will enjoy it.

Mike, thank you so much for being with us today. I really appreciate it.

Mike

Thanks for having me.

Niels

Mike, I think it's fair to say that many people who are involved in the hedge fund industry, and certainly people who are involved in the managed futures industry is very familiar with Campbell & Company and your founder Keith Campbell, of course, who really, in my mind, pioneered this approach which we know today as the CTA or managed futures strategy. Before we get into the story of Campbell, I wanted to ask you a completely different question. A question that I sometimes struggle with, myself, in answering and it, goes something like this. Imagine that you're invited to a cocktail party with people that you don't know, and after a few minutes someone comes up to you and ask, "so Mike, tell me what you do?" How would you respond? How would you explain what you do?

Mike

Well that's a great question, and it's one that I'm sure that we all get quite regularly. In fact, it's funny: I still have a hard time after all these years explaining to my own mother what I do. I think she still tells her friends at cocktail parties that I'm a stock broker and that probably is the reason why I get emails from relatives asking me what I think about Microsoft's earnings. When I'm faced with that question, I think the answer that I give them is that I'm Mike Harris. I'm the President of Campbell & Company, which is a systematic investment manager that happens to specialize in a very unique asset class called managed futures. At our core, like many investment strategies, what we're really focused on is using data to propel trades in a rule-based fashion. So instead of using the fundamentals and being a discretionary type manager, we are using systems to help us trade the global markets in an active long/short fashion.

Niels

Absolutely. I want to stay with you for a little bit longer, so I want you to really go back and tell me your story. How you got into the business in the first place and perhaps what you were like as a kid, what were your interests, how was it growing up? Please feel free to back as far as you want.

Mike

Unlike many of the students, when I started in undergraduate studies, I knew exactly what I wanted to pursue from my first day in college. I had a plan. I knew that I wanted to major in economics and Japanese because I thought that both of those would be disciplines that would help me pursue a career in the financial markets. It's funny that you mentioned childhood. I actually had my maternal grandfather loved to invest, was always doing different things in the stock market and in fact bought me a stock when I was very young in Tops, which is a company that made baseball cards because I used to collect them. He bought me that stock and every week when he would come to visit we would sit down with the Wall Street Journal, and we'd track the stocks. I'll never forget, six months into it I got my first dividend check and I was pretty excited about that and I never forget him explaining to me that I owned part of that company and as they made money they shared their profits with me and that's why I got that special check.

Niels

That's fantastic - a great story, and, by the way, a great gift that you received back then. That's inspiring.

Mike

He was a special man. Thank you.

Niels

Mike

Niels

Mike

Niels

Mike

I think you talking to Keith he's always said that I think because he really was a lover of the charts, and believed in the technicals, there was always that rule-based approach. Though systematic trading and CTAs is not always based on explicit technical analysis, there are a lot of similarities just in the sense that when you say, as a rule, when the 50 day moving average crosses the 200 day moving average, I'm going to enter or exit a position, that in itself is a rule and by writing it down and holding yourself to it from a risk management standpoint it creates a return profile over time that's way more repeatable than just playing Monday morning quarterback sitting there and making different decisions with every tick in the market place. From talking to Keith, I really believe that something that was always at his core.

Niels

Sure, absolutely. I wanted to ask you a slightly different question and that is that you as the President of Campbell & Company, obviously that's a big part of your life, but what do you like to do when you're not working? What do you like to spend your time doing?

Mike

Well, I'm an avid reader. I've always criticized young people coming into our business who say, "how can I have any experience, I've never had a job before." When I talk about experiences I say, "yes, but I feel that financial markets are probably second to history and military in the sense that everybody who has ever traded anything seems to have written some sort of a book." So there are a lot of experiences that you can gain as an individual by quite frankly learning from the mistakes of others through reading their stories. So I've always been a huge reader. I also enjoy sports and in the most recent kind of ten year chapter in my life I really enjoy spending time with my family including my two kids.

Niels

Yeah, fantastic. Before we jump into the next topic I wanted to ask you a slightly broader question and that is we know that many of the most successful managers today really have been based around its founder an individual, and the firm is often personified with this individual, but in your case, your founder stopped a long time ago running the business as you explained, what difference do you think this makes in terms of Campbell as a business from an internal point of view, but also Campbell as a business partner to an investor?

Mike

Well I think that one of the great benefits of systematic investment managers is that we remove key man risk from the equation. One of the thing you hear talked about all the time in discretionary macro is what happens when Paul Tudor Jones or George Soros or any of these real visionary traders, what happens when they leave their firm? I think on the discretionary side they worked really hard to build teams to allocate risk to those teams of traders, to teach them their ways, but there still is a bit of a fear when that principle sort of exits the scene and leaves their name on the door, but isn't present on the trading floor any more, and I think that the real benefit of our strategy is that most folks understand the fact that the models are the ones executing the trades. That being said, I think we all can acknowledge that many of the legendary CTAs are started by, as a said, a quant or a scientist who is, they themselves, the people who are building the models. I guess to that extent there may be a worry that when the founder decides to retire, or walk off into the sunset that the research itself may lose something.

I think that Campbell is in a very unique position, as I mentioned, because we were founded by a business person who had a financial background, not a quant. By surrounding himself and really promoting a culture of team sharing of information, we've created a very sustainable business model where groups of people over time who have worked here on our models, and even though those people may not stay with us, the models do continue to reside as our intellectual property. As each new person comes to the firm, they help enhance that over time. I feel that though all businesses have that risk, I feel that as a CTA and specifically to our situation as Campbell, we have considerably less of that risk, as well as the fact that having been around for over 40 years, and the fact that we've gone through these three succession plans, I think that that also gives some faith to the investor, as well as our employees that we've executed on these transitions before and that we know something about how to do it.

Niels

Sure, absolutely. It's very interesting. Another well-known firm that's been around for about 40 years, Dunn Capital, they have done the same. They have been through their transition, so maybe that's the mark when people start thinking about who knows. Anyway, I wanted to ask if you could... because you have a number of different programs today, and even though we're going to talk about the largest of your programs as a theme, I want to give you the opportunity to maybe just highlight, from an overall point of view, what your product offering looks like today.

Mike

Sure, so one of the things that we have done recently, is really kind of almost bifurcate the portfolio and create almost a menu-based approach. What we've heard over the years, if you think back to 10, 20 years ago, investors were still educating themselves on the space. They would come to us and say, "please give me what you think is your best portfolio." We've come a long ways as an industry now. In fact, when I'm out there as the President of Campbell, meeting with a lot of institutional clients, I see many cases where they've hired their own PhDs and many of these folks have maybe worked at a CTA or had their own CTA in the past, or have allocated to CTAs, and really understand all of the various alpha sources and drivers of returns, so now what we find is that a lot of investors come to us... some come to use and say we want what you believe to be your best portfolio, which is our flagship managed futures portfolio, but in other cases they may come to us and they're trying to build a fund the funds, or a group of managers, so they say, "we just want your trend following, or we just want your non-trend following models, or we just want your cash equities." Which for us is statistical arbitrage across the globe, so with that we have a trend following portfolio, where investors can get access to just our trend systems. We have what we call our Prism portfolio, which is just our non-trend following models and that's the same portfolio that's in the flagship vehicle, then we have as a center flagship fund which is our managed futures portfolio, which is... the mantra behind it is that it's enhanced trend following. It's 80% allocation to trend following and a 20% allocation to non-trend following, or that Prism portfolio that we just spoke about. Lastly, we have our multi-strategy portfolio. Multi is what includes our equities stat arb, so there you have a 40% allocation trend following, a 40% allocation to non-trend, and then a 20% allocation to the equity stat arb. We believe that that is the most diverse offering that we can offer to institutional clients, but in many cases if they are looking for something with a higher degree of correlation to CTAs they're going to want our flagship managed futures portfolio and then obviously if they want to bifurcate that and invest in just trend or non-trend we have vehicles for that as well.

Niels

Do you... I know these questions are hard to answer sometimes, but do you have a wish from a business point of view to say, OK in the next five years I really want to see us having at least 25% of our assets in this strategy and 25% in this strategy just to become a more diversified systematic investment firm, or do you expect maybe that actually the original managed futures will always be our calling and always be maybe 75% of our business?

Mike

That's a really good question. I think as a business person I always...I mean we're selling diversity here so I would love to have more diversification across the various portfolios. That said, my fear is always that allocators from time to time will try to trade managers or trade styles and my fear would be that when trend following does well, people will allocate to trend following, at absolutely the worst time, or vice versa to the non-trend following portfolio, so at the end of the day a tremendous amount of research has gone into both our flagship vehicle and our multi-strategy vehicle that both offers the diversification across trend, non-trend, and in the case of multi cash equities. So I would feel more comfortable having the larger portion of my assets in those two vehicles simply because I think that they are going to have the longer or the better, I should say, track record because of the sharp ratio and the risk adjusted returns that we've seen in the back tests.

Niels

Yeah, and I guess also, it's quite interesting to see that many of the largest firms in our industry really are one product shops: Winton is one, Aspect, and so on and so forth. They really are one product shops so maybe it is also sometimes too hard for investors to make the right choice, and it's better that you do it for them. Interesting... now you've got a big organization, so I wanted to ask you to explain a little bit about how the organization is structured from an overall point of view.

Mike

Sure. Well, our current assets under management is just over 4 billion. We have a staff of about 132 people here in Baltimore and we do have a few sales people that live in various parts of the country and the world, but the lion's share of that 132 is here in Baltimore. About 80 people of that 132 are involved or touch the investment process every single day. I think what's important to mention as well is that when I think about diversity, and you just kind of brought this up as far as having the assets split amongst multiple products, but there's another layer of diversification via assets, and that's the types of clients that you have. If you have all of your clients in one type, they're all fund the funds, or they're all from one particular part of the world, or they're all retail, or they're all institutional, that in itself gives you some concentration risk.

I think one of the things that Keith Campbell did a great job of, in the early days, was being one of the early movers in the private wealth distribution business. So we've been creating limited partnerships that retail investors, who are credited in the United States can invest in for many, many years and that's taken the form of our business, really being about 50/50 split between institutional clients and private wealth clients. What's nice about that is that they tend to move in and out of managed futures at different times and for different reasons, and that really, to be honest with you, probably gives us more diversification from an AUM standpoint than even diversification across various products on the institutional side. I say that because getting into the private wealth distribution business is not easy. I think one of the reasons that we've been successful is because of our size. Often times people compare us to other CTAs who may have a slightly lower head count than 130 at 4 billion under management, but I often remind them that part of what makes us special is that private wealth piece and without the 130 employees we would probably find it very difficult to do that level of retail distribution. I don't think it's an apples to apples comparison to look at a 4 billion dollar CTA that only has institutional investors, if that makes sense.

Niels

It makes perfect sense, it's a very good point. In fact it's something that I wanted to bring up later, but I can't actually remember what my questions is, so we may come back to this which is a bit of a unique feature for sure. So you say 80 of the 130 is involved in the investment process, but do you now-a-days with the technology, with outsourcing opportunities, how do you view that? Do you outsource any of the things that you do, or do you really keep it in house?

Mike

That's a great question. So right now there's limited outsourcing when it comes to actual people, but where we are seeing some unique outsourcing opportunities would be in technology. This is really something that as a firm it's been a real transition for us. When you think about it, 20 to 40 years ago there were no vendors on the technology side that could provide anything that we needed to do our business and so another element to our higher headcount is that we have a very large technology team, because to be quite honest with you, we've had to build all of our systems going back in history. In the last five to ten years, we've seen that change dramatically, although many technology companies initially focused on what I'll call the big asset classes like cash equities and fixed income. What we've seen recently is that they've started to migrate into what I'll call the hedge fund space. So they've embraced futures and options, OTC markets like cash currencies and swaps, and so with that we've now seen a whole host of products that we can use to help us be more efficient. At the end of the day we're still going to need technology resources like software engineers, but I want those people focused on our intellectual property. I want them working with research to build better alpha sources, not working in the trading department to build a better blotter for the traders to use to route orders out to the marketplace. So that's really been our focus as of late is embracing outsourcing of technology in areas like accounting, operations, certainly the back office, and then the front office on the trading side.

Niels

Sure, absolutely. I don't know whether it's best to use the research team as an example, but what do you look for when you want to add people to your business or say your research team? What are the things that you look for in the people that you want to join the Campbell family?

Mike

That's a great question. I think, if I could summarize it, we're looking for strong creative, critical thinkers. Where we get those people from, I think that's a bit of the secret sauce. I think that you're putting all of your eggs in one basket if you just go to other CTAs or to the banks and just bring people in who have an understanding of the financial markets. I think that you do want to have some of those people as part of your team, but we've always believed that there are some really interesting people that you can pull directly out of academia. There are some folks that may even be working in... that have a Ph.D. say, but are working in another discipline - say physics or other disciplines within science. We've even had some success in hiring people that had maybe a medical background. I remember one particular gentleman who was working at the University of Chicago analyzing brain waves and at the end of the day he said well, how can you compare this to financial markets and we said it's just a piece of data on a chart and maybe the way that you're looking at it from a medical standpoint are different than the way that we're looking at financial markets and maybe there's something we can learn from that. There are a lot of interesting examples of people who have come from really unique backgrounds that help to add value to the overall team.

I think that that word team is really important because going back to Keith and how he started the firm in the early days that notion of he couldn't do it all by himself. He needed to bring the firm back to Baltimore, to enlist some of his family members, to create a team, and then using that Mastermind Principle to build out a team of very intelligent individuals. That's probably our number one focus: Is the person a team player? There are a number of people in our industry who have a hard time sharing their work with others. They believe that if they came up with an idea, and they don't want to run around and tell everybody else about it. That's completely anti to what we believe here. We want people that are going to work in a team fashion, share their ideas, not be afraid to be criticized by others in the group because we believe that's what makes the idea better and at the end of the day that's what limits that key man risk so that Campbell & Company and its models can continue to live on into the future.

Niels

Sure, absolutely. I had one more question about the organizational side, and that is about how do you build a strong culture in an organization like yours? What are some of the key things that you do to build that team and make the team work so well together?

Mike

I think at our core it comes down to really the history that we have. I remember what Campbell was like when I joined 15 years ago. To be quite frank, it's a family culture. We take care of one another. Though we work very, very hard for our clients, to make our strategies better, I don't think it's the same cut-throat environment that I was exposed to when I was working on Wall Street in New York. I think that being in Baltimore, from a cultural sense, helps us to kind of slow down a little bit and to be very thoughtful about our research. We don't have to rush everything to market like I felt like every deadline in New York had to be done by 5 o'clock and sometimes work was rushed and wasn't as good as it could have been. I think that being involved more in having that strong sense of family has always been a big part of our culture. Once again, I go back to everything being done in more of a team fashion. Think about our leadership structure: it's myself as President and Will Andrews as CEO, we're co-running the firm, which means that I can be out on the road meeting with an institutional investor on the other side of the planet and Will is back here running the shop and vice versa, if he's on holiday, I'm here. We think about... we have a very strong executive team with nine members - a total Campbell experience of over 100 years. Average 10 years or 8 to 20 years per individual, so when people come here they obviously feel pretty strongly about the culture because in many cases we want those people that are looking to retire in Baltimore at Campbell and not jump from job to job like we see at many other firms in some of the bigger cities like New York, Chicago, and London.

Niels

Mike

Sector-based trend following is where you actually think about the intuitive economic movement of markets and what makes economic sense as far as grouping markets together to lose some of the noise of individual market moves and then effectively create an index around that grouping or markets and trade them as a basket. I think one of the most interesting things about sector based trend following is that in an environment over the last few years, where many CTAs complained about the rise in correlation between markets, which in a market-based sense effectively limited their opportunity set, a model like this did quite well because as investors moved in and out of risky assets, as an example, instead of seeing trends in say WTI crude, or Brent or unleaded gasoline futures, you actually saw just investors moving into commodities like energies and moving out and it created sector trends that these models were able to follow, so I think that was one of the areas where we saw some outperformance.

Niels

Yeah, well it sounds like you've been very busy on the research side in recent years. Would you say, not that it's that important, but would you say that they last five years is where you've just gone through some major improvements, would you say that's probably been one of the most sort of busier periods in terms of research upgrades and really evolvement of the strategy?

Mike

So we added cross-sector models, which take information from one asset class and use it to propel trades in others. The investment thesis there is that information, we believe, is disseminated at different points in time from one asset class to the other so that there is information that can be gained say in equities that would allow you to trade currencies and there are many examples. We also added in short term mean reversing, where there we believe that short term mean reversion can help in several cases, but most importantly after a long mature macro trend often times you see not only the reversal, but sometimes a period of choppy price action before you break out into a new up or down trend, and so having short term mean reversion in your portfolio actually gives you a strategy that can specifically perform in that environment which we all know as trend followers is usually the worst possible environment for a trending system. So continuing to kind of build out that non-trend following suite helped. To be quite honest about short term mean reversion, when I say short I think I do need to clarify that though these are the fastest models in our portfolio they still only represent about a 1 to 2 week “look-back”, so they're faster than a three month medium term trend following system, but we in no way have moved into the high frequency intra-day trading type world.

I will say from a CTA perspective it has made us more nimble. I think if you look at last summer as an example when many of our peers had difficulty during that May through September period after Ben Bernanke, on May 22nd said the "T" word, or taper, and the correlation between stocks and bonds broke down dramatically and many managers lost on both their longs in stocks as well as bonds, we saw specifically some of our faster strategies like short term mean reversion very quickly covering our bond position, and within a matter of about two weeks we were effectively short bonds and had a hedge on over the summer months. So we gave back a little bit of our gains for the year, but not these huge losses that we saw in other parts of the industry. To be fair, at the beginning of this year we underperformed a bit in the first quarter, because those same nimble strategies that when the equity markets corrected in January reduced our risk so that when stocks went back up to the highs in February we didn't have the same equity position that many of our peers had. I think at the end of the day, once again, it's about being correlated to the industry, but also being different so that we can justify our role in people's portfolios.

Niels

I couldn't agree more with what you have said. I think that's very important. I have a philosophical question from the things that you just brought up just now, and maybe it doesn't apply so much to you, because as you say, yes you've gone longer term in equities because that's been a good thing to do, but you've also maybe added some shorter term models that kind of balances this out, but here's my concern, because I hear that from many sides that many CTAs, if we call them that, have become more long term because we know that that has been a good way to enhance performance, and certainly in the equity sector where we've been in a bull market for five years and with very small corrections, so being very long term has been the right thing to do. Here's my concern though, if everyone is becoming more long term, and in particular if we're becoming more long term in equities, are CTAs going to lose the value that they play in the portfolio of managers or institutional investors who actually want CTAs to make money when equities go down. Simply, are CTAs in general going to be too slow to react and are they all going to head for the exit at the same time given that? I know it's a bit of a philosophical question and maybe you don't have a view on it, but I'm just a little bit concerned because I hear this from many sides about the time frame and in particular in equities.

Mike

I think it's a very topical issue and one that we hear a lot in the industry. A couple of comments, first off, as I mentioned, because we have added both short term and longer term “look-backs” into our... we've in a sense embraced both of those elements, but I think that when you still look at the portfolio as a whole, it still is going to have a very kind of medium term “look-back”, because the short term and the long term balance each other out. As I said, if anything, the shorter term systems, for us are nice because it helps us to kind of cover our risk and maybe turn the aggregate position a bit faster than just a medium to long term system, but because we have implicitly made that decision and see the value in adding in shorter term models, I'm probably on the other side of that argument. I do think that from a research perspective, one of the things that we're always focused on is looking at every change that we make to the portfolio and what impact it's going to have on our correlation or beta to the equity markets. To be quite honest, because I think to your point, there are a lot of investors out there who look at their managed futures or their trend following exposure as tail risk protection for traditional assets like stocks.

There's a reason that that term "crisis alpha" is used quite a bit in regards to describing commodity trading advisers. I agree that we would not as an industry want to lose that because I think that's a very valuable role that we play. In fact, it's funny that through this incredible uptrend that the Fed, if you're of that belief, or if you think that equities have been going up for other reasons has created...now as it turned out, if I think about the most recent correction, it actually happened in what I'd say a much more gradual, though a few weeks ago it certainly felt a bit more violent, but if you think about over the last few months, the markets came off the highs and in our case, the short and medium term models had covered their long positions, the long-term models held to their long positions, so for us, we really just got flat the equity markets just in time for the abrupt downside moves to kick in. So as investors looked to our performance, they actually saw positive performance, in a large part because of the movement of flight to quality into bonds and our long positions there.

As I look at the industry as a whole, we are seeing quite a bit of dispersion this month, as an example across CTAs and maybe to your point that's because there were people that didn't get out of those long equity positions and struggled a bit as a result. I think it's going to take more time for us to really kind of realize that, but at the end of the day I don't think it's a bad thing, necessarily that managers in our space start to kind of do things that are a bit unique and different and try to differentiate themselves, because if everybody has a 95% correlation to the largest managers, or to the Barclay CTA Index, then it's going to be really hard for people to be able to pick and allocate to managers.

Niels

Yeah, absolutely. I think there are two thoughts on that. One is of course that we know now-a-days that investors predominantly feel that allocations should go toward the larger managers, that's clearly why there are much fewer large managers and a lot more small managers who are struggling, so in that sense it is also important that large managers do things differently and not become too correlated as you pointed out. The other thing is, of course, there's also a problem for the smaller manager if we just talk about them for two seconds, and that is they think that investors only want someone who looks like a Campbell, or who looks like an Aspect, or whoever it might be, so they often design their systems to look like that and actually it's a bit of a shame because what really differentiates a manager from another is the manager itself, and therefore they shouldn't really try and look like anyone else other than what they really believe in, but it's a difficult thing to do in reality.

Now one of my listeners sent in a question that I think you might be really good at answering and that is how do we respond as an industry to the fact that many investors, and maybe those who have left this space in recent times, who claim that the reason why trend followers don't really make as much money in the last few years has become simply that there's too much money trading the same trends and there's too much money flowing into this industry. Do you have a thought on that? Do you get asked this question on your side?

Mike

You know, we were definitely asked that question a few years ago. I feel that that question hasn't been asked recently because to be quite frank with you, in the last six to twelve months, CTAs have actually had pretty decent returns, and though the industry has shrunk a bit, it hasn't shrunk in a large material way and so certainly we continue to believe that there's efficacy in what we're doing because profitability has returned to this space. I think what will be interesting as well is to continue to follow the liquidity of the markets that we trade and I think that, to me, from a former trading standpoint, is the thing that I'm most focused on is the markets that various CTAs decide to trade. There's a debate as to how diverse you should make your portfolio and where you should have your cutoff point for liquid markets. I've been quoted many times as saying that we have 80 markets actively in the portfolio and though we're always looking for new markets to add into the portfolio, we're probably on the lower end of the spectrum and a bit more conservative when it comes to making sure that we're trading liquid markets because I've said very frequently that when you have 200 markets in the portfolio there's two risks there: risk number one is that you're starting to wade into markets that may not be nearly as liquid and then, as we all know as traders, you tend to make money on the way up, but then when everybody exits the trade you give back everything you made and then some, so it can lead to losses for the strategy.

The other risk is that you're just really doing it to effectively add a bigger number to the marketing brochure and there, when I say that, I mean that you can add a whole lot of additional international equity futures to the portfolio, but if you're adding a particular market that's got a 95% correlation to the Nikkei or the DAX or the S&P 500, what are you really adding to the portfolio other than another name on your website as far as another market to increase that number, and you're creating issues for the portfolio and the traders because you could be putting something in that's not as liquid. I think there continues to be a real debate there. I think in addition to that there's been a real debate within the industry around how you weight your asset classes because as managers have gotten some of the bigger managers in Europe have gotten larger, we've seen them focus way more on financial futures and I can only believe that that is because they are way more liquid than commodities. I had an investor recently kind of jokingly say that Campbell is putting the C back in CTA for the multi-billion dollar space because we continue to have an even allocation when we start the day to all four of the major asset classes. I think the fact that we have a 25% commitment to commodities is a real differentiator. You certainly see that with some of the smaller managers, particularly in the US, like in places like Chicago. For Campbell to have that much in commodities, I think it makes us a bit of an outlier, and listen, at the end of the day we just see that there are some really unique opportunities. Commodities, we like to bucket them as an asset class. When you think about it, between precious metals, base metals, energies, livestock, grains, even the sub-sectors: soft commodities like coffee, cotton, and sugar, these are markets that have very, very different supply and demand forces and when you are looking just within the commodity sub-portfolio performance can be very different, so there's a lot of diversity and opportunities when you add commodities in a meaningful way.

Niels

Absolutely. This was one of the things I wanted to go into a little bit more so, so I'm glad you took me there. Given the fact that, as you rightly say, trading in 80 markets is certainly on the low side for sure compared to the size of your portfolio and compared to other managers, and the 25% allocation to commodities, what does that do, if you want to stick to this, what does that do to your optimal size, meaning growth? Where does that allow you to go and maybe you don't have a vision of being as big as some other managers, I don't know, talk to me about that.

Mike

You mentioned earlier about diversifying yourself across different product sets. We've been trading cash equities and stat arb for a number of years, if interests were to come back into that space, that could be a portion of our business that would allow us to grow as a total firm AUM, but wouldn't impact effectively our CTA AUM. So there are a lot of different factors at play. We want to make sure that we can grow, but I think that being a multi-billion dollar firm gives us a tremendous access to resources to create an institutional infrastructure that allows for redundancies and plenty of head count, legal and compliance: to be able to deal with all of the challenges that, as you mentioned, smaller CTAs struggle with today. We like being in that billion dollar group but at the same time I think that many institutional investors look at us as somebody who has growth potential, whereas maybe some of the larger managers, they do fear that how much bigger can they get before it degrades their returns?

Niels

Yeah, absolutely. I wanted to talk a little bit more about the trading program. In some ways I wanted to give you the opportunity to take us where you want in terms of describing or what you want to mention about the trading programs and so on and so forth, but I want to mention one thing that I noticed that I think is certainly an interesting topic and maybe that's something you want to comment on, and that is how you create a strategy because maybe it's a bit difficult for many people to really understand...

Ending

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