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Darrin Johnson - Independently Shorting Volatility (S4E2)
Darrin Johnson is the first independent trader I’ve interviewed for this show and with that distinction he brings an entirely new perspective.
After learning about how Darrin began his career as an independent trader, we get into the bulk of the conversation that circles around his process of shorting volatility in the S&P 500 complex, including options on futures, index options, VIX futures, and VIX ETPs. Darrin provides insights into how he plays certain tenors over others, why knowing when not to be short is the most important key to risk management, why the upside can be riskier than the downside, and thinking through managing a trade over its lifetime.
Towards the end of the interview, Darrin paints a realistic picture of what it means to be an independent trader, in both the opportunities and constraints unique to his position. We finish with the advice Darrin would give to anyone serious about starting a career in independent trading.
I hope you enjoy my conversation with Darrin Johnson.
|May 10, 2021|
Cem Karsan - The Market Voting Machine (S4E1)
My guest this episode is Cem Karsan, Founder and Senior Managing Partner of Aegea Capital Management.
Cem began his career in the pits, and so we begin our conversation with a discussion by comparing and contrasting today’s market versus days gone by. And, perhaps more importantly, the wisdom gained from that era.
It was in the pits that Cem began to understand and develop his intuition for markets and what would become the colorful cast of characters he uses to describe what’s driving flow: Gary the Gorilla, Vanna, and Charm the Sloth. How these characters cooperate or fight amongst themselves provides Cem with a forecast as to how markets should behave.
It seems like these are new and growing forces, but Cem argues they’re as old as time. And, more importantly, increased awareness does not mean they can just be arbed away: they are, potentially, fundamental forces of markets.
We end our conversation with a discussion of how these flows can have profound impacts for equity factor performance and what this all means for stock pickers.
I hope you enjoy my conversation with Cem Karsan.
|May 03, 2021|
In this episode I am going to read Newfound’s latest research paper, LIQUIDITY CASCADES: The Coordinated Risk of Uncoordinated Market Participants.
This reading will refer to a number of figures within the paper, so I urge you to go to our website, thinknewfound.com, and download the PDF so you get better follow along.
This paper is unlike any research we've shared in the past. Within we dive into the circumstantial evidence surrounding the "weird" behavior many investors believe markets are exhibiting. We tackle narratives such as the impact of central bank intervention, the growing scale of passive / indexed investing, and asymmetric liquidity provisioning.
Spoiler: Individually, the evidence for these narratives may be nothing more than circumstantial. In conjunction, however, they share pro-cyclical patterns that put pressure upon the same latent risk: liquidity.
In the last part of the paper we discuss some ideas for how investors might try to build portfolios that can both seek to exploit these dynamics as well as remain resilient to them.
I hope you enjoy.
|Sep 20, 2020|
Kris Sidial - Long Volatility for the New Regime (S3E14)
My guest this episode is Kris Sidial, co-CIO of The Ambrus Group, a volatility arbitrage focused firm founded in 2018.
Kris recently joined Ambrus after spending several years on BMO’s exotic and listed options desks. While time on these desks gave Kris the experience of managing a large derivatives book, what convinced him to take the leap to a new firm was growing confidence in a thesis that market micro-structure had undergone a regime shift. And in Kris’s view, this regime shift supports his approach to building a volatility arbitrage book.
Kris’s approach is broken down into two sleeves: long and short volatility. Within long volatility, Kris plays a unique flavor of dispersion trading. Within short volatility Kris plays contango in the VIX futures curve and kurtosis trades that seek to exploit mean-reversion and overpriced volatility.
With several moving pieces, we spend the back half of the episode discussing each sleeve, the underlying approach, how Kris thinks about managing risk, and how it fits into the whole.
What becomes clear is that while we discuss each sleeve independently, they do not exist in isolation. The portfolio is designed to co-exist, with careful thought about how positions in one sleeve offset risk in another.
From a unique fundamental outlook to the holistic approach to portfolio construction, this episode has a lot to offer.
I hope you enjoy my conversation with Kris Sidial.
|Sep 08, 2020|
Cliff Asness - "...But Not So Open Your Mind Falls Out" (S3E13)
“Keep an open mind. But not so open your mind falls out.”
My guest in this episode needs little introduction: Cliff Asness, co-founder and managing partner at AQR.
Cliff has done dozens of interviews, podcasts, talks, and fireside chats over the years. He is also a prolific writer. So, my goal in this conversation was to try to find the questions he hadn’t been asked before or had not answered himself already.
How did his formative experiences in the dotcom bubble shape his perception of markets? Why should we stick to factors like grim death? Which of his dozens of papers have been woefully overlooked? Where has he changed his mind over the years and what is he most confident in going forward?
Cliff is fountain of knowledge of quant history, research, and practical experience and tells some fantastic stories along the way.
Please enjoy my conversation with Cliff Asness.
|Jul 29, 2020|
Euan Sinclair - Positional Option Trading (S3E12)
Today I chat with Euan Sinclair, Partner at Talton Capital Management and author of the books Options Trading, Volatility Trading, and the up-coming Positional Option Trading.
We begin our discussion with Euan’s experience as a market maker as I try to get a better understanding of what a market making operation really looks like from the inside and how it has changed over the last 15 years. Of particular interest to me, given how much market makers have been villianized in recent years, were Euan’s comments on misconceptions about market makers.
We then turn to the buy side, where Euan has spent recent years and is largely the subject of his new book. We discuss common mistakes, sources of edge, thinking about directional versus volatility bets, and the seemingly overwhelming degrees of freedom that options trading offers.
I know I walked away from our conversation with both an increased appreciation of the nuance in these topics, but also several new ideas for both edge and risk management.
Please enjoy my conversation with Euan Sinclair.
|Jul 27, 2020|
Omer Cedar - Quant-Aware Discretionary (S3E11)
Today I am speaking with Omer Cedar, CEO and co-founder of OmegaPoint.
One of the significant trends in quant equity over the last decade has been the attempt to better control for unintended bets and idiosyncratic risks. At OmegaPoint, Omer comes at the problem from the opposite direction: helping fundamental managers better focus on their idiosyncratic risk and recognize the factor risks they may be unintentionally taking.
We discuss how quantitative investors have impacted markets, how fundamental managers should think about factors, the low-hanging fruit for optimization, and surprising lessons Omer has learned in evaluating fundamental portfolios.
The idea of embracing idiosyncratic returns is, arguably, the antithesis of traditional quant investing. But in discussing the lessons learned about unintended bets from the opposite direction, I think there are important ideas that quants can take away.
I hope you enjoy my conversation with Omer Cedar.
|Jul 24, 2020|
Sandrine Ungari - Alternative Risk Premia (S3E10)
My guest in this episode is Sandrine Ungari, Head of Cross-Asset Quantitative Research at SocGen.
Sandrine cut her teeth in the industry as a fixed-income pricing quant, but made her way over to sell-side, investment quant research in 2006. Her early research focused on credit and macro, but since 2012 has been heavily focused on equity and alternative risk premia.
Our conversation begins with equity factors and Sandrine provides insight both into how factor construction has evolved over the last decade as well as her thoughts into where the field is headed. We broaden our discussion to include alternative risk premia, and Sandrine provides a useful mental map for categorizing this broad range of strategies. We discuss the risks of crowding, latent beta risk in levered factors, and the influence of macro economic factors.
More recently, Sandrine has focused her research in the application of machine learning in strategy construction. We discuss one particular example – the application of a recurrent neural network in trend following – and Sandrine shares her views as to how machine learning might affect factor investing going forward.
Sandrine also shares some interesting ideas about where future risk premia might emerge from – but you’ll have to tune in to hear!
Please enjoy my conversation with Sandrine Ungari.
|Jul 22, 2020|
Michael Hunstad - Institutional Trends in Factor Investing (S3E9)
In this episode I speak with Dr. Michael Hunstad, Head of Quantitative Strategies at Northern Trust.
Our conversation centers around the four key trends Michael is seeing among institutional allocators in the factor space today. These trends are (1) the adoption of factors to manage concentration risk in market-cap weighted benchmarks, (2) a move from single- to multi-factor implementations, (3) using factors to de-risk equity exposure, and (4) a tactical tilt towards value.
But Michael isn’t afraid to get in the weeds. He discusses the risks of unintended exposures at length and at one point even explains the importance of matching decay speeds of different factor signals within multi-factor implementations.
For those interested both in the macro trends and the micro details of factor investing, this is not one to miss.
I hope you enjoy my conversation with Dr. Michael Hunstad.
|Jul 20, 2020|
Mads Ingwar and Martin Oberhuber - Full Stack Machine Learning (S3E8)
In this episode I chat with Mads Ingwar and Martin Oberhuber, co-founders of Kvasir Technologies, a systematic hedge fund powered by a full-stack application of machine learning.
By full-stack I mean every layer of the process, including data ingestion, signal generation, portfolio construction, and execution, which gives us a lot to talk about.
Our conversation covers topics ranging from the limitations of machine learning and hard lessons learned to how to keep up in a rapidly evolving field and thoughts about managing model risk.
Given the niche knowledge in a field like machine learning, some of my favorite answers came when I asked how they might perform due diligence upon themselves or where they think other adopters of machine learning go wrong. For allocators, I think these answers are priceless.
I hope you enjoy my conversation with Mads and Martin.
|Jul 17, 2020|
Eric Crittenden - All-Weather Portfolios with Trend Following (S3E7)
My guest is Eric Crittenden, founder and Chief Investment Officer of Standpoint Funds.
Eric has spent his career with trend following strategies, first at BlackStar where he managed a fund-of-funds, then at Longboard, and now at Standpoint Funds. This background makes him not only a fountain of knowledge on trend following theory, but also the operational logistics and practical considerations.
In this episode our conversation ranges from the source of the trend-following premium to novel concepts for stress-testing managed futures programs. We discuss the struggles the space has faced, the evolution of CTAs, how to think about dispersion among managers, and how Eric thinks about solving for client behavior.
I hope you enjoy my conversation with Eric Crittenden.
|Jul 15, 2020|
Jeffrey Baird - Commodity Convexity (S3E6)
In this episode I speak with Jeffrey Baird, managing partner at Merritt Point Partners.
Merritt Point Partners seeks to build diversified portfolios of convexity exposure through the commodities market. With that in mind, we talk about what makes the commodities market unique, who the players are, and the types of trades that Jeff looks for.
Stepping somewhat outside of the theme for this podcast, Jeff actually employs a heavily fundamentals-driven process. But what fundamental means in the commodity space is different than what it traditional means in the equity space, so Jeff walks us through how this concept applies in markets such as gold and natural gas.
With so many markets and corresponding derivatives to trade, the opportunity set seems overwhelming. And so does the risk of managing a portfolio. Jeff talks us through his framework for managing risk and the seemingly backwards idea that being profitable in a position can actually introduce more risk for portfolios seeking convexity.
I hope you enjoy my conversation with Jeff Baird.
|Jul 13, 2020|
Dr. Ernest Chan - Tail Reaper (S3E5)
My guest in this episode is Dr. Ernest Chan, founder of QTS Capital Management.
Investor, researcher, and educator, Ernie is well-known for his blog – which he has been publishing since 2006 – as well as the several books he has authored, including Quantitative Trading, Algorithmic Trading, and Machine Trading.
Our conversation meets at the intersection of tail risk hedging and machine learning. Ernie has a long history with machine learning, having first applied it on Wall Street in the late 1990s. After striking out on his own in 2006, he abandoned it due to the overfitting issues he believed it suffered.
In recent years, however, Ernie has re-adopted machine learning, believing that modern approaches help circumvent the overfitting problems and create robust, reliable models.
Specifically, Ernie applies machine learning as a risk-management layer on QTS’s Tail Reaper program, an intraday trend-following model designed to profit in periods of crisis. We discuss why such a program can be effective as a tail hedge and how the risk management layer can potentially help reduce the premium bleed typically associated with tail programs.
For listeners keen on understanding modern applications of machine learning, this is not one to miss.
|Jul 10, 2020|
Jim Masturzo - Tactical Asset Allocation (S3E4)
In this episode I speak with Jim Masturzo, Head of Asset Allocation at Research Affiliates.
In his role, Jim oversees the research and publication of the firm’s capital market assumptions as well as the implementation of those views into a suite of tactical portfolios.
We begin our conversation discussing the foundational assumptions behind the capital market assumptions. Like most firms, Research Affiliates takes a long-term view on return and risk. In line with the firm’s guiding philosophy, they also introduce long-term mean reversionary effects.
Not surprisingly, these assumptions have been relatively bearish on U.S. equity returns for a large part of the last decade, and we discuss how to view the dispersion between these model forecasts and realized results.
We then shift our conversation to the application of tactical views. With capital market assumptions serving as the strategic backbone, Jim and his team develop a number of regime-based model portfolios that can be blended to express different tactical views.
But the team does not take a purely quantitative approach. Jim proactively acknowledges and seeks out model blindness. Rather than try to force idiosyncratic fixes into the models that might bias results, however, he and his team adopt qualitative trades to adapt the portfolios.
From strategic to tactical and quantitative to qualitative, this is a wide ranging conversation all about asset allocation. I hope you enjoy.
|Jul 08, 2020|
Dr. Benn Eifert - Bad Ideas (S3E3)
Today I am speaking with Benn Eifert, founder and CIO of QVR Advisors.
Benn is my first repeat guest on the podcast, making his first appearance in Season 2. When I asked listeners who they wanted on for Season 3, he was high on the list.
In this episode, we take things in a bit of a different direction. Rather than a normal interview, I use this opportunity to ask Benn about his opinion on a number of different trade ideas, from covered calls to shorting VIX ETPs. Benn walks me through the subtleties of each trade and why the PnL of what might look like a simple trade can be incredibly nuanced.
Towards the end of the conversation we turn to broader market topics and discuss the general impact of structured product desks and options dealers as well as Benn’s view as to whether March 2020 will create a lasting impact on volatility markets.
I hope you enjoy my conversation with Benn Eifert.
|Jul 06, 2020|
Michael Krause - Evolving Long/Short Equity (S3E2)
In this episode I am joined by Michael Krause, co-founder of Counterpoint Asset Management and Counterpoint Mutual Funds.
Our conversation covers two major topics. In the first half, we discuss some of the nuances of high yield bond timing and the subtleties of strategy construction.
In the second half, we discuss long/short equity strategies. For listeners more interested in the technical, this is where the meat and potatoes of the conversation lies.
We discuss Michael’s evolution from regression to machine learning techniques, the unintended consequences of accidental exposures, and managing risk through optimization while managing the risk of optimization.
I hope you enjoy my conversation with Michael Krause.
|Jul 03, 2020|
K.C. Hamann - Quantifying Conviction (S3E1)
My guest today is K.C. Hamann, founder of AQIS LLC.
K.C. is a Warren Buffett disciple and spent his first decade in the industry working as an analyst at discretionary, deep value long/short equity hedge funds. Which probably makes him sound like an odd guest for a podcast all about quantitative investing.
K.C.’s experiences, however, lead him to identify a number of biases that he believes pollute the stock picking skills of discretionary analysts. And thinking of a hedge fund as a system whose first goal is survival, he believes that these biases are durable.
For K.C., 13F filings are prospect theory in action. By modeling both the universal and idiosyncratic biases of a manager, K.C. seeks to better identify cases of true conviction which often do not correspond to position size. And it is in these high conviction ideas that K.C. believes are the best opportunities to generate excess returns.
I hope you enjoy my conversation with K.C. Hamann.
|Jul 01, 2020|
Corey Hoffstein - Rebalance Timing Luck (S2E11)
My guest today is … me. But rather than interview myself, my co-portfolio manager Nathan Faber joins the podcast to take the reigns.
In this episode, we talk all things rebalance timing luck. It’s been an obsession of mine for years and something we believe to be a dramatically misunderstood and outright ignored source of risk in portfolios.
We discuss how we first came across the topic, some recent research into it, important implications for the industry at large, and how we can try to solve for it.
I hope you enjoy the conversation.
|Dec 09, 2019|
Daniel Grioli - Thinking like a Fox (S2E1)
My guest in this episode is Daniel Grioli. Daniel cut his teeth in the industry at Deutsche Bank in London, where he was responsible for valuing structured equity and hedge fund of fund products targeted at continental Europe. His timing of joining Deutsche, while perhaps somewhat unfortunate for him, proves fortunate for us as he retells a few war stories and lessons learned from the desk leading into 2008.
During the crisis, Daniel found himself back in Australia working for a pension fund, where he made a career in manager evaluation, selection, and combination. That makes Daniel somewhat unique among prior podcast guests, as he provides us some insight into the decision making of capital allocators on the other side of the table.
The breadth of managers evaluated gave Daniel some unique insights that he shares with us around where he believes the limits of quantitative and discretionary management lie. He also shares his framework for manager selection, which he calls Via Negativa.
Presently, Daniel is leveraging this experience to build what he calls a “best ideas” portfolio, exploiting 13F reporting data to create a high conviction equity portf olio for his clients.
Finally, we talk about the i3 podcast that Daniel hosts and some of the most interesting guests he has interviewed.
Without further ado, my conversation with Daniel Grioli.
|Jun 23, 2019|
Katherine Glass-Hardenbergh - All About Alternative Data (S2E9)
In this episode I am joined by Katherine Glass-Hardenbergh, Associate Portfolio Manager at Acadian Asset Management.
In her role, Katherine focuses heavily on the application of alternative data in Acadian’s fundamentally-driven, systematic investment process.
Purported as being one of the leading frontiers of quant finance, there is plenty of hype around alternative data. Katherine brings refreshing transparency to our conversation, speaking just as candidly about the hurdles in alternative data as the opportunities.
We discuss everything from what alternative data is, where it comes from, interesting examples in the ever-expanding landscape, some of the practical challenges of working with alternative data, and the many potential applications for use within the investment industry.
Katherine provides insight into the world of alternative data that only someone deep in the weeds could. If you’ve ever been curious as to the real-world application of alternative data, this is definitely the episode for you.
I hope you enjoy our conversation.
|Jun 20, 2019|
Chris Meredith – Building a Robust Research Platform (S2E10)
Chris Meredith is co-Chief Investment Officer and Director of Research at O’Shaughnessy Asset Management. In this episode, we focus on the latter title and talk all about what it means to develop a strong research program.
Our conversation centers around what Chris considers to be the three key pillars: data, tools, and people.
Chris provides insight into how data sets have changed since the beginning of his career, starting with highly structured price and fundamental data to so-called “pointy,” highly specific data sets and now completely unstructured blobs of information. He offers his thoughts into how this growing information set represents both an opportunity for researchers as well as a risk, requiring careful forethought into how it is going to be attacked.
Our discussion of tools covers both the digital and the physical. We talk about the influence of open-source software, the growing role of machine learning, and the operational benefits of treating each researcher’s laptop like a stand-alone research sandbox.
It is easy to tell that while Chris has a passion for the data and tools, he truly believes that they are for naught without the right people and he shares some of his ideas on how to maximize the potential of his team. Chris also sheds light on the OSAM research partners program, which grants 3rd party researchers access to the OSAM data platform. This new initiative is a highly unusual approach for a traditionally secretive industry, but early papers coming from their collaborations suggest it may bear significant fruit.
Please enjoy my conversation with Chris Meredith.
|Jun 20, 2019|
Liqian Ren - In Search of Modern Alpha (S2E8)
In this episode I am joined by Liqian Ren, Director of Modern Alpha at WisdomTree.
After receiving her degree in Computer Science, Liqian came to the United States to pursue her Masters in Economics. Liqian then did a quick stint at the Federal Bank of Chicago as an associate economist, before returning back to academia to pursue her PhD at the University of Chicago.
In 2007, Liqian joined Vanguard’s Investment Strategy Group, where she leveraged her background to perform economic and capital market forecasts, studies on asset allocation, and research into topics such as retirement income and investor behavior.
Liqian eventually transitioned to Vanguard’s Quantitative Equity group, where research efforts were focused on deep, stock-level signals analysis and portfolio construction. Becoming one of the first to act in a dual capacity research / portfolio manager role, Liqian developed a deep appreciation for implementation-aware research.
We spend much of our conversation talking about factors in both theory and practice. We hit subjects such as the risks of delayed implementation, mixed versus integrated portfolio construction, opportunities for factor timing, active versus indexed implementations, and how factors fit within a glide path.
Finally, we discuss Liqian’s new role at WisdomTree and new areas of research she is excited to pursue.
I hope you enjoy our conversation.
|Jun 17, 2019|
Wayne Himelsein - The Quant Philosopher (S2E7)
In this episode I chat with Wayne Himelsein, president and chief investment officer at Logica Capital. To our conversation Wayne brings over two decades of experience managing long/short portfolios, ranging from statistical arbitrage to factor long/shorts.
For as deep in the weeds as he liked to go as a quant, Wayne has a philosopher’s streak and Twitter is his soapbox. Of course, 280 characters can be limiting, so I start out conversation by putting Wayne in the hot seat and ask him to explain the deeper meanings behind some of his recent tweets.
Using these philosophies as a foundation, we then dive into long/short portfolios. We talk about the practical difficulties of managing these strategies and Wayne explains why he believes that beta-neutral is a fool’s pursuit.
We then switch topics to tail risk hedging. These sorts of strategies are notorious for their bleed, and we discuss whether the payoff is ultimately worth the cost of insurance. Wayne describes a few ways in which the bleed can be managed and the ensuing tradeoffs with each method.
In discussing both long/short and tail risk hedging strategies, I ask Wayne what due diligence questions he would ask if he were evaluating another manager. I find this question always provides great insight into what managers of these strategies actually think is important. Wayne does not disappoint.
I hope you enjoy my conversation with Wayne Himelsein.
|Jun 17, 2019|
Jason Thomson - The Growth Factor (S2E6)
My guest in this episode is Jason Thomson, a portfolio manager at the William O’Neil family office.
On paper, Jason doesn’t seem like a particularly good fit for this podcast. He runs a highly concentrated discretionary portfolio of growth equity names. He can be levered long, net short, or completely out of the market all at his discretion.
What becomes rapidly apparent is that while Jason has ultimate discretion, he adheres closely to a disciplined, rules-based process driven by the empirical research of an in-house quant group. The core framework of that process retains the spirit of William O’Neil’s original CANSLIM methodology, but now has nearly a half-century of learning and nuance layered on top.
As a quant, it is tough to hear “growth” and not think “expensive.” Jason dismisses the idea that growth investing is all about headline-making, high-flying stocks, though, and emphasizes the importance of valuations. In fact, about a quarter of his holdings are turn-around plays.
We talk about the role of investment themes, the importance of position sizing, and how Jason thinks about managing risk in a portfolio with less than ten names.
The idea of managing a portfolio the way Jason does definitely put me out of my comfort zone, but our conversation made me reconsider what I think I know about growth investing
|Jun 11, 2019|
Artur Sepp - Conditional Beta (S2E5)
My guest is Artur Sepp, Director of Research at Quantica Capital AG in Zurich.
In 2008, Artur was working on structured credit products for Merrill Lynch, giving him a front-row seat to the ensuing credit crisis. We use this experience as a jumping off point for our conversation, with Artur providing both pragmatic and philosophical lessons learned.
One of those key lessons was the role of liquidity, which Artur argues is the key factor behind many premia we see in the market.
Artur’s focus on liquidity grew as he transitioned to London in as an equity derivatives quant, where he was responsible for building models to hedge options on illiquid underlying assets. Here we get into the nitty gritty, discussing a paper Artur wrote about the practical realities of delta-hedging options under a framework of discrete hedging and transaction costs.
In 2015 Artur moved to Julius Baer’s advisory solutions group in Switzerland where he served as a client-facing advocate for alternative risk premia strategies. Here Artur had to learn how to translate his deep quantitative knowledge into client understanding. He shares with us some techniques and tricks he learned for effectively communicating what can be rather complex ideas.
Today Artur works at Quantica Capital, whose flagship product is a Managed Futures strategy. I ask Artur for his opinion on recent struggles in the managed futures space and what he thinks the future for trend following managers will look like. You definitely won’t want to miss his answer.
Artur is a fountain of quant knowledge and offers the unique perspective of someone who has both spent time deep in the weeds and time trying to explain the esoteric. There are lots of gems in this one, so stay tuned.
|Jun 08, 2019|
Tammira Philippe and Elena Khoziaeva - It's all Greek to Me (S2E4)
In this episode, I am joined by Tammira Philipe and Elena Khoziaeva, both of Bridgeway Capital Management, a quantitative asset manager founded in 1993 offering systematically managed equity strategies.
But that’s not how Tammira or Elena would describe it. And that’s what this episode is all about: communication in the realm of quant.
As President and CEO of Bridgeway Tammira provides us with a perspective of why effective communication is so important for building an enduring asset management firm and why quants, in particular, face an up-hill battle.
Elena, who serves as head of US equities, offers us insight from the PM seat and provides some practical advice on how to best communicate difficult quantitative ideas.
We discuss both the importance and difficulty of on-going investor education, smart beta’s impact on industry comprehension, and ideas for how quants can better communicate in the future.
|Jun 04, 2019|
Ben McMillan - Attack of the Liquid Alternative Clones (S2E3)
In this episode I chat with Ben McMillan, a founding partner of IDX Insights, a firm offering "indexing as a service."
Ben cut his teeth in manager analysis at a fund-of-hedge-funds and we spend a considerable amount of time discussing how this experience impacted his research in building hedge fund replication strategies.
As it turns out, a naive replication strategy is very easy to implement. A robust one, however, is deceptively difficult. One of the most interesting insights I gleaned from this conversation is that the edge in replication may not be in applying more sophisticated math, but rather in the data sets applied.
We discussed where replication might work, where it doesn't, and the dependent nature these liquid replicators have in crowd-sourcing their allocations from their less-than-liquid peers.
Finally, we discuss how these sorts of replicators might be further enhanced by replacing standard beta factors with more customized index solutions.
Ben is full of insights and this one runs long. So let's not waste any more time and let's dive in.
|May 30, 2019|
Benn Eifert - Volatility Investing (S2E2)
I am joined today by Benn Eifert, founder of QVR Advisors. QVR specializes in managing option-based strategies and Benn describes what he does as volatility investing.
We quickly wade into the deep end with this one. Benn schools me on relative value investing and dismisses my favored mental model of style premia for what he prefers to call “the Star Wars framework.”
We chat about volatility ETPs, their impact on the volatility landscape, and how the market has changed since February 2018. And with some spectacular option-driven blow-ups in the last couple of years, I ask Benn for his guidance on how he would think about due diligence in the space.
Finally, while Benn deals exclusively with institutions at QVR, I get his thoughts on how volatility investing might play a role for individual investors.
We go deep with this one. So let’s dive in.
|May 30, 2019|
Liquidity Premium with Adam Butler (S1E8)
In this episode, I sit down with good friend Adam Butler, Chief Investment Officer of ReSolve Asset Management. Rather than take the usual interview style, we thought it would be fun to just sit down at a bar without an agenda and just record the stuff we would have been talking about anyway.
With drinks in hand, we dive into a conversation that covers topics ranging from machine learning to analytical derivations of the correlation between trend following signals to the role of defensive strategies in a portfolio.
We hope you enjoy.
|Oct 17, 2018|
John Alberg - The Man in the Machine (Learning) (S1E7)
"How do you come to a rational conclusion as to what a company is worth?" A seemingly simple question with little-to-no clear answer.
For John Alberg, a background in computer science and a passion for machine learning led him to view the problem through the lens of data. "If it is true that you can use publicly available information to buy companies for less than their economic worth," he thought, "then you should be able to see it in the data."
And thus was born Euclidean, an investment firm that marries machine learning with a deep value mentality.
Our conversation spanned more than 2.5 hours and covered everything from the basics of machine learning, to the evolution of Euclidean's approach over the last decade, to the implications of adversarial examples in neural networks.
This podcast, an abridged version of our conversation, picks up the thread mid-way through, where I have asked John to expand upon his experience with his startup, Employease, and how it influenced his value-based thinking at Euclidean.
I hope you enjoy.
|Jul 08, 2018|
Jack Vogel - Momentum in Theory, Momentum in Practice (S1E6)
Today I am speaking with Jack Vogel, co-CIO of boutique ETF issuer Alpha Architect.
I’ve known Jack for some time now and was particularly excited to bring him on the show for two reasons. The first, which you will quickly learn in the episode, is his near encyclopedic knowledge of investing literature. I’ve met few investors who have both the breadth and depth of recall that he does for both academic and practitioner studies.
The second was because he helps manage a momentum strategy.
Almost every investor has, at one time or another, at least perused the pages of Graham’s Intelligent Investor and value investing is considered by most to be as wholesome as Warren Buffett drinking a Coca-Cola while eating apple pie.
Momentum, on the other hand, is often disregarded as performance chasing nonsense, with little foundation in the realm of real investing. Yet, as you’ll find in our conversation, deep care and thought goes into both understanding the anomaly itself and constructing a portfolio that can efficiently attempt to capture it.
I hope you enjoy my conversation with Jack Vogel.
|Jun 26, 2018|
JD Gardner - "Win Bigger Than You Lose" (S1E5)
In this episode, I am joined by JD Gardner, founder and managing member at Aptus Capital. In his time in the industry, JD has served in the role of associate financial advisor, analyst to a deep-value equity fund, and analyst at short-term, systematic, managed-futures fund.
These varying experiences have mixed to culminate into JD's ultimate philosophy: it's all about the investor's return, not the investment return.
I like to say, "No pain, no premium" as pithy shorthand for the notion that long-term outperformance requires short-term pain along the way. For JD and the team at Aptus, their funds are first and foremost governed by the question of achievability. For them, the contest is not in the theoretical purity of your factor exposure, but rather whether the investor can stick around long enough to harvest it.
A theoretically sub-optimal solution can be best if it helps the investor bridge the behavior gap.
In light of this philosophy, the team at Aptus has launched two strategies. We discuss their Fortified Value index, one of the more unique spins on value investing that I have come across. Not only does the strategy aim to employ a measure of value that leads to greater investor returns, but it also rolls out-of-the-money put options in effort to protect the portfolio against sudden, short-term declines in value that may otherwise invite client misbehavior.
Classic Graham and Dodd value this is not. But for some, JD argues, a much more achievable alternative.
|Jun 26, 2018|
Meb Faber - "Just Survive" (S1E4)
My guest, this episode, likely needs little introduction. His paper, a Quantitative Approach to Tactical Asset Allocation is the highest ranked paper on SSRN with over 200,000 downloads at the point of recording.
But Meb Faber’s interests go far beyond tactical asset allocation. His work over the last decade-plus – from his blog to his podcast to the books he has authored – spans broad topics such as shareholder yield, global value, hard asset alternatives, risk parity, and angel investing to name a few.
I rarely enter these podcast conversations with a singular objective. Being a prolific writer, however, there is very little that someone cannot find out about Meb’s investment beliefs through a simple Google search. What I was keen to learn in this conversation is what drives those beliefs. Why does Meb keep searching and exploring? Is it simple curiosity, or is there a deeper, underlying philosophy that unifies his body of work?
As you can likely guess from the title of this podcast, there is indeed a unifying theory. But I’ll let Meb explain.
|Jun 26, 2018|
Eric Ervin - Risk Reducers & Return Enhancers (S1E3)
In many ways, the topic of conversation for this episode revolves around what ultimately amounts to a fairly vanilla, almost-index like portfolio.
The asset class in question, however, may verge on the exotic for listeners with less fluency in the field of derivatives.
My guest is Eric Ervin, President and CEO of Reality Shares, and he has joined me to discuss their flagship ETF DIVY. I would argue that DIVY is one of the few exposures that fits the definition of both being liquid and alternative. By tapping into the OTC market, Eric and his team build a portfolio of 1-to-5 year dividend swaps, which have historically earned investors a unique return known as the dividend risk premium.
Eric’s confidence to bring such a unique product into the market was borne from his experience as an advisor, where he utilized alternatives extensively with his clientele. Learning more about this experience in evaluating alternatives and the mental framework he used that allowed him to allocate upwards of 50% of client portfolios to alternatives is where we begin our conversation.
|Jun 26, 2018|
Tobias Carlisle - Thinking Like an Acquirer (S1E2)
This episode I chat with Toby Carlisle, a managing member at Carbon Beach Asset Management and author of popular value investing books such as Deep Value and The Acquirer’s Multiple. Toby’s approach to value investing evolved from his observations as a corporate lawyer in Australia during the burst of the dot-com bubble. Watching investors target cash-rich, business poor dot-com companies confused his traditional, discounted-cash flow mentality. But after watching these activists get their hands dirty, Toby realized that even bad companies can be attractive if they’re trading at a deep discount to liquidation value.
We navigate a wide range of topics, including uses and limits of quantitative investing in the realm of special situations, how Apple can be a deep value stock, and why using the opposite of your signal to build a short book might be a bad idea.
|Jun 26, 2018|
Adam Butler - The "Ultimate Gift" (S1E1)
My guest in this episode is Adam Butler, Chief Investment Officer at ReSolve Asset Management. Adam's story is the near quintessential example of my belief that every investor's approach is colored by their experience. From nearly blowing up his firm's omnibus account at his first job, experiencing the tech wreck first hand, and going all in on the commodity and emerging market super cycle narrative, it took "three frying pans to the face" – his words, not mine – to finally rebuild his mental framework from the bottom up. The evolution of his thinking ultimately lead him to embrace what he believes is the ultimate gift: embracing uncertainty in strategy specifications as a means of exploiting the benefits of diversification.
|Jun 26, 2018|