My guest in this episode needs no introduction: Antti Ilmanen, co-head of Portfolio Solutions at AQR, award winning researcher, and author of the books Expected Returns and the recently published Investing Amid Low Expected Returns. A decade has passed since Antti wrote his first book, providing both a decade of out-of-sample data as well as a decade of new research. I begin by asking Antti about where his conviction has hardened and the things he’s changed his mind about. From there, however, the conversation topics become much more wide ranging. We discuss structural changes in the market, the growth of passive investing, and his research on who is actually on the other side of style premia trades. We then discuss trend following versus put protection, trend following’s difficult decade, and why the outlook for trend may be rosier going forward. Finally, we touch upon some more practical topics, addressing low-hanging opportunities Antti has seen in his role as co-head of Portfolio Solutions at AQR. I hope you enjoy my conversation with Antti Ilmanen.
My guest this episode is Ralph Smith, Head of Research at BlueCove. BlueCove offers long-only and market-neutral mandates in corporate credit and interest rate markets, with an emphasis on utilizing a scientific approach to portfolio construction. We spend the episode discussing how the unique nature of fixed income markets present both opportunities and risks. For example, how the differing breadth and liquidity in corporate credit versus rates markets impacts the types of strategies that can be implemented. Or, how the assumption about a bond’s availability or liquidity can materially impact a portfolio backtest. As Head of Research, Ralph also has some strong thoughts on the research process itself. He shares his views on structuring a research organization, performing research in changing market environments, and even the appropriate use of backtests. Please enjoy my discussion with Ralph Smith.
My guest in this episode is Kai Wu, CEO and founder of Sparkline Capital. Kai is a pioneer in the measurement of intangible value. Using machine learning, he tackles unstructured data sources like patent filings, earnings transcripts, LinkedIn network connections, and GitHub code repositories to try to measure value across the four key pillars of Brand, Intellectual Property, Network, and Human Capital. We discuss why intangibles are important, how they differ from the traditional factor zoo, the opportunities and risks of unstructured data, and how even big data can have small data problems within it. Finally, we discuss Kai’s most recent applications of his research to the world of crypto. Please enjoy my conversation with Kai Wu.
Today I speak with David Sun, a retail trader who started his own hedge fund. Coming from a non-traditional background, David takes a non-traditional approach in his investment mandates. Focused on selling options to capture the volatility risk premium, David believes that markets are ultimately efficient and therefore foregoes using any sort of active signal. Instead, he focuses on explicitly controlling his win size relative to his loss size, and then choosing a strategy with a win rate that bumps him into positive expectancy. By then maximizing the number of “at bats,” he lets the Central Limit Theorem take care of the rest. It’s an approach he calls “expectancy hacking.” We discuss this approach in both theory and practice, addressing issues such as trading costs and slippage drag, as well as both sequence and event risk. David’s approach is certainly non-traditional, but highlights some unique concepts of how traders may be able to architect a payoff profile around a risk premium. Please enjoy my episode with David Sun.
In this episode I talk with Aneet Chachra, fund manager at Janus Henderson. In his role, Aneet runs flow-driven strategies. These are strategies that seek to find an edge in market events where trading volume creates a predictable pressure on price, such as index additions or deletions, corporate buybacks or issuance, or even the rebalancing of target date funds. Our conversation is wide ranging, from the basics of how Aneet categorizes these types of trades, to views on how changing market structure has affected the opportunity set, to the impact of social leverage on risk management. While the approach may be highly niche, Aneet is bursting with broadly applicable wisdom. I hope you enjoy this episode with Aneet Chachra.
In this episode, I speak with the Twoquants: Moritz Seibert and Moritz Heiden. There are really two halves to this episode. In the first, we discuss trend following strategies at length. We cover the usual topics of signals, speeds, and portfolio construction before diving into some niche views, such as synthetic assets, spread trades, and alternative roll schedules. In the second half, we pivot to discuss crypto markets, as the Moritzes now serve as CIO and CTO for the Exponential Age Digital Asset Fund. We discuss their journey into crypto, their explorations of the NFT space, considerations that make crypto unique from traditional markets from an allocators perspective, and advice for emerging managers in the space. So kick back, relax, and please enjoy my conversation with Moritz Seibert and Moritz Heiden.
In a first for Flirting with Models, my guest this episode is anonymous, going only by the handle LightSpringFox on Twitter. Mr. Fox is a quantitative trader who works in crypto market making at MGNR. Mr. Fox did not begin his career in crypto, nor even in market making. Rather, his background is in traditional equity factor investing, and so we spend a good deal of comparing and contrasting the low- and high-frequency domains. We also discuss the nature of market making edges, the unique risks of high frequency, how crypto and traditional finance market making deviate, and what Mr. Fox considers the “hardest problem in HFT.” Without further ado, please enjoy my conversation with LightSpringFox.
In this episode I speak with Michael Green, Chief Strategist as Simplify ETFs. In a first for the Flirting with Models podcast, we recorded this episode live at the ETF Exchange in Miami in early April 2022. Given Michael’s eclectic background, our conversation is wide ranging. He has traded everything from small-cap value to commodities to housing derivatives to long volatility, and so we try to find the common elements and themes across his career. One that sticks out is his quote that “it’s not enough to do the analysis: there needs to be a trade there as well.” Michael has become well known for his view that passive investing may now represent a systemic risk to markets. We discuss the origins for this view, how it has evolved, counter-points, and the trade that pairs with the analysis. Finally, we discuss the Simplify High Yield PLUS Credit Hedge ETF, the first strategy from Simplify that really has Michael’s fingerprints all over it. I hope you enjoy my conversation with Michael Green.
In this episode I speak with David Berns, co-founder and CIO of Simplify ETFs and author of the book Modern Asset Allocation for Wealth Management. Our conversation centers around the idea of what it means to build a portfolio for a human being. This concept arises both technically and philosophically in David’s work, where he emphasizes the importance of higher return moments in portfolio optimization, but goes about achieving this end through more holistic risk preference analysis. David expands upon the ideas of risk aversion, loss aversion, reflection, and how both our personal balance sheets and our standard of living expectations impact the portfolio choices we should be making. While there is no straight forward prescription, David emphasizes that simply being aware of these different factors can help advisors select more appropriate portfolios. And, hopefully, as the toolkit of investment options expand, adopt exposures that can better shape investor return distributions. I...
Today I am speaking with Russell Korgaonkar, CIO of Man AHL. In his role, Russell oversees a large research organization and so we spend a large part of our conversation talking about research management. Russell provides his thoughts on topics such as determining which projects to take on, quantifying investments in technology, data, and people, how to avoid group think, and how to incentivize both researchers and reviewers. There is tremendous organizational alpha to be gleaned here. In the back half of the conversation we discuss some of the research that Russell has published on dynamic risk controls. He explains how risk management signals are akin to alpha signals and how the practice of managing risk through 2020 differed from the theory of doing it. We conclude with Russell’s opinion as the most important due diligence question he could ask, either of another manager or of his own researchers. Please enjoy my conversation with Russell Korgaonkar.