Setting the record straight – Trend following: the proof is in the track record with Marty Bergin of DUNN Capital

When it comes to investing, there are countless strategies to choose from, each with its own set of pros and cons. One strategy that has stood the test of time is trend following, a technique that involves analyzing market trends and making trades based on those trends. Despite its proven track record, some investors remain skeptical about trend following, perhaps because they don’t fully understand how it works or they’ve been burned in the past by unsuccessful trades.


In this episode of The Derivative, Marty Bergin, CEO of DUNN Capital Management, discusses trend following’s success and the impact of interest rates on other markets. He stresses the importance of diversifying portfolios by seeking uncorrelated markets and accepting losses as a crucial part of trend following. The episode also delves into Bergin’s company’s adaptive risk profile and different methods traders can use to adjust their risk profiles, providing valuable insights and predictions for the future. 


You won’t want to miss these critical insights into trend following and predictions for the future. So what are you waiting for? SEND IT!





Check out the complete Transcript from this week’s podcast below:

Setting the record straight – Trend following: the proof is in the track record with Marty Bergin of DUNN Capital

Jeff Malec  00:07

Welcome to the Derivative by RCM Alternatives, where we dive into what makes alternative investments go analyze the strategies of unique hedge fund managers and chat with interesting guests from across the investment world. Thanks for joining us take your mind off the regional bank was for bet those bank worries led to trend being in the news for all the wrong reasons earlier this week with huge two day losses as treasuries had historic today moves up while our friends in the trend space. Were massively short, causing negative five to negative 15%. Two day returns for some of the more bigger trend programs. So how to train programs and trend investors handle this type of action. We’re lucky to have Marty Burgin have done capital on today, taking us through DUNS nearly 50 years in this game, how their model has changed over the years. What is similar, what’s different, that’s trend environment. First, the legendary moves in the past years and past decades. In this case, this was a fun one, send it This episode is brought to you by RCM and its guide to trend following white paper. How do they do it? Why did they do it? When does it work? When doesn’t it? Guide to trend is a great complement with managers performance and more. Paying the team at RCM to dig in. Go to our CMOS slash white papers to check it out. And now back to show. All right, Marty. Thanks for being here. How are you?


Marty Bergin  01:37

I’m very good. How about yourself?


Jeff Malec  01:39

Good. And tell me about sunny Florida. I grew up just up the road in Vero Beach. You’re there in Stuart. Right?


Marty Bergin  01:45

Yep. So we’re about an hour south of you. And I’m probably 45 minutes north of Palm Beach. Most people were familiar with Palm Beach and Jupiter, maybe not Stuart so much. We’re kind of sleepy suburb of Pine Ridge, I would say.




Jeff Malec  02:01

I tell people I grew up Vera. They’re like, where’s that like, between Cape Canaveral? And Palm Beach? Yeah, I think that’s pretty big. Delta there, but


Marty Bergin  02:10

a little bit larger than Stuart but I don’t think it’s any more active than Stewart.


Jeff Malec  02:15

No, yeah. And then I used to love this was maybe 20 years ago, when we first were meeting with you guys. were first in the industry. And you had this. You had an RV. Right? If there was a hurricane, and you’re gonna load onto the RV and trade from the RV. Is that still in play?


Marty Bergin  02:31

No, no, no, we actually have a another location in Chicago. So that’s our disaster recovery location. They’re actually in the senior knee building that we have mirrored system that can run from that location. Well to do is we had a grievance with a number of hotels in the state of Florida. So once we determined the track of the hurricane, we would go to another hotel, which they would guarantee that they could provide us high speed internet, and we just basically set up in one of their conferences, rooms. And then we’d have hotel units for everybody in the firm, and they bring the family, the kids, the dogs, and it would be quite an experience for four or five days.


Jeff Malec  03:20

I’d like the RB story, but it’d be like Mad Max, like you’re going around Florida people are trying to get in, you’re just doing your training.


Marty Bergin  03:27

I just don’t know how that would work out as far as.


Jeff Malec  03:31

Right. And then so speaking of that, right, I met you guys first 20 years ago, and you had already been doing it for 20 years. So tell us a little bit about the super long history. How you came to be in the role you’re in now and give us the whole backstory if you could.


Marty Bergin  03:48

Yeah, I’ll try and Jesus along the way, but so Bill was a defense contractor you build done? Yeah, Bill Dunn, who was a founder of done capital. Most people think he was part of the turtles. But he was not part of the turtles. He was basically designing and came up with the ideas for these systems in the same timeframe. But independently, and of course, he had no idea that other people were doing this. And the story of his first client was they knew that other people were doing because they had allocated money to other people. And they allocated the bill. So they knew more about that it was profitable than he did at the time. But anyway, back to those in the military, got out of the military, went back to school or GI Bill and got his PhD in physics, went to work for a defense contractor there in Washington DC. He decided there had to be a better more honest way of making a living and doing that. So he immediately he initially applied the trend following theory to equities. But he came to realize that there was too much data. So there was no way to process and crunch the numbers overnight so that you could trade the whole population of equities the next day.


Jeff Malec  05:17

I’ve never thought of white at all the initial traders and trend start with futures maybe as simple as because they only had to look at 40 markets instead of four hours.


Marty Bergin  05:25

And in his case, it was only like 12 markets. Yeah, we’re actually, you know, trading there at the CME that had volume enough to trade. And he started applying to that. And initially, they only ran the program once a week. He was using punch cards in our conference room here in Stuart, we still have like some of the original punch cards in a board. You know what the technology was at the time and he was renting time on a mainframe computer at the local library to run the system. I love it was doing it out of his basement. Anyhow, so important. He decided that he was going to make a living at this, which he quit his day job and he relocated to Florida, wanting to be on the east coast with the markets wanting to be in a warm climate and wanting to be close to water. Yeah. And I don’t know if you know, but the reason he picked Stuart was we have the intercoastal. We have the St. Lucie River, and we have the ocean all come together here and Stuart. So lots of water,


Jeff Malec  06:37

lots of water, and no taxes,


Marty Bergin  06:40

no taxes. I don’t know if that was a consideration at the time, but it proved to be very good.


Jeff Malec  06:49

So what year is this that he heads down in Florida


Marty Bergin  06:51

that was at 74. It was probably 74 is when he launched he probably came down here and 78. And it were still in he originally started in two buildings over that he rented space in the building we are currently in eventually we bought the building. And this is how we put our put it is our worldwide headquarters here in Stuart, Florida. And I was actually working for a CPA firm up in Northern Virginia. The partner in the firm I worked for was Bill’s next door neighbor. And when Bill was putting all this together, he went over and talked to his neighbor and said, you know, how do I do the accounting? How do I do all this stuff? So he became Bill’s accountant, to all of this stuff. And when I went to work there, the firm was then doing the audits for the funds. And one of the first assignments I was sent on was to go down to Florida. Participate in the audit on site.


Jeff Malec  07:53

And in do you ever seen futures trades or anything? Was it like looking at Japanese?


Marty Bergin  07:58

It was Yeah, I was. At the time. I was coaching high school football in isolated from college with the accounting degree. I was studying for the CPA and teaching high school. Great. Then I went to work for a CPA firm for two years there locally and then moved into the the CPA firm that I eventually became a partner in


Jeff Malec  08:22

what’s your college coaching stance or your high school coaching stance? What’s your


Marty Bergin  08:27

assistance, so I wouldn’t say I did. I did Coach some. I actually coached a first round NFL draft pick.


Jeff Malec  08:36

Nice. The Dan Marino, what was


Marty Bergin  08:41

his name? Oh, nobody have any. Any knowledge. I did code, some sons of some very famous NFL players. You got to remember I was in Northern Virginia. Yeah, the home of the Redskins, right. I’m sorry, I’m gonna have to say the name. But ya know, there will always be the Redskins to me. And you know, I knew coach Gibbs and Bobby bethard At the time, so


Jeff Malec  09:07

I was just having that debate with a friend. Sorry, quick sidebar, they were showing Kareem Abdul Jabbar college stats, and we were arguing like, Well, should it be listed as Lew Alcindor. Right, like, yeah, right. He got those stats under that name, not under the change name. So same thing like hey, you’re this this at the time they were named the Redskins. So use the name Redskins?


Marty Bergin  09:31

Well, and I will say he’s the same person. They’re still the same team. Yeah, they aren’t any good anymore. I’m sorry, I digress. Anyhow, I have become a partner in 97 of the firm, at which point, Bill contacted me and he said, I’m interested in hiring somebody from your firm. My understanding It is I need to check it out with you first. And I said, Well, that’s that’s a common courtesy, but you don’t need to check it out with me. You know, I’d be honored if you wanted to hire anybody from my firm.


Jeff Malec  10:15

Or you said, what about you? Yeah.


Marty Bergin  10:17

Well, that’s exactly right. What I didn’t know is Bill had contacted the firm in the past because he wanted to hire me in the firm basically said, No, we got plans for this guy. You know, we’re gonna keep him. Then he contacted me said, Well, I’d like to hire you. And I said, Well, I got I got a pretty good gig here. You know, partners, CPA firm doing well. Family is all here. My life is all here. This next comment, I’ll never forget, he goes, Well, that’s okay. I’m not even sure you could really handle it.


Jeff Malec  10:52

But why don’t you come down? Take away, right.


Marty Bergin  10:54

Yeah, I see what he says why don’t you come down and just meet everybody and see what you think? Well, I’ve met everybody, I’ve been coming down there twice a year for years. I think I know, what’s going on. Just come down anyhow. Anyhow, long story short, it took me about two seconds to say yes. And you know, that done. Everybody wears multiple hats, we got a small firm, and you really, you basically come in here and figure out how you can provide value to Don. And assuming you do provide value, then you can basically write your own script of how it’ll go through the years. So, you know, I did everything for working night shift on the trading desk, doing tax returns, stuff and statements, you know, I’ve done everything in anything that you can basically do in this industry down here. And eventually, you know, we had to come up with some kind of plan to continue the firm. You know, most of the firms that were started in that day and age, they had very strong personalities, the founders of these firms. Yeah, I mean, Bill is no exception. If you’ve ever met Bill, you would actually you’re totally mesmerized by the man. He is extremely intimidating. He’s got a handshake that bring you to your knees. It’s like a bear grabbing onto your hand. But you have this instant comfort and confidence in the guy that you just can’t get over. It just doesn’t happen with other people. But with him, it’s that way. Anyhow. So we came up with a transitional plan. Where were it was supposed to be a 10 year process of me taking over the firm, he would stay making sure everything went smoothly. I always viewed bill as a mentor. So it was kind of a natural fit. Yeah. And then five years into it, he accelerated the plan, thought things were going well, what what we didn’t know at the time was he had diagnosed that there was something not right with him. And he actually went and got tested and determined that he had early onset Alzheimer’s. But he knew about it before we did and didn’t come clean about it until you know, after we accelerated things and transition through. And it’s worked great. Everything’s gone. Well. He’s still he’s living on the West Coast now with his wife, and, you know, he’s got some caregivers that come in to help with things and he’s physically still just a strong individual man, but he just doesn’t have community skills at this point. He’s 89 years old. Yeah, he put on a good run. Yeah, he’s had a great run and he’s happy. You know, you you hear about some Alzheimer’s patients that can kind of act out with anger and have different spurts of personality but he he’s just a very happy guy and smiles and you know, he still wants to shake your hand and


Jeff Malec  14:27

it testament to the systematic nature to have right he’s out and the program keeps running right so yeah, I was


Marty Bergin  14:36

always asked, well, what’s the next process for you when you step aside I think it doesn’t really matter. Yes, systems gonna run with or without me, or with or without anybody here as long as there’s people there to push the keys on the computer when the time comes, it needs to be done. The other thing about the systematic nature which is very timely right now is Given what’s going on in the markets, with the bank failure and things of that nature, you know, emotions really want to take over. Yeah. It’s kind of nice to know, even if it’s bad or positive, that I’m not having to make the decision here, the computer is basically dictating what we do. And we have some testing behind us if we got over 45 years back there. And so we know that the system will adjust the system will take care of whatever losses are occurring now. And we’ll turn it around and eventually make back those losses and get to new highs.


Jeff Malec  15:55

And talk through it says that the first trades for clients were 45 years ago.


Marty Bergin  16:00

Yeah. over 45 years ago,


Jeff Malec  16:04

right. That’s got to be one of the longest tracks


Marty Bergin  16:07

50 years next year. Wow. Yeah,


Jeff Malec  16:10

that’s right, if not the longest right up there in the running for?


Marty Bergin  16:15

Absolutely, absolutely. And at one time, John Henry, and, and Bill dunk were the two largest CPAs in the world. Yeah, that was a long time ago. And now we’re way down the list. But that’s,


Jeff Malec  16:30

but that seems like you got that was sort of by choice, right? It seemed like at the time, and maybe it wasn’t a conscious choice. But like, hey, we just do what we do. We’re not trying to institutionalize and go after all this pension money and all this big. Right? All that even not to say you’re not institutionalized. But there’s, there’s kind of two paths of like, Hey, we’re just gonna run what we run and the like, we’re gonna polish everything and make sure we can get everybody’s boxes checked. And


Marty Bergin  16:55

right. So I look at it as you’re either an asset gatherer, or your moneymaker. Yeah. So you know, our goal is to continue to make outsize returns. Because we don’t charge management fees. So there’s no reason for me to gather assets, just so I can collect an asset base fee. So what I’ve seen in the industry, especially over the last 30 years, 25 years, easily is the industry has become less volatile. So everybody’s dialing down their volatility, because they don’t want to have bad results. Right investors remember the bad stuff? Yeah. They remember the outsize losses, they don’t remember that you recoup that and you got to new highs over and over and over. So to offset that people tend to lower their volatility. So they reduced the downside volatility we did, we tried to do that. But without I don’t want to give away the upside. So we came up with this adaptive risk profile, which we instituted in 2013. Where instead of targeting, you know, in the industry, when the beginning of trend following, let’s go back a little bit farther, in the beginning of trend, following everybody always said a risk targeted volatility or bar. And it’s always the same all the time, and you just adjust to get back to that risk start. And in the beginning, you didn’t even follow just so you you set up a risk target that was looked back over 10 years, and then then the risk would actually change with the volatility of the markets. The idea being as the market becomes more volatile, more trends come into play, and you tend to be making more money. So you want to have more risk on at that period of time. So this is like Jerry Parker, that just be there’s nothing wrong. I mean, I hate it when people say, Oh, that’s not the way to do it in this day and age, you know, you got to follow adjust your performance? Well, there’s two different ways to do it. You know, you can either involve adjust or you don’t have to ball adjust. And both of them are acceptable. And I understand the arguments for both now. We do ball adjust. But we’ve we felt like we had to because that’s what investors were looking for. So it really cut down on your population that’s going to invest with you if you’re not going to be more institutional in that way. Yeah, what we did to offset that was instead of having a steady target, a risk target and adjusting to it every day, we now adjust the targeted risk based on the market conditions. So you know, it’s almost like a counter to ball adjusting, where if the markets trend thing. And we have a systematic, proprietary way of bettering the market environment and then determining how our portfolio lines up to that environment. And if it’s a positive environment, we increase the risk slightly. And it’s not risk on risk off. It’s not, you know, we aren’t throwing a switch. But it’s it’s a small adjustment that occurs each day, several basis points, sometimes it might be 10 basis points, but most of the time, it’s one or two basis points. And you’re either increasing the risk in a good market environment, and you’re decreasing the risk in a bad market environment. And so what this does come into play for us.


Jeff Malec  20:43

So for clarity, good and bad being trending or not


Marty Bergin  20:47

trending, trending or not trending. Exactly. So when I say good or bad in our view of the world,


Jeff Malec  20:54

exactly. Other people like you mean an up market? No, not necessarily.


Marty Bergin  20:58

So where this really came into play from us, or what brought the idea to is when you started getting into the zero interest rate environment, and there’s no volatility, everything’s sitting in zero. But you know, a trend followers were doing that or vol adjusting, they’re loading up others short term markets, short term interest markets, and you’re looking at that go, why the world of doing this. And that’s where we came up with his idea that, you know, environmentally, we know, when it’s a trending market, we know what it isn’t, we got things we can calculate to determine that. And then we can adjust what we really want to do risk wise, given those environments.


Jeff Malec  21:42

And that’s on a per market basis. Well, it’s on a


Marty Bergin  21:45

portfolio wide basis, that is, then everything we try to do is we try to keep everything in a as robust as possible. So everything we look at it we do as a portfolio as a whole course everything gets dictated down to the individual market levels. So whatever adjustment you made for the portfolio has to be encompassed in everything,


Jeff Malec  22:12

right? So you’re not looking at corn, and we’re like, hey, corns, super trending, right, now, we’re gonna increase the risk budget in corn go No. So the way I’ve seen that done with mixed results in the past, absolutely. So mostly, that’s kind


Marty Bergin  22:27

of handled by the strength in a market, the markets really trending, you’re gonna get a higher strength in that market than you would in another market. The other thing we do is we don’t tailor anything in the system to markets, we use the same, whatever we come up with, every market is trading the same parameters, the same methodologies, the same everything. That way we are, we’re trying to prevent ourselves from getting in a data mining situation where you, yourself have been. So think about it. Everything we ever look at when somebody brings us an idea brings us a system is is it data mined or not? In 90% of the time, it’s absolutely data mined. But how do you avoid that and because the lion’s share the money is ours. Everybody that works here has the significant amount of their net worth is in the funds. And we’re trading exactly the same system that our investors are trading. So it’s not in our best interest to fool ourselves, we want to be as robust as possible and make sure we haven’t data mined the system. So back to the adaptive risk, the only other thing I wanted to bring in, by doing this, what we found is we were able to decrease the downside volatility by about 25%. Without giving away the upside, actually, the upside is a little bit enhanced, because you don’t go down as far each time when you have the recovery. Right.


Jeff Malec  24:09

So that’s always the trick right? If you hear vol targeting my brain immediately goes to like upside capping. Like they’re kind of the same no one in the same thing. So that’s the trick. How do I keep that classic trend following right that done made his name on right of like, hey, when these outlier moves happen, I knew right I knew I saw silver rallying whatever back in Oh, one or something I knew if I pulled up the results. That done was going to be one of the top of the tables in terms of like capturing that upside. Yeah, I think over time we saw Oh, there was some downside in there. I actually. Absolutely. Yeah. And I actually, this was way early in my career. I remember looking at your track record, like who would still be in that after this big drawdown. Right. And you guys still had a 800 million or a billion or something at the time. Mike who has done that and then someone’s like it It’s all their own money it’s made, right? If you, if you put in 10, if you put in 100k, and it ran it, they ran it up to a million bucks. And you go from a million back down to 600k. Like, you’re still up 6x and quite happy. So whatever you don’t care about those draw downs as much as if you started from scratch.


Marty Bergin  25:19

Well, and that’s in. So that’s the problem with 2007 2008 scenario, right? When all the trim mowers made a ton of money, everybody had, nobody was allocating the trim powers prior to that. Now all of a sudden, they see, oh, maybe these guys have a place. So they all pile in there at the top. And then you have mediocre performance for a while. And I’m like, you know, people talk about the last decade of trend following. I don’t believe it. I mean, we made good money during that timeframe. But we weren’t as good as s&p baby. Yeah. So if people were like, well, this isn’t doing what I wanted, I could have just left my money in equities. Why am I doing this. So they, they get out again, to have a bad experience, because they bought it too high. They get out at a time when they’re disappointed. So they go away mad. And then we have what happened last year, which I will say kind of started in 2021 through 2022, the inflationary trade, and they are now people see the value again. The difference is what I’m seeing now is, if we have a bad month, like January, for instance, where the industry as a whole didn’t, but we did we had a bad month, all of a sudden, I’m seeing money coming in, which never used to be that way. In the past, it was always you have a bad period, man, money’s going out the door. Yeah. So that’s been a little pleasant experience, that maybe people are starting to understand where the value is. And this and, you know, what I keep telling people is, you’ve gone through this inflationary trade period. It’s gonna switch from inflation to recession. So there’s gonna be a lot of money to be made in the recession trade, there’s gonna be a lot of money to be made in inflation trade, but that transitional period in between is gonna be hard. It’s gonna be tough on Trump powers, because there’s two opposite trades,


Jeff Malec  27:33

and you won’t know when the one necessarily ends. And when one begins, if you knew that you Yeah, just turn the switch.


Marty Bergin  27:40

And you know, from experience, what I’ve seen is when you go into these recessionary periods, there’s usually like, three shoes that drop. And the third one is the real one. Yeah, yeah. The first two are kind of the head fakes.


Jeff Malec  27:55

I want to know who you’re hanging out with that has three shoes three. Oh, but part of me wants to say those people just missed their like, end of year rebounds, and we’re putting their money in based off the 22 returns, and we’re just a month late. If their behaviors changed?


Marty Bergin  28:15

Well, you know, we’ll see what happens after this month, because, you know, this this bank implosion issue, you know, this may be the tipping point to go into a recession. Yeah. Or it could be like the early 70s. When I don’t remember who the Fed chairman was that was there before Volcker. But, you know, I’m old enough that I was around, you know, they took their foot off the accelerator. They took a pause there early on, because the economy was faltering. And that’s what really set the inflationary or stagflation into existence and pushed it up to where, you know, Volcker had to get to, you know, somewhere in the mid teens, on short term rates to get it under control. We could be looking at this same thing again. I mean, how he’s sitting there now trying to decide does he does it pause? Yeah. Or does he go in at a half a percent? And right now, you’re seeing bonds rallying like crazy over the last two days crazy, and


Jeff Malec  29:25

it’s in the 99.9 percentile of two day moves.


Marty Bergin  29:29

And is anything changed the world of inflation? I suspect not. I mean, they’re talking about bailing out base. Yeah, which is extraordinarily inflationary. So it’s gonna be interesting. It’s gonna be very interesting.


Jeff Malec  29:51

Talk a little bit about your back and write this tracker back into the 70s. There’s been plenty of great years like 22 What have you seen in terms of the similarities in terms of like? Were they all for example, oh 10 year notes, drove the profits and 90% of those or right was, is there any similarities between all those good years in terms of which markets were moving, and then any similarities and differences in terms of like how much the trends were,


Marty Bergin  30:22

I would say that we’re a little bit better at capturing longer duration of the trend today than what we were back then. I mean, you gotta remember, 95 was probably a better year. But the markets were different than the system was different than you weren’t trading financials, it was more commodity based back in that day. So what I will say is, in every one of these environments, where you’re making a lot of money, you can point to one or two sectors that drove the performance. A lot of times it’s energy. Because that’s, that’s one of the most volatile markets and because of the world, economies have things that that’s the market that tends to be involved in every one of these outside returns, then you get some currency stuff. And sometimes you get geographical, like I can remember years were made a ton of money back in the late 90s, early 2000s. driven off everything that was in Asia, JG B’s topics, Asaka, Japanese yen, you know, all trended it all made huge amounts of money. And that


Jeff Malec  31:48

was like the Asian debt crisis like 99. Yeah. Which is odd for you to say that because I think most whatever you want to call them, analysts, or people like me would say, especially detractors would say, like, oh, they just generate all they’re not you in particular, but trend followers, right, 90% of the returns come from interest rates and bonds.


Marty Bergin  32:12

Well, let you know why that is. Because that’s the largest number of markets that we all trade.


Jeff Malec  32:20

So the most liquid the most you can access with billions of dollars,


Marty Bergin  32:24

lately. So you know, we allocate the equal amount of risk to every single market, we trade. So if you add it up, the number of interest rates we trade is in relation to everything else. It’s the largest percentage that we trade. So that sector is going to probably most of the time make more or lose more than the other sectors.


Jeff Malec  32:46

Right. But that kind of begs the question is like, looking at these last two days, like, can you have too much bond exposure? At the cost of proper diversification, right? If it’s worked over these last 35 years, is it gonna work over the next 20? Well, especially if we have rates gradually are generally rising over that period?


Marty Bergin  33:05

Well, so I would say interest rate environment probably drives 90% Of all the other markets, I mean, it’s definitely influences the currency market is definitely going to influence all commodities, because all the commodities are priced in US dollars. So the interest rates, their influence the US dollar that influences all this. So that’d be we’re always looking at the Cross market correlation of everything we trade. So the more markets that are like, as interest rates are, the higher that correlation is going to be therefore, the less risk we’re going to have on for the portfolio as a as a as a total. And, you know, one of the things we’ve done recently is we’re trying to when we add a new market, for instance, we look for markets that are uncorrelated to what the portfolio is. So we’re less likely to add another bond market than we are to add another metal or add another ag of some type, usually, with some kind of geographical diversification, because that’s what brings in. I mean, we’re only looking at the numbers, what would make something more diversified than what we currently have?


Jeff Malec  34:22

And how many markets are in the portfolio. Now, you mentioned back in the day bill at 12. Did


Marty Bergin  34:28

and now we’re up over 55. Yeah. And I think we just added a market last week. Iron ore, ferrous metals, will probably back canola this week. I mean, we’re, we’re looking at adding some markets because we know that diversity helps our performance. But here’s an interesting one. Do you remember back when? Oh, gosh, it was probably right after the financial crisis where everybody was talking about oh, the only reason is CTE. Is make money is because of the carry. Yeah. Interest markets. Right.


Jeff Malec  35:04

Right, because they’re holding.


Marty Bergin  35:06

And so you can’t make money back that out of


Jeff Malec  35:09

their performance.


Marty Bergin  35:11

And that the CTA is never good short bonds. You have 40 year bull market and interest rates. You know, we’re probably going into a prolonged bear market and interest rates that, you know CTA should do just fine on.


Jeff Malec  35:32

Yeah. And but Roy Niederhoffer has a paper out and it’s like six years old now, I think but by showing that it’s not going to be a mirror image. No, because you do have to pay that carry,


Marty Bergin  35:43

there isn’t carry the industry, interest rates get high enough, you’re not going to be a short, if you get short, and at some point, you’re going to get long, but the long is going to be much less. I mean, you’re gonna make money on that role yield. So


Jeff Malec  35:58

right, but yeah, I think that’s important for people. Yeah, even if it’s a tail, it was a tail in this whole time. That doesn’t necessarily mean it’s going to be a headwind. Moving forward. Exactly. Yeah. It doesn’t mean that flip side is going to be totally true that it’s going to be an equal tailwind, just now your short instead of long, but So you talked a little bit about the invest, or we were talking about the markets, all these good years, followed by you mentioned it briefly some bad years following the good years. Do you think investors? What have you seen over the years in terms of these investors? I’d like to


Marty Bergin  36:38

it’s funny you asked because the question was put to us by one of our larger investors. You know, you had a great year, what what is the expectation? It’s got to, you got to have a bad year right to bring it back down?


Jeff Malec  36:53

Yeah. Right. So you don’t average 80%? A year? Right? Yeah, reversion


Marty Bergin  36:57

to the mean. And what we’ve seen is there’s there’s no correlation from one year to the next. In terms of I would have expected to see a little autocorrelation. Now one thing we do see, because if the assumption is that you’ve made money over the long term. So there’s one thing you know, that if you had a bad year, there’s no way you could consistently be making new highs. If you had a bad year, you know, the next year is going to be good. Because otherwise, you would have never made it to new highs. So there’s, if the assumption is that the line is going the chart, your rising up the chart, then a bad years got to be followed by something better, right? If your performance had been that it was going down all the way across, then a good year would definitely be followed by bad. So there’s no get back to that performance level. Without that happening.


Jeff Malec  38:01

I think that’s what drives a lot of investors crazy about trend following Greg more, technically speaking, there’s not a high persistence of returns. Right. So they’re used to other markets where Oh, a good ride out stock, a good quarters, followed by another good quarter by another one until there’s a sharp drop,


Marty Bergin  38:18

because it’s driven by something like a great management team, or a great product or a great technology. This is just price data that’s being analyzed for trends. And we’re not trying to predict the future, we’re not dictating what’s going to happen next, we’re just following along, which is another thing that investors can understand. If you’re doing trend following, you have to be willing to accept losses. It doesn’t work unless you’re willing to absorb losses, because there has to be a point in time. If every time the price moved against you, you’d get out of the trend, you’d never get the trend. Right. So you have to be willing to accept a certain amount of reversal before you exit the trade. And that by definition is trend following and if you’re not willing, if you can’t stomach, those bad performance periods, then you shouldn’t be investing.


Jeff Malec  39:23

Right? And then by you’ll have you have hundreds of billions that are going the opposite way of like no, we can create a better mousetrap. We can go shorter term trends we can do and mean reversion we can add.


Marty Bergin  39:36

Yep. So what happened there? You had a number of people in the industry. I mean, a lot of people I’m competing with that during this period after the financial crisis you I mean, I’m looking at their numbers. I know that something’s changed. And I look at markets where they’re making money. I’m gonna say, wait a minute, you’re not trend following if you’re making money here. and all of a sudden no drawdowns, blah, blah, blah. Now we get into a year like 22. They make 10 or 12%. Yeah. Like, what’s that about? I mean, that’s a trend for if you made 10 or 12%. This year, you didn’t you were not doing Trump. Ah, I mean,


Jeff Malec  40:19

but that’s an interesting philosophical worthy investors happier, right. If you had less drawdown back then and then just a small game when trend killed it. Well, that institutional investor happier.


Marty Bergin  40:31

So the hell you’re talking about multi strategy, which I’m not saying there isn’t a place for? Yeah, I trade one internally, that we’re in the process of developing that we will eventually come out with. And I think there’s a real value in that. But don’t tell people you’re a trend following.


Jeff Malec  40:48

Yeah. Don’t put trend phone on the cover.


Marty Bergin  40:51

I mean, there’s one particular, you know, competitor out there that was knocking the ball out of the park. Yeah. And all of a sudden, you know, they’re down huge over the last two years, because of real reality. They’re running global macro. They’re not running trend following. Yeah. But they portrayed themselves as a true power, and they have great credentials. But it kind of leaves a bad. It’s bad for the industry, because those people that invested with them are not going to want to go out and get another trim power, because they think this is what could happen.


Jeff Malec  41:28

Yeah. And then I’ll extend that even a step further of people invest in managed futures. Right, which could be a discretionary ag trader or an energy trader or whatever. That doesn’t didn’t have the great last year. And then they say, oh, yeah, I tried that. But the trend follower I got into didn’t even have a good year last year. Yeah. Like, well, no, you were in a managed futures program. That wasn’t a trend far, maybe they’re short options, or who knows what they’re doing. But there’s a lot under. Yeah, there’s a lot under that managed futures umbrella, which isn’t necessarily trend.


Marty Bergin  41:58

Yeah. But so one of the things I do here is if anybody invest in one of our bonds that we run internally, they can’t invest until they have a conversation with me. At which point, I basically point out all the things that can go wrong. And, you know, make sure that they’re comfortable. And I have to make the decision if I’m going to let them invest. Right. So it’s not their decision. It’s my decision. And then they had the final decision if they want to actually do it or not. And there’s been people that after that conversation, they say, Let me think about it. I’ll call you back. And I never hear from him again.


Jeff Malec  42:43

Right? Just fine. That’s you did your job. They did their job. They everyone was comfortable.


Marty Bergin  42:48

But what’s great about it is when things aren’t going well, I’m not getting phone calls, saying what’s going on. I thought this always made money.


Jeff Malec  42:57

Right? Yeah, you promised this. I didn’t promise any. There’s no


Marty Bergin  43:01

promises. And I


Jeff Malec  43:02

was do you think at some points that long track or track record has actually been a hindrance to raising money and getting new investors because right, your, all your warts are there to see for the right 40 years of warts, whereas the new young model comes out and like, hey, no words here.


Marty Bergin  43:20

So this is one of my gripes. So, you know, I have one of the largest drawdowns for the longest period of time, in our track record. Most firms where they go through a bad period like that they relaunched a different strategy under a different name and start over again. Right, right. Well, guess what I have that they don’t have now. I have a track record that’s going to be moving in on, you know, 40 plus years, 50 years. They don’t. Now, all the bad stuff is there, but the farther you get away from the bad stuff, the less people tend to focus on it. Yeah. But they can never say that they didn’t know. Right? But I


Jeff Malec  44:09

see it all the time. Right, like and statistically, right. If you wanted to create a really high Sharpe ratio program, right, you’d go all negative skew, maybe some option selling, right, which is going to have this perfectly consistent gains until it doesn’t but in the meantime, you’re gonna have this super high Sharpe. So to look at a program like yours, like oh, I don’t like the MAR ratio, because that big drawdown, I don’t like the Sharpe because of it, right. And we haven’t even gotten into that the Sharpe is going to penalize you for these big upsides over the track record, too. So whatever, we’re preaching to each other’s choirs here, but right, it’s just an odd it’s an odd, you’d think in a perfect world in a vacuum investors be like, I want the program with the best long term track record I want to see as long as possible. But I think most investors will fool themselves like, I just want to look at the last five years. I’m Look, it doesn’t matter to me that they’ve had 40 years of innovation, right? That’s really what it is. It’s like, forget the numbers and performance. It’s a track record of 40 years of innovation.


Marty Bergin  45:10

Yeah. So think about when Bill started Don capital, there wasn’t even a regulatory body in place. That’s how long ago it was. They didn’t even have a regulator for the for this product. And Bill was actually instrumental in the whole idea of having the NFA, a self governing body, but then reported to a government. And they didn’t report to the SEC back there, they reported to, you know, I have no idea but another branch of the government, and everything went pretty damn smoothly over the years.


Jeff Malec  45:48

So I bet he, we actually had a broker that worked for us once that predated the NFA. And it was a hassle because we had to send them she had some little pink card or something from Yeah, whatever. And we had to send that in and be like, no, she was registered with whatever was before you.


Marty Bergin  46:04

Yeah. You know, Bill never took the series three. He was grandfathered in. He was around before they had a series three. I


Jeff Malec  46:14

love it. It was great. You can’t argue that nobody’s doing them. I’m gonna come back a little bit to the right was just had a comment on the vol targeting before. Do you think that’s a? And back to I want to blame all the nasty investors that are listening? Do you think that they? Right, it’s their own fault, right? They’ve demanded the lower volatility. And the managers have come up to meet them where they want. Yeah. So to me, like they like Oh, we’d wish it was lower volatility than everyone lowers it. And now they complain that the volatility is too low. Well, that’s a chicken or an egg.


Marty Bergin  46:50

Yeah, I don’t know how many I don’t hear people complaining about it. But I think people were becoming more educated about it, because the one thing they’re starting to realize is the reason you want to allocate managed futures is the non correlation. So by adding the Managed futures volatility to your portfolio, you actually reduce your overall volatility. Yeah, so if you go into a low volatility manager, it just means you have to move a lot more assets. To that managers, it gets the same back bang for the buck, what we’re finding is people like our volatility and some of the higher volatility of other managers, capital efficient. Exactly. I mean, all I have to do is move over a little bit, and I get a really good bang for my buck when I need it. Right. So 2022 and everything else, my bond are down 20%, my stocks are down over 20%. But guess what I had done, who was up over 60% where I had Mulvaney, who was up over 100% Because you know, I got more bang for my buck there. Of course, the reverse can happen to Yeah, yeah, your stocks are doing great. And you know, we’re in a drawdown in Mulvaney is drawdown is going to be worse than mine, just because the systems are designed that way, a little higher octane, I’m gonna be worse than some of the other people out there.


Jeff Malec  48:22

There was a great chart, I think, was Welton years ago saying, How much do you need to allocate? And per the vol, and everything in there was like, basically, the allocations, most investors have to trend. It’s like 5%, five to 20%. Like the returns you need at 5% to make a difference or like 200% a year or something. Yeah. So they’re way under invested even at a high vol level. So if you’re picking a low vol manager, you’re insanely under invested, you get those benefits.


Marty Bergin  48:50

So here’s the other thing we find is most people look at it as a percentage of their aum. Well, we try to explain to them no, it’s a percentage of your risk you need. So we’d know by stats, that statistically, the efficient frontier would be 20 to 25% of your risk allocated to a trend follower. Now, you could get that word two ways you could go into a low vol manager and allocate 30% of your assets. Or you can go into somebody like me, and allocate 10 to 15% of your assets, and you get that same risk allocation. And what I find now is more and more people seem to want to come into our fund in our fund gives them an option of levering a little bit, and they all want to take the leverage. Yeah. Because, hey, I’m doing this because I want the volatility so give me more volatility.


Jeff Malec  49:49

Although in my experience, they want that and they do that and then when the bad volatility comes, they don’t quite understand that downside.


Marty Bergin  49:56

Well, that’s why they have the conversation with me. Good. Yeah. have to explain it well, yeah


Jeff Malec  50:07

a bit of a finer point. But we were talking off screen a little bit about some of these newer replication products. And so like I could go to a bank and get one of their risk premia and get the trend risk premia. Right? So what are your thoughts? I’ve been doing this so long and creating this portfolio like, okay, I can replicate what Dan’s doing at this mall with these 12 markets. Yeah.


Marty Bergin  50:31

So I. So I’m kind of I don’t pay attention to a lot of what’s going on out there.


Jeff Malec  50:38

Yeah, no, one who’s actually doing it. But like, if I just said, I’m going to try and replicate what you’re doing. Yeah,


Marty Bergin  50:44

so I wasn’t even aware of this was going on until somebody brought it to my attention. In doing so they sent me the materials for this ETF. And I started looking through the materials and stuff it first of all, it’s an ETF. So it’s not governed by the NFA. I don’t know who looks over the marketing dye, I assume the SEC, and they get a lot more leeway of the Delta marketing documents that you get with the NFA. But first of all, everything they presented is simulated numbers. Nothing’s real. And which means that it’s all been back tested. So they basically took the data stream and said, Okay, what do we have to do with the markets to get the same performance over the same period of time? We want it to be 90% correlated, let’s, so they come up with I mean, it’s


Jeff Malec  51:35

like the definition of replication, like basically, I need to copy this index exam other products. Yeah.


Marty Bergin  51:40

Which is really easy. Historically. Yeah, not so much like going forward in real life. So there’s two things that are good to have. One is, it’s all going to go just fine. When the markets are be it paving as expected, you’re just your routine market environment, they will probably be able to pull this off to a certain degree, there’ll be a little bit of divergence vergence from time to time, but they’ll probably be able to pull it back in.


Jeff Malec  52:12

To our point earlier view, besides these guys who mistakenly had trend on the book, cover their bug if you were anywhere near trend, you. Right, we’re in some range up here. Like it was pretty easy with a any sort of trend falling model to make money last year.


Marty Bergin  52:26

Exactly. And Trump is not rocket science. Yeah. But to do it with just a few markets as opposed to the whole gambit, the reason you have this diversified is the control risk. And so I think what’s gonna happen is when something unusual happens, or environment like the last two days, today and Friday, it’ll be really interesting to see how those funds do with that market environment. With 12 markets, it’s a lot harder to control the risk as it is with others. And I would imagine that a lot, those 12 markets are going to be very, very large, very, very liquid markets. One of those markets moves against you in an excessive way. You know, that can be an interesting situation.


Jeff Malec  53:20

But I think that my counter would be like, Alright, cool. You guys had added iron ore? It rallies 600%. Maybe it gives 60 bibs to your yearly performance. Right? So that would be my counter of like, yeah, you have all these diversifiers. But what do they really do? In the grand scheme of things?


Marty Bergin  53:39

Yeah, I think it helps you more on the downside. Okay,


Jeff Malec  53:42

great. So I think you’re adding maybe that 60 pips took away from this 6% loss on the year and get 10 of those, your


Marty Bergin  53:51

allocations to everything else that got reduced to do that allocation to that market. So the exposure is more balanced than if you if you have 12 markets, the exposure is going to be very intense in each given market.




Jeff Malec  54:09

And especially some of those get credit if you have a bank run and one of these that has a couple 100 billion in it or something like in one of those markets, and they need to get out that causes its own problems.


Marty Bergin  54:20

Well, yeah, that I, you know, I’m assuming that they’re only trading the markets that have this, the highest volume, and most have some kind of caps in place of how much of the market they’ll be representing. And what I know that we have very hard caps about we will be any more than a certain size in any particular market.


Jeff Malec  54:44

And what’s your thoughts on that size overall, right? Over your 30 plus years, you’ve probably heard a lot of times trend following is too big. So why it doesn’t work anymore.


Marty Bergin  54:54

Well, I think what’s happened is trend follow has changed the way A operationally we work because of that exact problem. So in the early days, you traded the whole position at any given time. So if you were long, you were long, the whole gamut. And then one day you came in and you decided I want to get out. Yeah. And you traded the whole thing. So back in the 80s. Well, even when I came here in 97, I can remember getting calls from the Wall Street Journal saying, you know, we understand that a large hedge fund in South Florida was trading the tenure. Was that you? And no comment. Yeah, but it was I mean, you know, we were 70 to 80% of the volume and one day in an interest rate market. We that’s huge,


Jeff Malec  55:55

huge. And were you. Were you worried at the time of like the floor traders knew it was you placing the order, and some of the locals got in front of it? And


Marty Bergin  56:04

oh, there’s no question. But that’s just the price of doing business. Guess what? All the traders love you. Yeah, exactly. You know, they see you, Colin, and, you know, they, they make money off of that.


Jeff Malec  56:20

And what, what are your thoughts on over the years, whether it’s become harder, because of all the computerization and automated orders, routing and prop firms doing? scalping? Right, basically, once the floor went away, it’s become harder or easier or no difference to you guys?


Marty Bergin  56:38

Um, it’s different. Yeah. It’s better, it’s better in a number of ways. I think it’s a little more frustrating, in some ways. I mean, so you had the floor traders that were robbing you before. Now you got the high frequency guys that are rotting in it. So I mean, there’s, there’s a reason why Kim makes money every day. Because he’s a market maker, and he’s gonna get paid for doing that. Yeah. And for


Jeff Malec  57:09

sure, someone inside there is running a model that they believe represents, right 85% of the flow of all the trend following space,


Marty Bergin  57:19

and they see all the data. So it’s not hard for them to come up with that. They can modify and adjust as needed.


Jeff Malec  57:32

What’s what’s the future look like? For trend? Brian? Oh,


Marty Bergin  57:35

I think what I, you know, what I was talking to you about earlier was, you know, you had this market environment where we’ve made a lot of money and what I would call the inflationary environment. And at some point, it’s going to switch over to a recessionary environment, which will also be great for Trump on don’t get me wrong, it’s going to be outstanding. But getting from the inflationary trade to the recessionary traders is going to be a difficult environment for trend powers and in like, what’s happened with this bank situation? Yeah, that could be a head fake to a recession, or it could be the first step into a recession. And nobody knows that for another couple of weeks, right, or now, I take a couple months, and what is trim falling going to do in that meantime? I mean, right now, I would love it to just kick right back into the inflationary environment.


Jeff Malec  58:39

And you’re not have to get out of those short bonds. Yeah.


Marty Bergin  58:43

Right. And the market movements that we’re seeing right now is, most Trump powers are definitely going to be reducing that exposure,


Jeff Malec  58:53

which was maybe part of the rally in bonds past few days is then reducing that exposure buying an


Marty Bergin  58:59

athlete, I mean, the trend followers are pushing this market now. There’s no question about it. So but it’s also people that have fear, and are buying into the bond market and getting out of equities because of the fear of recession. That’s also driving it. So there’s a lot of forces driving the interest rates down right now. And inflation is truly here to here still, which there definitely wasn’t anything in that employment report to tell you inflation was over. We’re gonna have some numbers out this week, which is funny that I could care less. I mean, numbers mean nothing to me because the system will dictate. It’s all based on price. But for the first time, I’m actually interested to see what the what the inflationary numbers as we come out as Yeah,


Jeff Malec  59:48

in my right, just personally, there’s everywhere you look, prices are going up. There’s no I don’t see anything slowing down. We were at the conference in Miami. That place was rocking like nobody was worried about spending or, or pulling back? So I mean, restaurants


Marty Bergin  1:00:03

are just ridiculous when it costs to go out for dinner. Yeah. And yeah, I don’t know what it’s like where you are. But in Florida, everything is packed. I mean, you cannot get in a restaurant without a reservation and you’d have to look weeks in advance together. Yeah, same thing need to start a policy down here that your locals always get a table. And we the snowbirds are the ones that don’t get tables


Jeff Malec  1:00:32

I got when you’re pulling into the Orlando airport, if you go off to the right, whatever that road is called. And there’s a gas station there. I’m filling up the rental car. It says like, this was years ago, like 275 on the sign, filling it up, and the price was enormous and ended up they charged 575 If you don’t have a Florida license, or if you don’t enter your Florida zip code when you Oh, that’s amazing. Yeah. So I started arguing with them. And I’m like, I grew up in Florida. And I’m like, over the little speaker thing. I’m hitting the button arguing with the guy and he’s like, whatever. Get out here. Oh my god. I’m gonna miss my flight. But


Marty Bergin  1:01:07

that’s what it does. Yeah, exactly.


Jeff Malec  1:01:12

Well, thanks, Marty. That’s been fun. We’ll come visit you down there and store it next time. I’m in Barrow.


Marty Bergin  1:01:17



Jeff Malec  1:01:18

More than well, we’ll get it done.


Marty Bergin  1:01:21

Alright, headquarters have done capital.


Jeff Malec  1:01:23

Yeah. Tell everyone where they can find you. What’s the website?


Marty Bergin  1:01:26

Let’s just just Google Don capital. It works.


Jeff Malec  1:01:32

Awesome. Thanks so much. Best of luck with everything. We’ll talk to you soon.


Marty Bergin  1:01:35

All right, take care.


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