SI381: Process Over Pain: Trend Following in an Unforgiving Market (Group Conversation Part 2)

The panel engages in a multifaceted discussion on systematic investing, addressing the role of AI in model improvement and research, and debating the merits of Total Portfolio Approach (TPA) versus strategic asset allocation for trend following. Panelists explore process stability amidst changing markets, cautioning against reactive rule changes and emphasizing understanding causes for performance. The conversation covers drawdowns, distinguishing CTA drawdowns from those in other hedge funds, and the potential for high-vol CTA products in the retail market. Outrageous predictions for 2026 include institutions buying managed futures ETFs, a volatile macroeconomic roller coaster, and rising interest rates.

Outlines

Part 1: Introduction, Key Themes

Part 2: AI, Portfolio Strategy

Part 3: Process Stability, Model Design

Part 4: Drawdowns, Market Dynamics

Part 5: ETFs, Retail, Volatility

Part 6: Future Outlook, Predictions

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Part 1: Introduction, Key Themes

00:00Introduction to the Systematic Investor Series Year-End Group Conversation

Introduction to the Systematic Investor Series Year-End Group Conversation

00:40Key Themes: Market Selection, Dispersion, Process Stability, and Drawdowns

Key Themes: Market Selection, Dispersion, Process Stability, and Drawdowns

Part 2: AI, Portfolio Strategy

02:31AI in Modeling and Total Portfolio Approach Impact on Trend Following

AI in Modeling and Total Portfolio Approach Impact on Trend Following

03:51Total Portfolio Approach: A Buzzword or a Real Opportunity for CTAs?

Total Portfolio Approach: A Buzzword or a Real Opportunity for CTAs?

06:29Cautious AI Adoption: Coding, Summarization, and Message Testing

Cautious AI Adoption: Coding, Summarization, and Message Testing

07:13TPA's Impact: Optimizing Hedge Fund Portfolios and Dynamic Risk Allocation

TPA's Impact: Optimizing Hedge Fund Portfolios and Dynamic Risk Allocation

09:30Breaking Anchoring: TPA's Potential to Re-evaluate Asset Allocations

Breaking Anchoring: TPA's Potential to Re-evaluate Asset Allocations

11:16Overcoming Resistance: The Unlikable Strategy and the Need for Statistical Thinking

Overcoming Resistance: The Unlikable Strategy and the Need for Statistical Thinking

12:25The Big Picture: Diversification Beyond Traditional Assets

The Big Picture: Diversification Beyond Traditional Assets

14:04Long Volatility as Portfolio Brakes: Control and Risk Management

Long Volatility as Portfolio Brakes: Control and Risk Management

Part 3: Process Stability, Model Design

17:41Process Stability in a Changing Market Landscape

Process Stability in a Changing Market Landscape

18:50Evolution vs. Reaction: Understanding Distribution and Regime Changes

Evolution vs. Reaction: Understanding Distribution and Regime Changes

20:13Volatility's Role: Predicting Distribution and Improving Forward Processes

Volatility's Role: Predicting Distribution and Improving Forward Processes

21:00Consistency and Transparency: The Value of an Unchanged Model

Consistency and Transparency: The Value of an Unchanged Model

22:38Measuring Performance and Staying True to Your Thesis

Measuring Performance and Staying True to Your Thesis

23:58Financialization and Market Selection: Staying True to the Investment Thesis

Financialization and Market Selection: Staying True to the Investment Thesis

28:42Pain as an Invitation to Reflect, Not Necessarily to Change

Pain as an Invitation to Reflect, Not Necessarily to Change

29:54Underlying vs. Replication Models: Assumptions and Averaging

Underlying vs. Replication Models: Assumptions and Averaging

31:21Intelligent Reflection: Understanding Deviations and Underlying Factors

Intelligent Reflection: Understanding Deviations and Underlying Factors

32:30Owning Design Decisions: Transparency and Accountability

Owning Design Decisions: Transparency and Accountability

Part 4: Drawdowns, Market Dynamics

33:54Drawdowns: Distinct Characteristics in CTA Strategies

Drawdowns: Distinct Characteristics in CTA Strategies

34:47CTAs as Straddles: Trading Costs and Market Dynamics

CTAs as Straddles: Trading Costs and Market Dynamics

36:46Vol Compression and the Shrinking Percentage of Winners

Vol Compression and the Shrinking Percentage of Winners

38:44Managed Futures Drawdowns: Equity Environments and Mean Reversion

Managed Futures Drawdowns: Equity Environments and Mean Reversion

40:48Perception of Risk: Communicating Alpha Generation to Investors

Perception of Risk: Communicating Alpha Generation to Investors

42:29Noisy Markets and the Need for a Strategic Long-Term Allocation

Noisy Markets and the Need for a Strategic Long-Term Allocation

Part 5: ETFs, Retail, Volatility

43:56ETF Drawdowns: A Different Perspective

ETF Drawdowns: A Different Perspective

45:03The Allocator's Dilemma: Overselling Outperformance and Incentive Structures

The Allocator's Dilemma: Overselling Outperformance and Incentive Structures

46:20Honesty vs. Equivocation: The Challenge of Broader Adoption

Honesty vs. Equivocation: The Challenge of Broader Adoption

47:30Strategic Long-Term Allocation: Focusing on the Broader Benefit

Strategic Long-Term Allocation: Focusing on the Broader Benefit

48:01Untapped Market: High Volatility Products for Retail Investors

Untapped Market: High Volatility Products for Retail Investors

49:42High Volatility ETFs: A Call to Action

High Volatility ETFs: A Call to Action

50:15ETF Investors: A Million Different Kinds

ETF Investors: A Million Different Kinds

51:23Risk Aversion vs. Capital Efficiency: The Big Money in ETFs

Risk Aversion vs. Capital Efficiency: The Big Money in ETFs

52:40Capital Efficiency: The Trend Towards More Efficient Strategies

Capital Efficiency: The Trend Towards More Efficient Strategies

53:12Old School CTAs: Gunslinging and High Volatility

Old School CTAs: Gunslinging and High Volatility

54:04High Volatility Trend: A Segment of the Market That Wants Higher Risk