single market trend has a very good

year, and that is right because you've

seen these major trends in like equities

and gold, silver, and markets that we've

mentioned. It deserves to be large. It

deserves to be moving the needle. It

deserves a larger footprint in our

portfolio because that's the outlier

trade that's working. And other trades

that haven't or other markets that

aren't trending, that aren't doing well,

that therefore as a result aren't as

large in our portfolio, why should we

increase them? It's kind of like adding

to losers and taking away from winners,

which is the exact opposite of a trend

following strategy, that is

keeping losses small and letting winners

run.

>> I am joined today by Moritz Heiden and

Moritz Seibert of Takaha Capital.

Moritzes, thank you both for being here

today.

>> Thank you for having us, Max.

>> Thanks, Max.

>> So, we have we've been connected for a

long time going back to the Real Vision

days. I've gotten to follow along with

with Takaha and your growth. You guys

have been relentless in trying to bring

forth quantitative diversifying

strategies, um

really for for absolute return purposes,

mostly trend following, but I know that

what you do is a little bit more than

trend. We'll get it into those nuances,

but I want to start there.

Um

trend following has worked this year. It

worked a lot better at the beginning of

the year when gold was was really

trending. And it's one of the things

that I have always found interesting is

sometimes you get a trend that is so big

and so strong in in a large enough

market, it can kind of propel the entire

asset class forward and and it really

felt like gold was doing that at the

beginning of the year.

And so, I'm interested in when trend

following works, is it that everything

is trending or that you really only need

one or two big trends in a in a year to

to make the strategy perform the way

it's supposed to.

>> It's great when you have a lot of trends

happening at the same time.

Um you know, if we can follow trends and

capture trends in a diverse set of

markets,

and they all trend, then that's great.

Then we're going to have a fantastic

time with trend following strategies,

but

more often than not, what you see is

that you have some markets trending,

like a smaller subset of your portfolio,

and many markets inside your portfolio

not really trending.

Uh, most of the trades that we initiate

actually become small losing trades,

which means,

you know, we probe the market for a

position either long or short, it

doesn't work, we take a small loss. Um,

it's appropriately sized, and we move

on. We, like, you know, don't cry about

that. It's just, um, the nature of our

business, but

a couple of these trades, they go on and

go on, and they become large and

successful big trending trades. And

these trades, um,

can become so large or so good in terms

of profits that they will cover the

losses of the many small losing trades

that we had before,

and then make us some money on top of

it. And you just never know which

markets

that's going to be. You know, earlier

this year was big moves in gold and

silver. Then with the onset of the Iran

war, you had big moves in the petroleum

markets. That's, you know, Brent and WTI

and heating oil and gas oil.

Um,

you have trends in the agricultural

markets, you know, just abs and flows.

You never know

what it's going to be.

>> Well, the the gold and silver trend

feels like more of a classic building

trend, where it's going for months and

months and months. And not that

petroleum hasn't trended, but it's it's

definitely been rocky with a lot of

jawboning from the president. You're

seeing a lot of, uh, gapping in the

market both up and down, when there's

events that are that are causing the

market to gap up. And so, I'm interested

in how,

uh,

trend following strategies differ when

you have sort of a smooth

trend like gold. Not that we didn't have

our gap days in gold and silver.

Um but it just feels like oil has been

much more volatile um at least

commodities tied to oil. So I'm

interested in in how uh

your your models treat those two

different types of trends.

>> So if you have a lot of volatility

without direction, without the

underlying trend being honored, then you

have a big risk of being kicked out of

your position. We call that a whipsaw,

right? So you get into a trend, say

you're buying oil, and then because of

whatever announcement, it could be a

It's no longer a tweet, is it? Is it's a

truth? So how do you call it when when

there's something on truth social? Maybe

it's a truth, I don't know.

>> It's truth. It's the truth. That's all

it is.

>> Must be the truth, right? Um

and then, you know, oil moves whatever

like up 15 or in in in in our case the

like we're down 15 bucks, right? And

that could kick you out of the position.

So you're losing your long position

because of this very quick move.

And then maybe just, you know, gold oil

goes back to where it was before. So

that can happen. Now, but there is there

is oil isn't oil. I mean, in the sense

that there's a futures curve, and you

can be positioned at the front of the

futures curve or at any other, you know,

point of the futures curve that's liquid

and supports your

liquidity needs.

Uh in our case, for example, we didn't

have front month exposure, which um I

presume was the April contract when the

in WTI at least when um when the Iran

war started. And that contract, like

that very short dated part of the curve,

had the biggest moves. It has most of

the beta to flat price, if you will.

Um and and that is where you saw most of

the action. Like the front part of the

curve went into almost record

backwardation in a very swift period of

time.

But if you have exposure more to the

data part of the futures curve, say

December of 2026, which is what we had,

there's less volatility at that part of

the futures curve.

Um there's less of a reactive movement

to any tweet or truth posting. Um

because, you know,

the thing could be over by December or

by November when that contract goes into

expiration. Uh maybe prices will still

be higher then, but maybe the conflict

itself is over. So, there's less, you

know, of that excess volatility being

realized at that more dated part of the

curve. And that is quite natural or

standard for any of these markets. The

further down the curve you go, the less

volatility, the less beta you have to

the front price action.

Now,

it has consequences, pros and cons. The

pro might be that you're not losing your

position in the example that I've just

uh explained, right? Because you don't

have that whipsawing

um feature.

The con is that you don't get as much

P&L. You know, if the market moves up

and up and up and up and up and you're

long the April contract in March

or in in in in at the end of February,

then, you know, that is where the

money's made from the long side. The

December contract will make you some

money by holding a long position, and it

did make us some money from that long

position, but, you know,

absolutely not as much

as a April contract position on the long

side would have made us.

>> Is it rare for you to get into the back

end of the curve instead of the front

end of the curve? Or or is that by

design? Are you are you specifically

trying to find lower volatility trades

in something where you know that it's

highly likely? Is there any

discretionary aspect to this, or is it

purely the model says the strength of

the trend is at the back end of the

curve, or volatility-adjusted

uh that that trend is is stronger?

How much discretion goes into choosing

what part of the curve?

>> Yeah, there's definitely some discretion

in the model building step, right? We

have different models and different

models might target different parts of

the curve for different reasons. For

example,

the one in oil that Misha

being out further on the curve.

Um but it's it's not us kind of like

getting a signal, for example, for oil

and then at that step we decide, "Okay,

we're going

in at the front or the back because

volatility is currently high or low or

whatever." It's by definition already in

the beginning we might have a model that

is targeting

the front of the curve. We might have a

model that is targeting the back of the

curve or even something like we do the

spread trading where we actually trade

some sort of breakout, for example, on

different versus different contracts on

the curve actually, which again behave

totally differently because we when we

design the models we treated these

different parts of the curve as their

individual time series. So, you might

think Okay, but we have not only one oil

idea or one oil time series in there

where the model does does something with

it, but we have maybe six six different

variations of oil, which look a little

bit different, right? Because we are

sitting on different points in the curve

and that adds to the diversification we

can get overall in our systems because

although they are kind of like bound

together

in some way, they react differently.

Right? This is something, as Misha

really goes in at the front and usually

isn't changed, so we do not we do not

change the system in terms of like maybe

now we have taken off and set off in the

front or back and go into the third

contract or something. No, we don't kind

of not have that discretion when the

trade really comes about.

>> So, it's at the point of building models

and I think that that is an interesting

topic to go a little deeper on because

when you pull up, whether it's trend

following ETFs, mutual funds, if you're

looking at the indexes, there is quite

uh a dispersion in returns in months

over years and certainly over the long

run. And it's always been fascinating to

me because

it

yes, you you can differ somewhat on the

definition of what is a trend, but at

the end of the day, like we kind of all

know it when we see it. And so that has

always just been fascinating to me. So

can we talk a little bit more about um

the customization

of trend following strategies and how

very different they can be, um and maybe

what is sort of the classic trend

following look like, and then what are

the the key nuances that you guys have

implemented to make yours different?

>> Yeah, it can be very very different,

Max. Um so the stuff that goes in at the

front is the portfolio of markets that

you trade.

You can run a trend following system on

just the S&P 500 or on any other single

market on a standalone basis, you know.

Yeah, it would be trend following. It

probably would be the best trend

following system. For sure, it wouldn't

be the best trend following system

because you're lacking diversification,

but

in our case, we're trading a portfolio

100 markets, and that portfolio is very

unique. I don't think that any other

trend following manager trades the exact

same portfolio as we do.

Um

so that is very important, and it

creates a lot of differences between

managers. You have managers that trade a

very small number of markets, um say,

you know, 20, 21, 30 markets, 35

markets, something like that.

You have managers that are very

commodity heavy, and they don't trade

the financials, they stay away from, you

know, the equity indices or or the bonds

um for for whatever reason. Um

And then you have trend following

managers that trade 400 and 500 and 600

markets, and they include cash equities

and, you know, OTC trades um

and interest rate swaps and they very

exotic currencies and these stuff like

that. So you can already like from what

you put in at the front into the engine,

if you will,

into the models, into the systems that

provide trading signals,

if there's a fund that trades propane

gas and

Japanese power markets and New Zealand

power markets and California carbon

allowances, that's going to be very

different than a

um say US ETF using a trend following

system on just the

major macro markets such as the S&P 500,

the 10-year note, and crude oil, and you

know, markets such as that. So, that

creates a big difference.

Then second up is

the types of models and and their

trading speed. So, what models are you

trading? There's different

types

uh that could get you into a trend

following position, breakouts, and

moving averages, and regression lines,

and time series momentum. There's

different ways of exiting positions,

trailing stops, and you know, other

signaling and techniques that, you know,

would make you reverse a position or get

out of a position.

Um and then, depending on how you set

these boundaries and these parameters,

your system can be

short-term,

medium-term, long-term. All of these are

very subjective terms. There is no

objective measurement for oh, this is

medium-term. It's kind of like, yeah,

well, you know, in in our case, if you

have say a holding period of an

expectation, or if if a trade is more

like, you know, 100 days, in terms of a

look-back window, we're looking back

more than 100 days, it's probably at

that point becomes medium-to-long-term.

If you're looking back 30 days, so, or

20 days, just just a month,

that's probably a short-term trading

system. You will have much more action,

much more in and out, much more whipsaw,

much more frequent change of positions.

And that will then also change and you

know, produce a different return

profile.

And then lastly,

but also very importantly, is

what's the volatility that you're

trading at?

Uh you have some funds trading at very

high volatility

um or generally higher volatility and I

put I would put us in that bucket.

And what is that? It Can you quantify

that with any annualized volatility

chart? Yes, it's like 25% to 30%

roughly. We don't target any number

there. Like we're not forcing our return

stream to come out at 25% or 30% vol

pretty much exactly. But it's on average

going to be in that range. Um and you

have funds that trade at even higher

volatility than that and most funds, and

that is really the the the vast majority

of CTA trend following funds and

definitely the vast majority of assets

traded in accordance with trend

following models, they're more in kind

of like the 8% to 12% I would say

volatility range because that is where

institutional investors feel at home.

That's kind of like, you know, easy to

stomach.

No big damage being done at that level

of volatility, right? But clearly a

fund, even if you have the same markets,

the same trading speeds, same same same

same, one trading at 12% volatility and

the other at 30, you know, creates a big

difference. Um and that that is

especially then also true if if and when

it's not if, it's when these programs go

into drawdowns and you know, drawdowns

are a natural byproduct of trend

following trading of any trading

strategy. I presume, I mean.

You You You Most of the time you are in

a drawdown and only very rarely do you

make a new equity high, but you know, a

fund trading at a higher level of

volatility in expectation will have a

higher drawdown and when you are in

these periods of a higher drawdown, you

have the volatility drag, right? You're

You're down

We're not down 50%, but just for the

ease of calculation and the simplicity

of the math, if you're down 50%, you

need to make a

Uh a CTA or trend following fund trading

at a 10% volatility level is it's not an

impossibility for that fund to be down

50% but it's just much more unlikely for

that fund to be down 50% relative to a

higher volatility fund. So, they will

have less of a volatility drag.

All of that creates differences.

>> I like to say and and you know this,

you're you're a you're podcasters

yourself. Podcasts are not mediums for

nuance. So, my question is what is the

best trend following strategy and why?

>> No.

>> What is the best and why? Let's just

clearly answer the question for you.

>> Probably not the best but like

we can we can probably answer what's the

most classic one. I would say you should

look at the the classic one that we're

always say like donkeys and channels

with uh classic stop loss, right? This

is kind of like a very classic trend

following strategy and then the newer

ones like newer ones in terms of like

which we see a lot in in other funds

which maybe

more like exponentially weighted moving

average across different speeds and then

dynamic position sizing aka target

volatility which is

something that always a lot of

discussion between the two types. I

think one of is maybe the more old

school group, the donkey and channels

group and then the the target wall group

is the kind of newer kids on the block

because they come from a different

background and there has been a lot of

discussion between the two groups as

well as to what is kind of like the

yeah, the true or maybe not the true but

maybe the best form of doing trend

following, right? There's an ongoing

discussion. There's no

no definitive answer to that because

it's so different in terms of like what

the return profile both ideas do create

and um what it is you get because one

thing is like the very old school trend

following traded high wall creates

draw downs, yeah, and it's choppy but it

has also these outlier moves. Like, if

you

cocoa and portfolio gold and have a big

position in that, and you allow that to

grow over time even though volatility

kicks in because you're not readjusting

the position, this will have a big

impact on your portfolio and you get

these outlier trades. On the other hand,

there's the dynamic ball guys who say,

"Well,

no matter Probably might get in at the

same time into the same trade. So, I I'm

always saying that the the methodology

for entry probably doesn't

matter that much. There's some some

better ones, some really bad ones, maybe

but in between it's very similar at

least on our time frame. But then, how

do you position size the thing over time

maybe or at entry or do you kind of like

adjust it? That plays a big role and for

example, dynamic ball would touch a

position and volatility rises even if

the movement is in your favor actually.

So, kind of like you're long cocoa and

uh volatility goes up, keep with the

whole, but you're targeting a fixed kind

of like volatility contribution for your

portfolio. What you would dial down the

position, take profit sharing.

This is just two very different

approaches and they create very

different outcomes in terms of the

return distribution. And

I would say for example, they the

dynamic ball thing is very often easier

to stomach for people because it creates

a smoother profile. It has a higher

sharp ratio for example, while the old

school methodology has its roughness,

has a low sharp ratio usually that is

heavily skewed, but nonetheless creates

these enormous strengths. And we are

more in the old school camp. Um even

though that it's an oversimplified

version out there I mentioned, but still

the the nature of things and how we

trade it, how we see it, it's more in

that direction.

>> It's funny you say that everybody kind

of can get in at the at around the same

time, but it's how you size it. One of

my favorite people to read every year,

Harley Bassman, the convexity maven.

Every single one of the pieces that he

finishes is with sizing is always more

important than entry. So, let's talk

about sizing and and why I presume,

based off of what you told me about most

people's vol and your vol, that you are

not doing dynamic sizing. You're You're

letting the market determine the size.

>> The market's volatility and our appetite

for risk, like how much we would like to

risk or how much systems risk per trade

per unit, so to say.

Um and you're right, and Harley Bassman

is correct with his quote that

position sizing

is more important than entry level.

Especially for trades that you're going

to be holding longer term.

Like that statement is not true if

you're doing intraday trading, right? Or

you're doing like, "Oh, I'm

trading a 5-minute bar with the

expectancy of being out in 15 minutes,

you know, at at these types of

frequencies. Obviously, your entry and

exit level are pretty much all that

matters. Um

but

uh for us with long-term trend-following

systems, if we do catch a trade, and you

know, every once in a while we do, like

long cocoa and short cocoa and short

orange juice and

you know, some of these positions, some

of these trends, they become outliers

and they last for a long time. We can

hold a position for more than 2 years,

and it did happen and it does happen.

Um and when you have that type of a time

frame, it doesn't really matter whether

you entered uh a day later, a day

earlier, or a week later, or a week

earlier, or or 10 days. Like, in the big

scheme of things, that's not going to be

making or breaking that trade. But, what

will

affect it much more is like how many

contracts did you buy or sell

when you initiated the position. And

yes, so sizing is very important. Sizing

is

appropriate sizing, like you know, you

don't want to have too little, you don't

want to have too much. You want to have

a diversified portfolio.

Um

and whatever happens

if the trade goes against you and it

becomes a losing trade, which happens

quite frequently, you will never want

you never want that trade to become

a big loser because big losers are

assets that really bad for your

portfolio. You know, they

have a larger footprint then they start

dominating the the portfolio and the

returns. You don't want that. You want

the winners to produce the volatility

and not the losers.

>> What is a big loser?

>> A big loser is something that should

never happen. Um it can

>> quantify quantify a big loser for me. Is

that 200 basis points of total capital?

Is that 500 basis points?

>> 200 basis points would be a massively

big loser for us. Um we're trading a

portfolio of 100 markets. If we had say,

I mean, it's very unlikely for that to

happen, but if we initiated 100

positions and we risked 200 basis points

on each of them, we could be losing 200%

which is more than

the money that we have in the fund,

right? So, no, we're we're risking a

much smaller fraction of our closed

trade equity. Think of this as our

bankroll or cash on hand, if you will,

right? A much smaller fraction than 200

basis points

um on a trade. So, but just

for the simplicity of the calculation,

let's just assume that we risk 100 basis

points, right? Then that is the expected

loss on that trade. That is the money

that we expect to lose if the trade hits

its initial stop.

Um

in a second I'd like to explain that we

could on a giveback in a giveback

scenario where we sit in open trade

profits and then the trade reverses

against us, we can lose more than that.

That is a different discussion to have

because it happens at a different point

in time of the trade

usually. Um but yeah, so if we if we go

into the initial stop in my example, if

we risk 100 basis points, then you know,

that is the loss that we would suffer.

Now, is it going to be exactly 100 basis

points that you lose?

Very unlikely, but it should be in the

proximity of that level.

Um

um why is it unlikely? Well,

first of all, it depends on do you have

a stop working for you in the market

through your broker? Like is there a

resting order with your broker that kind

of like would hit would trigger a, you

know, a closure of your position in the

market, you know, without doing

anything?

Then

yeah, you you will then be very close, I

presume, to your 100 basis point loss

net of slippage, net of commissions, net

of bid offer. There's always a little

bit of an inconsistency there, right? It

cannot be 100% precise.

In our case, we don't do that. Like our

system will tell us, "Oh, you've hit

your initial stop. By the way, it

happened yesterday. You want to get out

of the position, but we're getting out

of the position with a delay, you know,

say today." So, there's a could be a

24-hour delay or it could be a weekend

in between.

And then, you know, we we exit the

position. Now, between these two time

points, something will happen to the

market. It could obviously stay flat and

not move and we get out with 100 basis

points loss, but it could be 120 basis

points loss, could be 110 basis points

loss, could be

an 80 basis points loss. It works in

both directions, but on average, if we

go through all these trades, sometimes

that works for us, sometimes that works

against us, you know, it's kind of like,

yeah, the 100 basis points if there is

no

discontinuity or gap event, which

obviously could also happen, right? I

mean, imagine you want to get out of uh

out of oil

uh on a Friday and you don't execute it

on a Friday, you do it on a Monday, and

then some geopolitical event

materializes over the weekend and you

know, oil has moved 20%. So

>> Well, are you trading these new

perpetual futures? Has Has that uh

become an interesting market for you? Is

there enough liquidity? A lot of talk um

certainly from the the backers of these

platforms, whether they're

owners of uh hyperliquid tokens or

they're the the venture capitalists

behind Kalshi

um

that they're they're very bullish on

perpetual futures and saying that that's

what everyone's going to trade, but I'm

interested in in your opinion as

practitioners whether you think these

markets are are deep enough, liquid

enough and and uh

whether they trended enough.

>> Yeah, we looked at that. Um probably

betting markets

they are not liquid enough. This is my

opinion. At least now I know that Kalshi

has some done some block block trades,

larger ones, but overall there's still

not deep liquidity in that at least not

for the fund for for bigger private

portfolios. Maybe you can trade them.

Um the perpetuals on for example

Hyperliquid we have just talked about

that yesterday actually Moritz and

myself because it's quite very

interesting and I trade them for fun for

testing essentially. They are liquid um

to some extent. They have launched a lot

of commodity markets which I find very

interesting because it um it's something

that is moving away from only having

perpetuals on crypto. You know that

crypto is kind of like calming down. You

know

maybe having a bad stretch let's say. Um

there's

>> Except for Hyperliquid. Except for

Hyperliquid.

>> Yeah, Hyperliquid Hyperliquid has done

everything right right. They have

launched a token with a massive

community support essentially and have

have people on the platform which was

great from the beginning. Um but they

have also drifted away a little bit from

only having crypto. I think for them

it's also important to diversify to

other asset and I think also this gives

the platform a completely different

meaning because now we see like soybeans

and wheat are sold and they're straight.

Those two products have big no

liquidity. Natural gas is there has no

liquidity. There's huge huge

funding spreads actually at the moment

in some of these markets, but there are

also some which are very liquid like the

equities. There are single stock

futures and options that you can

actually trade on most of tech stock

like Nvidia, Micron, stuff like that and

they are liquid.

I wouldn't say you can put millions in

them easily. There will be slippage and

stuff like that, but still it's fairly

simple to trade them. It's

fairly liquid to trade either for a

larger portfolio and it's the direction

where I think all some markets are

headed because actually with these

perpetual futures you're

allowing a new asset class to take reign

on the quality space because you're

getting rid of the rolls. You have kind

of like constant maturity maybe which

hasn't existed before. [clears throat]

You have a different product traded for

maybe a different audience, but also an

older audience. For example, all of us I

find very interesting as well. Just

opens up a new space to trade that

stuff, a new audience as well and also

if a lot of efficiency because you're

getting rid essentially of a lot of the

friction that is maybe associated with a

classical fund right which you look at

hyper liquid you can launch vaults on

their platform pretty easily. You can

get those funded. You can trade the

products that you do not have to deal

with kind of like brokerages or I think

traders or anything between. Your

clients come from everywhere. Let's put

aside away the the legal side of things

because this is of course like highly

unregulated. You We as an investment

manager would not launch a product for

clients that way because you wouldn't be

able just from a legal perspective to do

it. But I definitely see that moving in

the right direction and I think if the

conventional exchanges like CME do not

launch perpetuals or

competing products at some point then

the the new competitors like competitors

like hyperliquid will move into that

space and they will siphon out up some

of the liquidity. You know, also some of

the AUM that may might be deposited in

these products.

>> How do you determine whether there is

enough liquidity?

>> It's still hard. For some it's it seems

to be the 24-hour volume that is

mentioned there which is kind of like a

good measure. But if you trade a bigger

size you definitely have to look at the

order book to figure out

what the spreads are. For example, the

just look at the earlier I think the

the soybeans or whatever wheat markets

they had relatively high volume but the

spread was less for example in the order

book and there was also no movement in

there and then you could see that

actually the the funding was

around 200% per year. So this already

tells you that probably there's kind of

like a disbalance there and there's not

enough interest on enough people taking

position on the other end. I think this

will get better with time as people

enter this space and maybe market makers

also trade on these platforms because

they're already offering kind of like

the the incentive like to to do a carry

trade for example. I mean it's on our in

our range of products what we would

offer

but we have done that before, right?

Maybe

5 6 years ago

the the the yield on the current carry

was also worth 40% right when we did

trade. That was around the time when the

contracts on the CME got liquidity right

and the the easiest thing that you did

was like holding some Bitcoin and then

shorting the CME futures against that

and that went down from 40% annualized

yield to maybe 3 4% right very

conservative because it got some

adoption and I see that I expect the

same thing to happen actually with the

other commodity contracts as well.

>> I should add maybe real quick that

Moritz is talking from a prop trading PA

perspective.

>> Yeah.

>> We're we're not not not we're not

Yeah.

We're trading CME Bitcoin futures and

CME Ethereum futures in in our fund at

Takachi Capital, but we're not as

Takachi Capital um active on any of the

um

blockchain based um

exchanges.

>> Do you think that you are going to start

to see these types of futures products

come to uh

CME, ICE, these these other exchanges?

Um

I was talking to somebody who says that

the roll trade is one of the most

profitable trades for these exchanges

and if they don't have any roll trade,

uh they're not going to make any money

and so their their business is is

essentially

um dependent on the rolling of

contracts.

Is it likely that we're going to see

that coming to these major US exchanges?

>> I don't know. It's impossible for me to

have a forecast on that, but um

in and by itself, the perpetual future

is an an interesting instrument, right?

Yes, I mean, you would no longer have a

roll trade. It's

it's kind of like uh

your broker giving you a margin loan to

buy a security on margin, right? You're

buying the S&P 500 or the spy ETF on

margin. It's yeah.

That's also kind of like a leverage

gives you that leverage position which

which never expires, but you pay funding

spreads um and the same is true for that

perpetual future, I presume.

Mhm.

What people need to get comfortable with

is the fact that

you know, it is decentralized and um

it is whatever it is, Tether or USDC and

you're on a blockchain, right? There is

no

no CME legal person that you can

send a letter to and complain if

you know, if you lose your coins or

tokens or you get hacked and stuff like

that. I mean, that's

>> I don't think uh

any institutional level it's going to be

on hyper liquid anytime soon. But back

to what you back to what you actually

do, do you call it high octane? What

obviously there's the 8 to 12 wall that

most people sort of end up around in the

institutional side. You guys are more in

the 25 to 30. Is that why it's high

octane or are there other aspects of it?

>> The higher volatility is the synonym for

say high octane, right? There aren't

that many high octane or higher

volatility trend following funds around

these days. Some, we're not the only

one, but it's a minority and the

majority of funds have lower

volatilities.

And to answer your question with, you

know, what is the best and obviously

you'd like to hear it's ours, that would

be very arrogant, very naive and also

incorrect to answer that way because

really there is

I mean at any given point in time there

is the best, right? But it's dynamic and

changing. Um

it depends on so many factors. What we

focus on is

robustness and resilience. So we do like

putting together systems,

models, trading strategies that can

stand the test of time

and the many curveballs that the markets

throw at us, which happens repeatedly.

Um one way of doing that is by not

actually overthinking it, by not getting

trapped in complexity and putting, you

know, layer on top of layer on top of

another filter and another parameter and

you know, creating an over optimized

back test, which is very easy to do in

today's world with the computing power

that we have. Um

Now designing these systems in

I don't know a way simple isn't the

right word, but in a robust way that

isn't that strips away many of the

complexities. That is

that is actually an edge um and finding

these systems isn't isn't necessarily

easy.

So, yeah, um that is what we believe is

good for us. What we believe works for

us and our clients. And other trend

following managers will have a different

opinion on that. They will believe that

their system is better suited to do

this. Um but by and large,

a well-designed long-term trend

following system,

they're all getting you into the same

trades and the same markets at some

point in time. Um

it really depends on yeah, do you let

the trades run?

How do you size them?

Or are you micro tinkering

with these positions uh while you have

the position on? And

um that's not what we do.

>> You're letting the trades run. Um so if

if a trade were to be put on, your model

tells you what the size is, and it

doubles from there, it's going to run at

double the size. Is there any point

where

obviously this is a this is a good

scenario, right? Where where you're

having a trade continue to get larger

and larger.

Um

How What's the biggest that an

individual trade has ever gotten above

its initial size?

Ooh.

Uh off the top of my head, I don't know

the number. I can give you some of the

recent examples. I mean,

Coco is maybe a good one, but um look, a

market that is trending

and say we have a long position, which

was the case in Coco a couple of years

ago, right? And that

that then is a trade that deserves its

place in the sun. It deserves to be

large. It deserves [clears throat] to be

moving the needle. It deserves a larger

footprint in our portfolio because

that's the outlier trade that's working.

That is the trade that is very likely

going to be very uncorrelated to other

things that you have in your portfolio.

It is a trade that sits in open trade

profits and the volatility is produced

by a trade that is profitable and not by

a trade that is producing losses. So, it

kind of like it has all the the

arguments for why it deserves

a

bigger seat at the table than a market

that hasn't moved or isn't moving.

And why should we be

um forcing our portfolio portfolio or

the systems through dynamic position

sizing to rebalance the portfolio such

that the trade that deserves its place

in the sun, which is cocoa in my

example, becomes smaller, which is a

countertrend or mean reversion trade

that you're hiddenly executing.

And other trades that haven't or other

markets that aren't trending, that

aren't doing well, that therefore as a

result aren't as large in our portfolio,

why should we increase them? It's kind

of like adding to losers and taking away

from winners, which is the exact

opposite of a trend following strategies

that is

keeping losses small and letting winners

run.

Um but yes, I mean it does come with

that

So, yeah, inconvenience at the point

when, you know, you have this big

outlier, you captured it, it has made

you a lot of profits, it's now very

large position.

It's a big component of your portfolio

and eventually it will reverse.

And it goes the other way.

And that is, you know, that point that

is also at the beginning I mentioned,

you know, with the 100 basis point

example,

this could now be a position where we're

losing much more than 100 basis points.

And we will be losing much more than 100

basis points in that ex- extreme example

on that giveback, on that reversal.

Like, you know, cocoa goes from its high

of $13,000 per ton

to where it is now, which is around

4,000 or even below, you know, 4,000.

Um so, yeah, on the way from 13,000 to

9,000, which is a $4,000 move,

you will

you will experience that pain because

you're giving back open trade profits,

and that's going to be more than 100

basis points. But, it's on a winning

trade. It's not going to become a loser.

It's going to stay,

in the absence of gaps and

discontinuities, it's going to stay a

winning trade. So, you don't really have

to be worried too much about it.

>> Well, that is one of the interesting

things about trend following that I

think differentiates it from just about

every other uh strategy out there is

that it almost definitionally is not

trying to be perfect. You can't catch

the bottom because you can't have a

trend on a on a reversal, and you can't

catch the top because a trend has to can

only end after drawing down. So, every

other strategy, whether you're value,

um

or growth, I mean, you're trying to

catch these things as early as you

possibly can, and you're trying to sell

them as late as you possibly can,

mostly. And And trend following

just says that that is not what you're

trying to do, and it it's always been

one of the key differentiating factors.

Why not try and

sell close to the top? Add some sort of

discretion. I mean, have you looked into

whether you would have any timing skill?

Um, I'm sure in many cases price leads

narrative, but eventually you start to

get

the narrative comes through, and and you

start to understand the fundamental

drivers of why a trend exists. Why not

layer in some of that fundamental

information?

>> Let me use the exact same example again,

and I think it'll might be helpful to

work through this. Um,

coco starts at 2,500.

It goes from 2,500 to

3,500.

On a chart, as a discretionary trader,

when you look at that, it will look like

a big move.

And it is a big move.

And you will be tempted to call that the

high because the past 10 years or the

past 20 years, Cocoa really hasn't done

that much. It's kind of like chopped

around and all of a sudden it had made

that move and um you're sitting on these

open trade profits and there is this

urge to now close the position, click on

the mouse,

realize the profit and feel good about

it.

But you don't know because you can't

forecast that it goes to 13,000. So,

with the benefit of hindsight, you look

{quote} {unquote} stupid to have sold it

at 3,000 or 3,500

because you could have sold it at

13,000.

So, because it's impossible to forecast

where these markets go and where these

prices go,

um

there is no better way, in our opinion,

to just let the system do its thing and

have the system elect the exit. And the

exit will be on a reversal. You just

have to go through that,

you know, give back

period where,

you know, you're losing some of your

open trade profits, but

the sys- the system kind of like is

becoming clearer and says, "Okay, now

it's Now it's time to exit the long

position and maybe turn short or just

close the position and go flat, but the

bullish trend is now over."

As a discretionary trader, you

you

Yeah, you will

your emotions, psychology will

very often trick you into touching a

position that shouldn't be touched.

>> Well, I guess let me use a counter

example. Let's take Kospi futures,

right? It's clearly being driven by SK

Hynix. We have this information. You

could then layer in information about,

"Okay, what memory supply is coming

online?" And and say how much further

could this thing go? When are we

actually going to get new supply into

memory because that is what is almost

likely going to signal the reversal in

this. Why not layer in that type of

information into the strategy if say

you're long, you know, Cosby futures.

>> Never worked with

integrating fundamental information or

our price to book or price to earnings

or any news items or news flow into

into our trading systems. We believe

that the information that's relevant is

incorporated in the price already. That

the markets aren't 100% efficient.

They're

efficient enough

that prices aren't completely rational

but they're irrational enough for us to

make money.

Um but yeah, the information we need

therefore is price only.

>> Yeah, we definitely rely on other people

doing their price finding job for us.

For example, I mean in that example, it

would be other fundamental managers

maybe bringing the price back in line

taking advantage of a dislocation or

information advantage they have or

example because they exactly do that

calculation.

It would be very hard to do. I think

it's

it

it There are some macro funds, right?

They are trading trading similar

strategies that are akin to trend but

trend based on maybe macroeconomic

information or sector information or

company information where they use it as

an entry or as an exit. But just very

difficult [clears throat] to do that.

Think on a very large asset base. It's

more usually the managers they have

maybe 10, 15 positions. They have deep

research into each position. They have

teams doing it all the time, right? You

need to be very well informed to do

that. You have to basically constantly

monitor the market and even then you can

be wrong, right? Can be incomplete

information that you have. It doesn't

mean that you are always kind of like in

agreement with what the market things or

where the market goes it

sometimes it just turns out differently.

Sometimes there are surprises as well.

It can just deviate from the rational

story.

And in that case

maybe the the naive or the the stupid

approach is kind of like just stick with

the trend, stick with the simple rules

and you end up in a various very similar

situation as well. Maybe you do not time

the exit as well about it as other

people and maybe your rationale behind

the trend is different, but you can do

that across a large number of different

markets because you don't need kind of

like two persons who are constantly

monitoring that. Because if you would do

that, think of our 100 markets which are

ranging from I don't know

commodities, agriculture commodities to

equities, rates, FX, everything.

It's very hard to do that. I mean even

if you ask me

every commodity usually has

very different information and it

requires a separate team to look at kind

of like soybeans, cotton, all of it. Oil

of course and these are all topics where

you would need to kind of like be on top

of all the information that is happening

around the world.

Does it exist maybe somewhere? Do funds

do that? Yeah, probably they do, but the

the hurdle to do that, the incentive to

that to that is very very high I guess.

And then again, probably you are not

right in 100% of the times, but you're

right maybe 50%, maybe a little bit more

than 50 if you're good like 55 and

that's your edge. So

yeah, I would say what we do is a robust

approach to that without all the the

over complication.

>> And I think that makes sense, right? It

is a question of scale and if if it if

you don't have the scale to truly layer

that in in a robust way, then then you

are playing a game of chance. I would

say the firm that is is most famous for

having layered this in most recently is

AQR and Cliff Asness has talked about

putting fundamental

signals into their trend following

specifically for when price does get

disconnected. And uh yeah, I mean 189

billion in assets under management does

uh does allow you the the team to be

able to have people dedicated to doing

that um in a in a systematic and and

robust way. Uh so I will I will

definitely grant you that. I want to

talk a little bit more about what's

trending right now. Um you know, it has

been a tricky year. We have a a

president here in the United States who

seems very interested in uh causing

markets to to reverse, whether they're

um

going up and stepping in and starting a

war or they're going down and tweeting

that the war is over. Uh we're we're

getting a lot of input that is driving

markets and creating a choppy

environment. So I'm interested in in

what's trending, what's working right

now for trend followers.

>> Yeah, trend in and of itself a single

market trend following I should say has

uh had a very good start to the year.

Um

maybe the month of uh March wasn't that

great because you had the start of the

war and there has been some, you know,

change in positions, but

by and large, I mean, you had big trends

in the precious metal markets,

especially in January. We're still long

um most of the precious metal markets.

Definitely we're long gold and silver.

We're also long platinum. We're long

long long palladium. That's a position

that we have recently closed on the long

side, but

um we do see

uh

you know, we're short Bitcoin and

Ethereum. The crypto markets aren't

trading that well or at least, you know,

these two. I'm really not I don't know

about all the other ones to be quite

honest.

Um we're short cocoa.

Um

we are long the equity markets. No

surprise there. Uh there's only a few

exceptions where we don't have long

positions, but pretty much all around

the world we have long exposure in

equity markets. Um

We're long the petroleum markets.

Um no surprise there either, I think.

We're short natural gas in the US. Um

It's a market that doesn't really Yeah,

just continues going down really

in price.

Um so yeah, different We're short

coffee.

We have a mixed book in bonds. We have a

mixed book in currencies. Um

There's always something happening.

Um

But yeah, by and large, I mean, this

year has been good for single market

trend following. Yeah, we're short cocoa

since a long time. Again, it's it's a

great great trade.

Um

We're long copper.

Long bean oil is a great one. So, bean

oil has been going higher and higher and

higher

for quite some time now.

And that's a market that is that has

become larger in our portfolio, uh for

sure. That's an interesting one. We're

still long cot- Cotton has had a massive

run

to the upside in recent months.

And it has now come back. It has given

back some of these um profits. But we're

still long cotton.

Uh

you know, it's it's also a position that

is now

that has a footprint in our portfolio.

>> So, how far can a can a position come

back before the trend is over?

>> It's impossible to say.

It depends on the volatility of the

market.

Um

depends on the model that we're looking

at, but it can definitely be more than

the exemplary 100 basis points that I

used uh to uh to kind of like frame the

discussion when we started, but

yeah. Yeah, I mean, easily you can have

a 3% loss on a portfolio basis on a

on a giveback market, and more than that

even, too.

>> Getting long or short a trending market

definitely falls within the classical

trend following. What about the the

spread trades and some of the other

things that you you have layered into

your strategies?

>> So, yeah. So, that is an interesting

one. We're We're We do apply trend

following systems to spread markets.

And that has not worked well for us this

year. It has worked very well for us

last year. It has worked very well for

us in in in in in recent years in

general. But, yes. So, we are

That That's why I said like single

market trend has a very good year. And

that is right because you've seen these

major trends in like equities and gold,

silver, and you know, markets that we've

mentioned and already touched on. Now,

the petroleum markets.

Um

but spreads have been very erratic.

Like, you know, very volatile, very

whipsawy. And that's why we've lost

money

um

trading these spreads or on our spread

trading systems.

Now, this does not mean in expectation

that we'll be losing money with these

systems tomorrow, next week, next month,

or next year.

Um it could be quite the opposite.

Um all of these systems, at least the

ones that we trade, they go through

periods of outperformance and

underperformance. And that's quite

natural. It's

one of the

most important things

is

to stick to systems for a long period of

time.

To evolve them carefully, thoughtfully,

but not in an overreactionary way.

Uh don't

change your system

only because it has produced you a loss

that you don't feel good about in the

right here, right now. Um you have to be

capable of

uh working with these systems through

periods of drawdown, even though that's

inconvenient and you have an urge to

change the system because you can always

find a back test that would have done

better in that recent period that has

caused the loss, but that is a recipe

for disaster. You know, you're

throwing the baby out with the bathwater

at the wrong point in time.

Um the sample size on many of the

systems we trade just isn't large enough

to allow us to jump to these conclusions

only because they go into a drawdown

today.

Um if they're well designed and we have

reason to believe that they have edge,

they should be able to crystallize their

edge in future price action,

but you we may have to throw them many,

many, many more balls for them to start

hitting again.

And you know, periods of drawdown

and underperformance for month and month

and month

are something that

something that just happens.

>> Well, that is an interesting topic. When

does a signal stop working? How many

what is

how many incidents of uh the the

strategy failing to work is

is the signal dead versus in a drawdown?

And do you think about optimizing a

signal to give you more data points so

you get a faster realization of

something being no longer working? I

mean, is it

is it optimal to have uh a system that

can go through a multi-year

drawdown before you finally get enough

signals to say, "Oh, well, it wasn't

just in a drawdown. It doesn't work

anymore." Um would it be better to

optimize for the number of data points

so that you're working through these

signals faster? Where where does that

optimization work?

>> I think it depends on the strategy

you're looking at. Um kind of like some

strategies you can definitely say okay,

stopped working because for example,

there was something driving the strategy

and this has gone away for some reason

like regulatory changes, changes to the

market, whatever how it behaves. For

example, if you're taking taking

advantage of an anomaly anomaly or

something like that then that can go

away pretty quickly and you will be able

to detect it as well and then you can

have the market. But trend in general,

it requires a long period. I mean, like

looking back at the

performance of trend followers, even

those that have been performing very

well over the long term, you can see or

even identify a stretch of several

years, I think like in 2014 to 2017 or

even 2018 where it was essentially flat.

You look at them and they there's

nothing happening. Of course, they go

sometimes up and down, but more or less

the whole sector has been very much flat

and there have been examples like Winton

for example, who cut all of their trend

systems and went out out of trend

completely and then got back into trend

again when they found that well, maybe

it was premature to kind of like call it

an exit.

So, it's really tricky and especially

tricky with um systems where there's not

a large sample size. One of the reasons

why usually what we do, we treat markets

the same way in the same system, so we

do not fine tune them. We do not kind of

play around with the parameters too

much, so we do not say well,

this let's say you're trading a 200-day

moving average on the S&P, but on the

German DAX index, we trade a 180-day

moving average index system so we kind

of because this works better maybe in

the past, that's not what we do. We

basically treat all the markets for one

system the same and say we treat it

equally and just treat every time series

as a different realization of basically

some kind of financial financial market

that is giving us

these data points and by that we can

already say we're increasing the sample

size and we would be able to be a little

bit faster to detect actually when

something is not working anymore. But,

if you only look at one market, it can

take a pretty long time until you figure

out it doesn't work anymore.

One of the examples we mentioned before,

the cocoa,

hasn't done anything for a long period

of time of time at least in our

longer-term months like the other

markets as well. Rough rice is one of

the examples that has been performing

performing recently, but hasn't done

much before. So, it was always my

my kind of my toy example. So, if you

wanted to throw something out, it would

be rough rice because didn't do

anything. And then, suddenly it does

something. So, the the way we trade, and

that's also important that we cannot

force a position because as soon as

you're forcing yourself to be in a

market, so you're either long or either

either short, you have no chance to

actually kind of like

have no position in the market and

actually

kind of like discard something that does

not work anymore. So, we in a way, our

systems naturally take care

of things that do not work any longer

because you will just not get any system

if there's no trend, and it does not

pull your system down because no

position is no position for us.

But, in general, it is takes a long time

to figure it out. You need a lot of

data.

And it will be a

decision that that kind of like you

should take it will might maybe wrong,

right? You can also say, "Well,

something doesn't work and suddenly it

works." Again,

for the spread market, it's a good

example. Definitely, 1 year for example

is not enough because that's one of the

things we are adding to the trend system

because they spread trends have low to

negative correlation actually to our

single market trend, and that makes them

so attractive. And then, there are years

where it works very well like last year,

and you are outperforming your

competitors who are having a bad year in

single trend. But then, this year for

example, it doesn't work well, and you

are like well,

should you still edit? Maybe it doesn't

work and then suddenly pops up again and

it works well. So, it's always a I would

say even case-to-case decision and you

definitely need to go through a few

cycles to actually wait to see how it

plays out.

>> And I think your example of the 200-day

versus 180-day is a good one to go a

little deeper on. So, you have a signal

and and

obviously these are you know, not real

examples, but let's say the 200-day

works really well for for US markets and

the 180-day works well for the DAX, but

you don't want to

you don't want to be doing that. How do

you How do you decide which one

dominates the the signal? Right? Is it

whichever one is a larger market,

whichever one trade trends more often,

whichever one has more higher

volatility? How How do you decide when

you are getting

mixed optimization signals and you have

to just pick one to keep the system

um from from getting overly complex?

>> I would say keep it simple and stupid in

that case. So, in in most cases like the

180 200-day for example, it would be

very similar, right? So, in a in a range

you're looking at um there will always

be optimal point as long as you

optimize, right? It might be 189 days or

whatever, but in most cases you just

stick with

a general number that is kind of like

widely accepted. For example, the

200-day moving average is a very

classical indicator, right?

Probably no one who goes on screen and

draws indicators will feel the urge to

kind of like draw the 200-day and then

add the 198-day

indicator on top of it. So, everyone has

kind of agreed to 200-day and maybe

there's also kind of like some

self-fulfilling prophecy around that

that people if they are using 200-day

indicators, they're actually driving

trends on that time frame might be true

as well. But in general, we tend to to

stick to simple numbers, round numbers,

for example, 200 day, 150, or something

like that. And then

it's very hard to say. We do not In the

optimization, we do not focus on one

point. So, if you see something, for

example, and maybe let's say you

optimize for sharp ratio, which we do

not do, but

if you do that

and you plot your results of the various

parameters versus your sharp ratio, we

will you will identify single spots

where it works really well, right? The

point which has the highest sharp ratio

across all the assets, for example. And

that could be a parameter optimization.

What we instead are looking for is a

kind of like maybe a lower point. It

doesn't have the highest sharp ratio,

but it's very robust in terms of like if

you go down 10 or plus 10 in terms of

like the maximum

20, 10, or 1 or 9 days. It doesn't

really matter. It's just like very

robust. You can go to 160, maybe nothing

much changes. Like maybe you're getting

one more entries here or one less entry

there, but in general, not a big

difference. Of course, there are kind of

like

boundaries to that as well. You know,

like if you go down to 30 days, of

course, your signal gets much faster.

You're getting much more entries and

exits. But in general, look for the most

stable plateau of of the the parameters

you can find. And in there, there will

be your solution. And if there's kind of

like a widely accepted number, indeed

that's 200 days, then probably you stick

with that.

>> Okay. So, you said you're not optimizing

for sharp. What are you optimizing for?

>> So, we have no optimization running. We

do not look at one number at all. I

mean, we have sharp there as a reporting

number, but overall, what we want to see

actually is also very uh classical

statistic in in in terms of trend

following. It's just the number of R

multiples. So, kind of like how well do

our outlier trades perform? Do we kind

of like cut losses? Do we want to have

like

we have a certain expectancy in terms of

like what we're expecting to lose on a

trade. Do we see that or do we break

through that? So, do we exit on the

right kind of like stop actually? And

then on the other hand, how far can

trades run? Kind of like are they able

to produce these outlier size returns?

This is more something that we

conceptually look at from a from a

system design if we're talking about

trend following trades. And of course,

you will you will look at drawdowns for

example or we will look at margin to

equity in the second step when you kind

of like design the system and you want

this to be in a certain range. For

example, you could have a very great

outlier return strategy, something

producing great trades, but it has an

80% drawdown. Yeah, sure, but that is

not kind of in your wheelhouse.

You want maybe something that is more

aligned with with the overall level of

volatility that you're targeting or the

overall portfolio risk. And in the end,

all of these parameters need to to align

to a certain degree. They need to make

sense. And very often when designing the

systems, you can see it pretty early

that one of these things is not behaving

in line with the others. So, you can

easily see that when you tend to over

optimize, that one of the parameters is

kind of like an outlier and does not

behave very well with the others and

then it already gives you kind of the

feedback or that this does not seem to

be robust and you shouldn't expect this

to play well together. The easiest

example is position size for example.

You Tomorrow is mentioned

you can risk 1% of of of your closed

trade equity on on a position and you

can of course kind of like play around

with that and scale the button down and

you will immediately see that your trade

distribution varies wildly and you will

get very interesting results and at some

point just your system will blow. up.

course, you're risking too much if you

have a certain number of trades and

expectation that you have in your risk

risking 2% on each trade, your blow up

risk is basically 100%, right? This is

the most extreme case,

but it tells you also that in between

there must be something or

a position or a size a number which kind

of like gives you your desired result

also in terms of what you achieve on

outlier trades but also drawdown.

>> So, when you're designing the system, if

you're not optimizing for sharp, you're

not really optimizing for anything,

um

is it just

does this produce

do our losses look like they're supposed

to look? Do our winners look like

they're supposed to look? You're you're

building a system that gives you

results that you know over time are

going to produce positive returns. Is it

Is it simply that?

>> Yeah, more or less. We look at numbers,

of course, we have kind of like we could

use

parameters. We could take sharp. We

could take Sortino ratio, something that

maybe is more tuned to the way we trade

that kind of like does not penalize the

outlier trade and we could put that into

an optimization right and let the

algorithm completely decide, okay,

what do you want to do? How much Is it

good? Is it bad or something and then

optimize for that and kind of like fine

tune parameters. But for us it's more

really does it look robust and does it

produce the desired distribution of

returns that we want to look at.

>> It's much more important, like you said,

do the losses look what they're supposed

to look like? Oh, yes. I mean, we don't

want to have uh large losses, right? We

fully expect on the trend following

system to have more losing trades than

winning trades. We want to have

um you know, looking at the

distribution, we want that to be

positively asymmetric. We want to have

um you know, some of these winning

trades to be big winning trades. You

know, that's what you want to see. So,

there are some statistics that you can

look at that will tell us okay this is a

this is a good enough system to work

with. I think what's very important is

the diversification that you're getting

from the markets that you're putting in.

That is a an exercise in and by itself

putting together a portfolio of market

that

works well in harmony together. You

don't know

that or when you're going to have a

position, but you kind of like want to

put yourself up such that you can have

potentially positions in a very diverse

set of markets both long and short.

>> Diversification almost feels like a

dirty word in this current market

environment. Everybody wants

concentrated exposure to a handful of

themes. You

produce a strategy that by and large has

been sold for its diversification

benefits. Uh there are certainly

absolute return arguments to be made for

trend following as well, but by and

large when you talk to people who who

engage in trend following, they they

love to talk about oh this strategy when

you pair it with a traditional equity

portfolio, a 60/40 portfolio, look at

the benefits it provides to the

portfolio as a whole. And so I'm

interested in whether that is how you

position your strategy to your

investors. Is that what they're looking

for? And um

does the choice to go for a higher

volatility

um is that at all impacted by what your

investors are looking for um from the

strategy and and

the role it plays in their portfolios.

>> So the answer to the last part of your

question is yes, our investors are

interested in a high volatility fund,

else they would not be invested with us.

Some of these investors have actually

requested such a fund. Some of them are

very used to investing in high

volatility or higher volatility trend

following funds and they have other

managers that you know

also have uh

you know, higher volatility and they're

invested with these folks and they like

it

for their long-term return potential.

They're okay with the volatility,

they're okay with the drawdown, they

know what they're getting into. So,

these are the types of investors.

Um we don't have institutional

investors. Our volatility would be too

high to appeal to an institutional

allocator. You know, they're usually not

in that in that space with you know, 25

or 30% fall.

>> Why not? You can just make it smaller.

>> They can make it smaller, but then it

may be not worth it may not be worth

their while and their time to

to underwrite and go through the

operational due diligence and you know,

they wanted to then also if if they are

very big institutional firm, they want

to invest a very large sum of money or

you know, 100 million, 200 million, 300

million, something like this per ticket.

Um there's career risk at play. You

know, usually they're in a paid

position. They have to report if not to

a boss then to the board. You don't want

to look stupid. So, you don't want you

know, to have anything go wrong.

Obviously, if you're trading at a higher

level of volatility, you

increase the probability of something in

quotes going wrong, which is drawdown or

loss, right? It's not necessarily wrong.

It's something different than wrong, but

it's a drawdown or loss nevertheless and

an allocator doesn't like that. They

like smoothness. They like high Sharpe

ratio. They like steady Eddies,

something that is not giving them a

negative surprise and

So, yeah. So, this is this is a

different thing. Now, higher volatility

futures trading because futures have

inherent leverage.

Um trading at a high level of volatility

is actually something that we believe is

capital efficient. It's not just our

belief. It is actually capital efficient

um

you know, to to do that. Um

So,

it's an attractive niche for us.

There is a big crowded red sea of

funds out there that have a lot of

assets under management that trade at a

lower level of volatility and they

compete against each other for big

institutional allocator tickets.

And there is a much smaller subset and

group of fire volatility trend following

funds and we belong to them

that

I don't want to say that market is

is not competitive. It is competitive

but it is a

relative to the alternative it is a an

attractive

>> niche at least for us and that's why

we're in it.

Everybody likes to say that what they do

is totally unique and I find that it's

it seems like an attractive sales pitch

to say that we do something that nobody

else does. But that means nobody's

shopping for it, right? And I think it's

much better to position yourself as a

fund that does something that people

want. It might be a smaller subset of

people that who want this other thing

but it's something that there is a

defined market for and and prove that

you do it well. You that you do it as

good or better than your competitors

rather than trying to say, "Oh, they're

over here on this island and we're over

here doing something that's completely

different." And

>> Very good point.