A Philly Alts Steak: Talking Commodities, Stacking, and Systematic with Auspice, Newfound & Campbell

Philadelphia is renowned for various iconic symbols, including the Liberty Bell, Rocky Balboa, the famous Philly cheesesteak, and, most recently, RCM’s Live Panel Discussion “Is 60/40 Dead? Can Alternatives Fill the Void?” This engaging panel discussion features industry leaders Tim Pickering @AuspiceTim, Corey Hoffstein @choffstein, and Brian Meloon, with the insightful Kevin Davitt giving an insightful intro. It was so compelling that we decided to turn it into an episode of the Derivative podcast.


We kick off our discussion by diving into the rapidly evolving landscape of the index options market and the financial industry as a whole. Explore the critical role of adaptability in the face of exponential technological advancements, with a spotlight on NASDAQ’s MDX options leading the way.


But there’s more! Tim Pickering, Corey Hoffstein, and Brian Meloon share pivotal moments from their careers, emphasizing the importance of innovation during challenging periods. We’ll also delve into quantitative investing strategies, the intriguing concept of return stacking in ETFs, and why diversification is necessary in your investment portfolio — SEND IT!



From the episode:

⁠Flirting with Models podcast⁠

⁠Liquidity Cascades – Newfound Research⁠



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

A Philly Alts Steak: Talking Commodities, Stacking, and Systematic with Auspice, Newfound & Campbell

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. Hello there, who’s lining up to see the dumb money movie about the Gamestop debacle? We’re dropping this episode September 27, which I think is about when the movie comes out on the previews like great, and I’m excited to go see it. And I’m toying around with doing a little movie review pod with some friends of the show for that. So let us know if you’d be into that. Onto this episode, which is a recording of our live Philly event with an intro by Kevin Davitt of NASDAQ, which was so interesting. I think we’ll get him on his own episode of the show here shortly. And after Kevin, we’ve gotten that one, not two but three great guests following that with Tim Pickering of Auspice Corey Hoffstein of Newfound and Brian Meloon, of Campbell and company. We get into all sorts of topics mainly focused on why commodities why leverage and why systematic, send it. This episode is brought to you by RCM’s managed futures group, looking to build a portfolio of great managers like the ones we have on the show today, call RCM team approach to help you filter programs by returns risk minimum investments, risk adjusted ratios and more to help you find the best program or programs to meet your customer needs. Visit our RCMalts.com to learn more.


Kevin Davitt  01:36

Well, thank you all very much for coming. I kind of planned on having a screens by have to adapt. And you’ll understand how that sort of fits into the broader picture here real quickly. But I’m going to start with I didn’t plan on this but with a quote, which is very sort of grade school approach. And I’ll work this in. So according to Darwin’s Origin of the Species, it’s not the most intellectual of the species that survives. It’s not the strongest that survives. But the species that survives is the one that is able best to adapt and adjust to the changing environment in which it finds itself. So I’m going to talk to that broadly. And I appreciate everybody joining us today, it’s very much fun to be with this crew. Again, I get about 10 minutes to kind of set the stage for the panel that will follow. I’m Kevin David, I met some of you, before I got up here. I’m part of NASDAQ’s index options group. And like the Federal Reserve Bank, I have a dual mandate. Today, I’m here to tell you a bit about what I’m certain will be a great event. I’m laying the foundation there. And so my plan is to speak broadly. And allow the folks from Campbell, auspicious, newfound research to speak more specifically, I’m also here to advocate for the informed use of NASDAQ 100 index options. And I do so with an emphasis on the power of adaptation. I think that it’s already begun in the index option marketplace. So just as an example of this, at the current rate q3 of 2023, average daily volume in MDX has doubled compared to q3 of just last year. Think that’s evidence of a shift going on. And as much as I would like to take credit for that growth or the continued growth. It’s much more appropriately placed with my colleagues, John is in the back of the room, Seamus is towards the back of the room. And the rest of our team like carrying Elizabeth out front, Seamus started working at NASDAQ when he got his driver’s license, which was just a couple of years ago. I’m kidding. But if you’ve met Seamus, he just makes the rest of us look old. So I know you’re not here for me. But I ended up in this role, in part because I saw promise in the NASDAQ 100 index options, and the team that supports it. I very much like talking about use cases for index options. And I enjoy learning from other smart people in the industry. And today gives us all hopefully an example to or an opportunity to do both of those. And I can’t help but view index options through the lens of change broadly. Picture another slide change here. And change is a constant but the rate of change ebbs and flows. This is obvious to anybody in markets. But in my opinion, the people that are successful over long timeframes and capital markets recognize and embrace change. They have a Darwinian mindset, they understand that you must evolve you must adapt in order to survive and thrive. So when I started in this business, not all that long ago, just over 20 years ago, the index space was relatively small still in there. pitch and dominated by the Dow and the s&p 100 options. So in the ensuing years, the s&p 500 became the dominant sort of player in the ecosystem. And financials played a bigger role across sectors, but that too has changed. Financials have been a drag from an investment standpoint for more than a decade. I argue that technology is ascendant and whether you like it or not, the current rate of change is likely the slowest it will be in our lifetime. Human adaptation displays a linear rate of change, and technological change occurs exponentially. At least that’s what the authors of a really interesting book called The adaptation advantage argue, and I tend to agree. So adaptations, adaptation generally allows systems to grow to evolve to improve, and it’s played a huge role in the ascension of the US politically, economically, culturally, and most certainly in capital markets. at a corporate level, NASDAQ has a history of adapting first and best As you likely know, they pioneered electronic access to equity markets many years ago. And my belief is that in the coming years, we’re going to see more and more index option interest in the NASDAQ 100. Because of the dynamic nature of our economy. I think the landscape is changing. And I think the MDX options continue to grow more rapidly than the overall equity index business. I believe that this industry and end users benefit from competition. MDX offers a unique alternative to s&p 500 index options, you get roughly three times the notional coverage per contract, you have an index that’s weighted towards the names that are driving innovation in our economy. The NASDAQ 100 likely looks more like your current clients portfolio than the s&p 500. And in terms of all in costs, so considering fees, there’s absolutely no comparison. CBOE, a company that I worked for for many years, operates with Borderline impunity in that regard. I recently heard their fee schedule described as busier than the Sistine Chapel. The all in costs of trading s&p 500 index options might be worse than the surcharges and convenience charges we associate with Ticketmaster. And I go to a lot of concerts, and I trade a fair number of index options. So I know of what I speak. Going back to the index options are volumes, it appears like the marketplace is adapting. And I’m very excited about that. Shifting slightly when I think about change, and when I consider where we’re at physically today, there’s a whole lot of things that we could highlight. We have a lot of Philly locals here, which I love to see. The this area was one settled by Native American tribes about 10,000 years ago, the Philadelphia Pennsylvania that we read about in history books started to develop around the year 1600. With Dutch and English settlers. I’m not going to go on and on about this for the next 15 minutes. But I would argue that this town that Philadelphia has been an incubator of the American dream. It’s also home to the oldest Stock Exchange in US history. The board of brokers was established here in 1790. That became the Philadelphia Stock Exchange and it’s now part of NASDAQ’s family. So Philadelphia’s evolution continues to this day. Now, going more abroad, humans are quite literally designed to adapt. For example, during our gestation, we are able to breathe underwater, the umbilical cord is able to deliver oxygen through to the body through the placenta. And I doubt that anyone out there imagined a placenta reference during today’s event if you had that on your bingo card. But the point there is that design works. And then 40 weeks later, and roughly 10 seconds after delivery, our lungs that were wet for 40 weeks transform, instead of getting oxygen from the umbilical cord, our lungs, lungs and heart adapt like that. And we start breathing the way you and are you and I are right at this minute. It’s pretty exceptional adaptation. And humans have continued to adapt to this day, some better than others. I think a number of them are over here to my left your right. Technological adaptation occurs much more quickly. I’m joined by three really good panelists and Jeff Malak, my friend, it appears like all of them are breathing well, and I think that they have each managed to adapt and thrive and capital markets. I was talking about this just a couple of minutes ago, I think about how RCM came together in part out of the wreckage of MF Global in 2011, the Managed futures world was rocked but this group adapted and found a way to survive now a decade I’m sorry dozen years later. This is not my story to tell. But I was introduced to Joe Kelly, Brian’s colleague at Campbell, a couple of months ago. And if you want to hear about someone quickly adapting to a scary potential reality, get Joe to tell you about an accident and the months afterward. It’s incredible. From a corporate standpoint, I talked to our panelists or we went back and forth before this event sort of talking about this adaptation concept. And Brian highlighted the methods and the tools that Campbell uses, how much they have changed as more trading and risk management is driven by technology. I spoke with Tim about adaptation, and he was particularly animated about auspices commitment to evolving. So he pointed to the embedded adaptation across their offerings, based on the prevailing volatility assumptions or volatility prevailing in the market. He believes that their products find edge by systematically implementing adaptive inputs, you need to ask him about that stuff. But Tim used a turn of phrase that I really liked, he said, we are able to meet the characteristics of the market through time. And then he uses the example of crude oil futures trading around 50 $50 A barrel a couple of years back. So notional exposure around 50,000 and a 30. Vol. And then compare that to crude futures trading around 10 bucks a barrel, so notional exposure of 10,000, but 120, Vol, same product, much less notional exposure, but kind of the open ended question was, which is riskier. And the point being, you have to adapt your strategy, Cory from new found, does a couple podcasts that are just so good. I’m a fanboy. I’m a little embarrassed to be up here like this. But they are so good. Everybody knows that. Thank you for coming. But in our back and forth, he called he called attention to the potential utility of both left and right tail hedging. In other words, the risk of markets sort of crashing higher. I would point out that both tails were tested in the NASDAQ 100, just a couple years ago, and 2020, where the index fell about 20% in the first couple of months, the shutdown and finish the year 85% off the lows and higher by 48%. Relative to the end of the year before. Cory also mentioned to me that they have evolved the way that their offering is marketed. So instead of viewing alternatives kind of broadly as their own sleeve and a portfolio, they’ve created a powerful narrative around return stacking, which I expect to hear more about shortly. I’m really excited to turn things over to Jeff Malak, our moderator and to the panelists. I’m grateful to all of you for joining us this afternoon. I am also super pumped about the growth and NASDAQ’s index options business and if you have any questions around that, please talk to me to John black to shame us. And thank you and enjoy this conversation.


Jeff Malec  14:08

Okay, that was the intro from Kevin talk and Philly history and NASDAQ 100 options and all the rest. Now we’ll take you into the panel with me moderating between Tim, Cory and Brian. Thanks again, Kevin. That was great talk tough act to follow. Welcome again, everyone. I’m Jeff Malik. Partner at our Sam alternatives. We help identify talented managers such as these guys that we have on the panel here. quick thank you to our sponsors, NASDAQ title and RCM. We’ve got Brian balloon, Managing Director at one of the largest and longest standing alternative investment firms gambling company, Tim Pickering, founder and CIO of auspice capital out of Calgary, Canada, which runs several private funds, public funds and his behind To a certain commodity ETF, I don’t know where we stand on mentioning symbols today. So I’m just going to leave it at that from compliance standpoint. There you go. He’s got different components. And Cory Hofstede, co founder and CIO of new found research and pm of some return stack ETFs. Leaving out the symbols there again. And the podcast Kevin was talking about is flirting with models. So go check that out. And myself host a podcast called the derivative, this is actually going to go up. We’re filming it here, we’re recording this audio. So this is going to go up as a podcast in a couple of weeks. So go subscribe to flirting models, subscribe the derivative, and you can hear talks like this all the time. Okay, so did our welcomes. We’re going to generally talk today, why alternatives? How you adapt inside of those alternatives time, Kevin? Why now? And why these managers in these programs. So I’m going to start with some further intros BIOS from you guys. But I kind of want to do away with the boring stock intro. instead ask you for an interesting story or anecdote, or an aha moment, whatever it might be of where you figured out you wanted to get into this crazy old space, asset manager space. Start with you, Tim.


Tim Pickering  16:25

For no presser how there were a bunch of aha moments. One was when you work for a big I’ve worked for two big organizations TD Bank is where I started and was trained in Toronto, and then shell mighty Shell Oil Company, realized at some point, I didn’t want to tell their institutional story, I couldn’t do that I had no passion for that. But I think the biggest thing in the catalyst and that you know, if there was an aha moment for myself, and and my co founder at hospice, Ken corner, was realizing the strategies we’ve developed, we developed to systematically trade trend in natural gas, which is what we were focused on a shell at the time. And it really was the Bitcoin at the time that that strategy, you know, wasn’t built for natural gas, it was just built for a market that did crazy things, it went through these volatility regime shifts, it would be very low vol. and then it would be very high vol. may as well be multiple different assets. And so that realization that what we had done had applicability beyond what we were doing for bank and for Shell was kind of that aha moment and saying, why are we doing this for Shell? Why are we making that money? Let’s go hang your shingle. And, you know, we left, we left a portfolio of running five to 10 billion of exposure to launch this with $5 million. And, and, you know, it seems like a long time ago, and one seemed, since seems yesterday, but that was the aha moment. And it ties back. You know, I love the topic of adaptation and talking to Kevin and Jeff about that, because it’s all about adaptation. And for us, it was building strategies that adapted to market environments. So that’s our aha moment.


Jeff Malec  18:11

Love it. I’m going to skip Korea and go to Brian, just because I hate going down the line on panels. Sorry.


Brian Meloon  18:21

So yeah, my my aha moment, I can actually do my aha moment and short biography in that same time, because they’re sort of, you know, my transition from a Ph. D. program in pure math sort of became obvious to me at the end of that, that I wasn’t going into academia. So I had to figure out like, where do I want to go, I ended up in a biotech, which was very interesting work. I was doing high throughput genomics, which is very start of the drug discovery pipeline. So I would help to identify genes that, you know, people would do further research on and eventually identify drug candidates, which would go through clinical trials and 20 years later, 20 years after I did my work, maybe a drug would come out. The end result is I have no idea. And I still have no idea whether I did good work. I, you know, was so far removed from it. And it was so much so many years later that, you know, I had no idea I had no feedback. So when the opportunity for Campbell came along, I jumped on it. And one of the first projects I think the third project I worked on, I discovered a new strategy. And within six months of joining, we had it in production, it was making money. And this was the kind of feedback that I was looking for, right? The market will tell you if you’re doing a good job or not. Sometimes that feedback stings, but it was really nice to, you know, come in and make an impact in a short amount of time and get that feedback. And that’s really when I knew that, you know, this was the right career for me.


Jeff Malec  19:50

I’m imagining it’s like, Coach prime at Colorado like they have a big chair like you came up with a new model. You get to go sit in the touchdown chair.


Brian Meloon  19:57

It was much less excited than that. Hey, Cory.


Corey Hoffstein  20:02

So I remember one really formative experience that was about as early on in my career as you can get. I was still in undergrad in college, and I was interning for my father’s financial advisor. And really all that meant was I was sitting in meetings, taking notes. And there was a small cap portfolio manager who came in running a mutual fund. And before the meeting started, I was alone in the room. And we’re just sitting there. And so I said, generically, what do you think of the markets, and this was in 2007. And he then went on the most bearish tirade I had ever heard in my very short work career. And I, he got done with it. And I said, Well, what are you going to do about it? And he said, Well, absolutely nothing. My mandate is to invest in small cap value. And that’s what I’m going to do. I don’t even know the clients who invest. That’s up to them to determine if the risk of what I do is right. I said, right kind of makes sense to me. So the meeting goes on. And after the meeting, I’m talking to the financial advisor that I was interning for. And I said, Well, this is what he said, What do you think about that? And he said, I think that’s crazy. How in the world am I supposed to know if it’s a good time to invest in small cap value, that’s why I hire the guy. So that also kind of makes sense. And what I realized is they were ultimately both pointing the finger at each other as to who was going to manage risk for the client. And so that sort of scared the shit out of me, because I was like, the $5,000, I’ve invested in the market, I’m absolutely going to lose. And so like a very arrogant, early 20 year old, I said, Well, I can solve this. And so then I spent a whole year just basically in the lab, trying to figure out methods and methodologies. If I had been less arrogant, I would have picked up a book and learn things like what is factor investing and what is trend following. I spent a year reinventing all of that thinking I was a genius only to find out I was about 20 or 30 years too late and inventing all of it. But I ultimately fell in love with trend following is sort of my first first love of a quant model. To me, it was something that gave me a truly adaptable system, something that could manage risk in my portfolio, and very much has influenced the shape of my career.


Jeff Malec  22:18

Moving on, before we forget Kevin’s talk, and get too far down the rabbit hole, I wanted to have you guys talk a little bit about what you’ve talked to Kevin about beforehand, and how your strategies or your firms or your personal have adapted to the changing markets and how you view that concept of a deputation? Brian, we’ll start with you down there.


Brian Meloon  22:39

Yeah, I mean, I’ve been at Campbell for 20 years, Campbell’s been in business for 50 years, obviously seen a lot of changes in the markets. You know, Campbell started trading, the only derivatives that were really available commodities, derivatives, and over time added, you know, financial industries. And we learned some lessons the hard way about, you know, risk management and the importance of that, and really focused on diversification for our strategy. So starting with trend following back in the early days, but expanding to systematic macro and short term trading, and now we trade over 5000 stocks globally, right, in addition, 250 plus derivatives markets. So really, that sort of evolution of, you know, diversification and adaptation of, you know, some strategies worked really well for a while, and then they, you know, become well known, they become arbitraged away, and you have to, you have to adapt, you can’t just keep doing the same things that you’ve been doing just because they’ve worked. So that’s really sort of core to core to our strategies is that diversification concept, and continuing to add and develop new things. But in taking a broader look, I mean, everything about Campbell and processes and the way we work, our culture has really adapted to, you know, new people coming in and sort of the, the demands that, you know, especially the younger generation have for, you know, the type of place that they want to work for, that’s really been, you know, it’s, it’s, I think, a culture that’s very collaborative, even more so than then when I started. And that’s only been a good thing for, for our portfolios.


Jeff Malec  24:17

So we’re talking foosball tables and Lucky Charms Bar.


Brian Meloon  24:21

I, we actually do have a ping pong table, I think, I don’t know that people use it that much. But we have, you know, weekly seminars we have, we share ideas very broadly. And we’ve really reaped the benefit of that in terms of, you know, one person coming up with a strategy, sharing it with others, and that leading to future research by other teams, which then other teams sort of build off of as well. It’s, it’s very different from the sort of, you know, siloed sort of, you know, eat what you kill type of model that, that other firms in to their credit they’ve had success with, but for us, you know, the collaborative culture is that is a nice place to work.


Jeff Malec  25:02

Cory, where do you want to take the adaptation topic?


Corey Hoffstein  25:05

Yeah, so I wear two hats in my firm. The first is the investment side. And that’s, I think, primarily where I start. But there’s also the business side, which is, I don’t run a charity, I have to run a business. And there’s really been adaptation. And both of the adaptation that really comes to mind on the investment side, goes back to March 2020, where just very candidly, after we got through that event, I said, I feel like there’s something inherently missing about the way market structure seems to work. Now. The market reacted in a way, during March of 2020, where I felt like we watched an exogenous event turned into an endogenous market event. And I felt like there were pieces of the puzzle that I was missing. So I spent months and months doing research ultimately culminated in a piece called liquidity cascades that, I guess went about as viral as a research piece can go in this industry. And for us, it it led to strategy innovations as to things that we were measuring and looking at the influence of derivatives on the underlying markets, the influence of structured products, how we were hedging for certain types of markets, the ultimate thesis being that if we were to look at very specifically in equity markets, how fat tailed markets had become, those measures were increasing over time. And it wasn’t just jumping during market crises. But you saw more peak behavior during calm periods, fatter tails during chaotic periods, and it was something that we wanted to adapt to, in our actual process. That’s great. But then how do you actually get that in a client portfolio, and one of the frustrations that we felt as a firm offering alternative investment strategies for the last decade was that most advisors tended to for very good business reasons push towards low cost, beta, that’s what they needed to do to compete and survive. And it meant that trying to argue with them to make room for five 10% alternatives in a portfolio was sort of a losing proposition. And so one of the things we started talking about in 2017, and actually put more into action in the last year is this idea of combining beta and alternatives in a single package solution. So that an advisor doesn’t have to sell core stocks and bonds to make room for things like systematic macro or managed futures. But they can buy a single package strategy, retain their core stock and bond exposure and have those alternatives layered on top. And so we call that return stacking. It’s really just a repackaging of the portable Alpha concepts that institutions have been using for decades. We’re just trying to put it in ETF and mutual fund wrapper.


Jeff Malec  27:35

Tim, adapt or die.


Tim Pickering  27:40

I’m not even sure where to go with it. There’s so much yeah, there’s so much on this topic, I was gonna


Jeff Malec  27:44

say Tim, in particular, has done a great job, in my opinion of adapting the business over the years. So if you want to have a long,


Tim Pickering  27:51

you know, I won’t make it too long. But like, I see, like three things. One, the business side. So your business needs to adapt, and then talk a bit about that. And then I talked about the strategies. So we built strategies we felt would adapt to market dynamics. And then and then there’s the regulatory and the delivery mechanism side that core he’s talking about. And, you know, if you would have told me when I was leaving shell and starting this business simply as a CTA, in or initial strategy, we will be launching a beta focus natural gas ETF that wouldn’t have compute it. But we wanted to learn about ETFs. And we realize that what we do is a systematic manager fits very well into the ETF construct. If we could start with something simple, like beta, in this case, we use natural gas was the Bitcoin at the time. Could we then get other things into that format? You know, I said, Trust me putting natural gas and in this case, physical natural gas in Canada square peg round hole into an ETF. from a regulatory standpoint, I can’t even begin to describe to you how hard that was. But could we put other things like CTA and its future strategies, commodity strategies, so that became the business. We’ve got different products, different delivery mechanisms, let’s build a better business, even though we are, you know, essentially a commodity tilted manager that likes trend, which is a very narrow existence. So how do we adapt? So that’s, that’s the one side I talked about the strategy, so I’ll leave that one for now. But then it’s the regulatory side. And the word adapt ation is just hit me in innovation. They’re not too far apart. You can adapt or die. You know, and I’ll give you that example. If I left shell where I was in my career, and my wife needed a new Range Rover in the driveway every summer I would have died. Because the business isn’t that easy. It doesn’t just go straight line. You have to work very hard. You’re gonna have times when things are good and times and things are bad, so you can adapt to die, and then you can get a step ahead and innovate. And that’s where trying to put different delivery mechanisms, things like ETFs. You know, the the innovation and what Korea describes in return stacking, is, you know, it’s an old idea, packaged in a certain way. And I give these guys a ton of credit for doing it, because it’s how do you explain something that’s been used institutionally, which makes total sense, again, I thought everybody who’s managed futures in CTA, when I left, when I left shell, to realize you’ve got to explain that differently. And you’ve got to deliver it differently. And you get to tell the story differently in the retail world, so you’ve got to innovate in some way, whether even if it’s the message, and so all those things tie together, and you know, the whole spirit of what we do at hospice, is that adaptation is that innovation. And and, you know, whenever you go through periods of maybe neutral results, or maybe you’re in a drawdown, you start thinking real hard about how can you evolve? How can you innovate? How can you do things a little bit differently, they may be tweaks, not to your strategy, but the business, how you deliver that message, all of those things. And, and I’ll tell you, you know, nothing says that you’re going to be successful in this business, just because you’ve got a good strategy. You have to be evolving just as fast from a business perspective, you’ve got to survive till it’s your turn for your strategy. And, and, you know, the dapped ation that takes along the ways is constant. It’s exhausting to be frank with you, but you gotta love it.


Jeff Malec  31:37

off script here, a quick follow up to that, for all of you guys. How do you be careful that you don’t adapt your strategy? When it’s in that flat period, right, you might adapt your way out of existence, instead of adapt your way into existence, right? You don’t need to change just for the sake of change. Corey looks like he wants to take that.


Corey Hoffstein  31:58

I like how you’re alternating who goes first. That’s that’s a talented, moderate. Thank


Jeff Malec  32:01

you. Thank you.


Corey Hoffstein  32:01

I will, I think 99% of the stuff I say I’ve just stolen from Cliff Asness. And I’ll just steal this and cite him. I think I think Cliff says it best when it comes to quant strategies is it is your job to constantly try to figure out what’s broken. So in the context of say, Cliff and value investing over the last couple of years, his job as a manager is to continue to believe in value investing while listening to every potential argument of why value investing is permanently broken, and explore whether they’re true. And if you can’t. And if you engage in that with integrity and good faith, and you can’t find any of the arguments that say that your system is broken, and you still believe in your system, then it’s just a matter of toughing it out. Because the reality is every system for most systems that can be packaged in a mutual fund or an ETF, they tend to have sharps below one, they are by definition going to go through multi year draw downs. That is just part of what you have to expect. And that’s part of the game. And so yes, your job is to question but also realize the statistical reality that if you had a line that was a perfect line up, everyone would shove money into it. And the premium would be arbitrage to white part of the reason the long term premiums exist in some of this stuff is because they’re hard to stick with. And they’re hard to stick with because they go through drawdowns.


Jeff Malec  33:21

Brian or Tim, anything that move on?


Brian Meloon  33:24

I mean, I think you put a bunch of quants up here and you ask them the same question, you’re gonna get similar answers. I mean, it’s very, very similar, right? Good strategies, we’ll go through long periods where they don’t perform, if you don’t have a reason why it’s broken, then sometimes you have to, you have to just tough it out. It’s just, you know, unfortunately, that’s the way the statistics work out. And, you know, we’ve tried to solve that somewhat through diversification, we’ve got hundreds of, you know, 100 plus strategies, if they’re all broken? Well, there’s probably an underlying cause. But we’ve seen the case that, you know, through sufficient diversification, usually, there’s at least some strategies that are working, and some of the ones that are really underperforming, if we can find reasons, then they’ll come out of the portfolio.


Tim Pickering  34:08

So I’d say the same thing. So not to repeat the same things. I mean, part of what we believe we’ve done is that our strategies adapt to the different market paradigms, so they’re going to behave a little different in low vol environments, it’s, you know, 2015 through 2019. We know what to expect in that environment, good and bad, and a lot of it’s bad, we will get chopped up more, you know, trends won’t extend all of these things. But, I mean, you know, at the end of the day probably the biggest focus we have at those times is we know our strategies work. We know that a robust, is looking for more markets to trade. You know, the world is evolving, things that you couldn’t gain access to, or maybe were even crappy markets to trade because they didn’t have a liquidity before or now like NASDAQ 102 They building liquidity and and you know, that’s exciting to us. You know, shameless plug for RCM the work they’re doing. giving access to China is extraordinarily exciting. As a commodity tilted manager, I mean, I’d love to trade all of those markets right now, you know, and there’s all sorts of pluses and minuses and risks to that you have to have the right investor. But but if I, you know, get away from all of that, and the strategy stuff, probably, you know, the thing that I would give you is this, and I learned this, God, I don’t know, I’d like to say like, 10 years ago, but probably not, I learned to sit down with the client, whether that was a retail client and advisor, an IRA, or an institution, and be really frank with him and say this thing, I say, I don’t make money every month, I don’t make money every quarter, and I don’t make money every year. And you have to be good with that, you have to look at what we’re in the portfolio for. And if you need constant gratification, which is the human element that we all have, we all want it, then you’re not going to be happy with a lot of my strategies, because my strategies are positive skew their trend following, and they’re gonna go through period periods where they just, you know, they’re not hurting you much. But they’re not all that exciting. And if you’re not good with that, I’m happy to not do business with you. That’s fine.


Jeff Malec  36:19

You stole my thunder, I was going to sum up all of your comments by saying, actually, it’s the client that needs to adapt their die, they need to be willing to go through those flat periods and those down periods to get to the other side. There’s so many products out there, even within your guy’s suites, you have multiple products. So let’s talk very briefly, because we got a lot of other stuff to do very briefly about what makes your strategy special. I know that’s a tough thing to say very briefly. But as I would say, why should we care? We’ll start with Brian.


Brian Meloon  36:58

So I’ve talked a little bit about, you know, Campbell’s underlying strategies in our flagship flagship portfolio, we trade four distinct styles, each of which has attractive risk adjusted returns on their own. Those are momentum or trend following systematic macro, short term, and quant equities. All of them, as I said, have attractive risk adjusted return on their own, but they’re also 0% correlated with each other. So the package is actually better than the sum of the parts. And that’s really, I think, you know, our aim is is, you know, consistent and consistently good, risk adjusted return. And we hope to achieve that through through diversification, which, you know, has been our driving force over the last at least 20 plus years. Go ahead, go ahead.


Corey Hoffstein  37:50

Let me start by saying I want to talk about what I do really quick, I just want to advertisement for these guys is they are both incredibly talented in what they do. And as a personal note, I will say I have recommended COMM The ETF that Tim runs for a number of my advisor clients when they’re looking for commodity exposure. And I tried to hire Campbell at least three times as a sub advisor for products I’ve tried to launch. So I think very highly of both of these gentlemen, and I’d highly recommend you check out their firms and the work that they’re doing, because I do think it’s really good. And I’ve recommended it


Jeff Malec  38:20

and he bought me a tea today. I did


Corey Hoffstein  38:23

Yes. So so there’s a number of things we do, what I will focus on is really what we’re trying to move forward today, which is this concept of return stacking. So return stacking really is the idea of combining beta with beta or what I’ll call beta with alternative beta. The two funds that we have out today there’s a bonds and managed futures fund, and then one that we just recently launched as a US stocks and managed futures fund. And the idea is for each of those ETFs, if you give us $1, we will give you $1 of the underlying data as well as $1 of the Managed futures exposure so that if you are trying to incorporate managed futures into your client portfolio, you don’t have to make this either or decision anymore. You don’t have to sell stocks and bonds and then buy managed futures right, the addition of diversification becomes the subtraction of the core holdings that clients are comfortable with. It allows you to through this structure, maintain that core exposure and then overlay the Managed futures effectively on top of your portfolio. The idea being you get the benefits, hopefully during periods like 2022, but you’re going to survive the decade long flat markets like the 2000 10s were being in managed futures was not only painful because it’s a more opaque, less tax efficient, higher cost strategy. But you had the opportunity cost of missing out with what happened with stocks and bonds that ultimately made clients very uncomfortable. So return stacking for us is really more of a packaging innovation than innovation on finding new alphas. It’s trying to make the structure more palatable for the investor. so they can actually hold it for the long run.


Tim Pickering  40:05

What was the question?


Jeff Malec  40:07

What makes you special? Why should I care?


Tim Pickering  40:11

You know, I love the way Cory describes that. I mean, we have a strategy similar and you know, we actually get into a little bit different story. And I’ll come back to what makes us special. But explaining to a adviser, a retail client, what we do with the institutions really sets off a exciting conversation. What I mean by that is the cash efficiency of managers. So when I put on my portfolio, like portfolio we have on right now, we’re running about a 5% margin to equity, that means of client capital coming in, we put 5% on futures margin, the rest sits in cash and earns a cash return. What do we do with it? That’s it, earn a cash return? What about if we took that money and did something with it? And overlaid, you know, equity beta, or whatever? alternative strategy of some sort? And that’s cash efficiency. This is what institutions are after that that phrase comes up a lot in terms of cash efficiency. And so, you know, for everybody’s got to find their way of describing why do you do what you do. But, you know, I think this is a brilliant idea. It’s not new love the way they’ve packaged it, everybody’s got their way. But what makes us special, what’s different about us? I mean, our brand, I think, you know, he’s pretty synonymous with commodity, we are a commodity tilted CTA. So on average, we run 80% commodity risk, that is very different than a lot of our peers, a lot of our bigger peers, we run just under a billion in assets, there is a capacity when you are a commodity tilted. It, you know, I’ve got a pretty good feel for where that is, given where I came from, you know, in terms of my background, it’s above where I am. But there is a limit all strategies, all areas have limits. But that commodity side is something that we just absolutely are committed to. Trying to get the message across in terms of the value of commodities in a portfolio,


Jeff Malec  42:17

you’ve got more, pardon me, you’ve got more on commodities later. So don’t worry,


Tim Pickering  42:21

we’ll give the punchline but it is that commodity tilt, you know, commodity managers come and go, especially from a fundamental discretionary perspective, there’s big gains, and then there’s big losses and they disappear. I’m a very conservative investor. You know, I’m can’t even have to repeat that 10 times very conservative. And so the way I wanted to go about in the way I developed and kind of where I was taught, and developed on my own, was a systematic way to invest in commodities, but that the commodity tilt is the difference from a lot of our peers, it makes our returns different. And it makes the value proposition and putting us in the portfolio, very different than a lot of our CTA peers, we will perform history will tell us that differently in these different environments. And that’s our edge that really is the benefit. If you believe that quantum we’re going back to quantitative easing, no vol, no interest rates, alright, you’re stepping on your futures, you know, then then, you know, I’d say don’t hire a commodity tilted manager, but that’s the edge.


Jeff Malec  43:37

And a little follow up on this topic. We’ve already mentioned up here managed futures trend following systematic macro, systematic quantitative. So this kind of word salad that presents itself in front of investors and advisors. Cory, I’ll have you take this, like, what, what’s the decoder ring head of advisors, investors, figure all this out and kind of figure out what they’re actually looking for in this, all these products


Corey Hoffstein  44:03

in the products are what those words mean.


Jeff Malec  44:06

Both? Yeah, I mean, more from the products right there. They’re presented this suite of products, some have different words on them.


Corey Hoffstein  44:13

So I think what you find is like all of our products probably could put under the same umbrella, and they are all very different products. They would all offer really good diversification benefits to one another. The problem is they’re all going to be lumped under the umbrella of managed futures, which really just means you are a strategy that trades futures contracts. As Tim mentioned, he is very commodity heavy. The managed futures program that I run is more balanced across stocks, bonds, managed futures and currencies. And it’s really a matter of preference. I think something like a very commodity heavy managed futures program probably offers much more diversification benefit to a traditional stock and bond portfolio. But it’s aware it’s a question of can the client understand it and hold it right off?


Tim Pickering  45:00

Often scares the crap out of the client straight up.


Corey Hoffstein  45:03

All right, versus a systematic macro program that is going to go far beyond just trend following. It’s going to include 100 different outfits. And I will say, if you want to hear more about that, by the way, a plug for my own podcast that can be so bold, yes, cover, I had your CEO and CIO, Kevin on my podcast last season. And he went into all the details, and it was a phenomenal episode. So I definitely recommend listening to that. But I think what’s important from from a diligence question, right, is you certainly have to go well beyond just what the return stream looks like, you have to get an understanding of what are you actually trying to trade? Right? Because this isn’t like data. This isn’t like stocks and bonds, the return comes from trading p&l. So the question is, what is what are the underlying signals? Do you have 100 of them? And you’re well diversified? Or are you trading? Just trend? And what does that mean? What’s that payoff profile ultimately look like internally to the system? What are you trading? Is it just trend predominantly on commodities? Or is it trend on a variety of different instruments? How does that affect the system? I do think this is right. This is one of those things where you really do have to dive into the weeds. But I think those are the two probably major questions I would ask is, what are you trading ultimately? And what are the signals? And what does that imply for when the strategy will perform? And when it won’t?


Jeff Malec  46:18

Your answer was supposed to make it easier.


Corey Hoffstein  46:21

The unfortunate reality is you just have to do due diligence,


Jeff Malec  46:23

right? You gotta look under the hood. You guys want any follow up comments on that? We’ll move on. Very confusing topic. We’ll move it on. Want to get into the why alternatives piece but doing a bit differently? And we’ll start with you, Tim. Right. Instead of asking you all the same thing. We’re going to ask Tim why commodities? Brian, why systematic? And Cory? Why leverage? So Tim, we’ll start with you. Why commodity?


Tim Pickering  46:52

Jeff’s trying to keep me under control here and I get excited about commodities. You know, why commodities is easy. It’s the most diverse asset classes. There’s no argument to that. Cotton is not like crude, like not like coffee is not like canola. Those are facts. So it’s a very diverse opportunity set. And, you know, when I was at the bank and came out of the program, and got the opportunity in the commodity desk, it was because it wasn’t because I was some fundamental genius. And it was a 23 year old kid who wore cowboy boots from Calgary. They thought I knew something about commodities, it was because it was risk disciplined. And if you risk discipline, that commodity landscape is massive, it’s just a massive fishbowl, you know, if I came into this year and said, you know, where the markets going, what’s gonna be the biggest attribution in my portfolio, I wouldn’t have believed it be sugar, not in a million years. Right. So it’s spreading those opportunities. And what comes out, as Cory was alluding to, is a very different return stream than even other CTAs. But other things. In Canada, we got a funny situation where we’re such a Resource Based Economy, a lot of advisors and Ras, you know, really focused, their commodity tilted. And I said, Did you mean resource equity? And like, yeah, commodity? It’s like, no, no, no. Resource. Equity and commodity are different things. They have very different return profile commodity companies who mean, yeah, exactly. You know, I’m in Calgary. So oil companies, mining companies, is that the other thing? So? So, you know, that commitment to the commodity side? You know, I’ll tell you this back to adaptation, in a way, it takes fortitude, because there’s periods when it’s out of favor, I mean, commodities were in a 10 year down cycle. But, you know, again, you have to find ways to survive, because, you know, it’s a valuable return stream. And I mean, I could go on about this topic. I mean, I’d say this from a fundamental perspective. And I’ll make it clear, I do not invest with fundamental tools, meaning my signals are entirely quant based. Right? But the reason I’m tilted commodities is because I think that area has a massive opportunity set. And part of that the fundamental reason, when I left the program in 1995, pre China being a thing, people I said this story moments ago, and people said, You’re throwing away your career, it was it was.com It was NASDAQ, and I’m sitting on a commodity desk, and you know, what a waste. And then China happened and this volatility, not that it goes up, but that there’s volatility and movement for the next 10 1215 years, than we did go through a period of, you know, five, seven years, which were really tough. So from 2015 on, people like to say it was 10 years, it wasn’t quite that long. And now from a fundamental perspective, is why I’m tilted commodity still, if I didn’t believe there was a commodity opportunity. I tilt back the other way. I’m not wedded to it just for stupid reasons. I’m wedded to it because it’s a level of opportunity. And what I see coming around the corner is an absolute game changer in commodity. decent. India is the biggest population in the world, the consumption out of that area is an absolute game changer. This this downplaying of China we’re hearing lately that China is just a disaster, I think is foolish. I can tell you it’s foolish I’ve been. I think the opportunity set in the commodity cycle is really good, but commodities are not going to do this. They’re gonna do this. And that makes me excited. So there’s the there’s the tail


Jeff Malec  50:26

and just to clarify, you’re not long only commodities. So you want to be you want to try


Tim Pickering  50:30

and so we have a series of strategies that commie TF what we call auspice broad commodity, which is not only economy ETF in the US, it’s the C calm ETF in Canada under a different brand. We run managed accounts for institutions. You know, people say, Well, it’s a commodity ETF, what it is, is really simple. It’s it’s trend following on a portfolio of commodities. It is volatility based position sizing that we stole from our CTA business, and its term structure. Do I want to be long in the front? Or do I want to be long out back? And we toggle long flat? Right? So it is a commodity upside opportunity. But our core business is, you know, we’re indiscriminately. agnostically long short, and I don’t care what commodity is. But it is that commodity till


Jeff Malec  51:16

it’d be cool. You said was sugar right to have one of those quilt maps like on a wall at home of like, what was the best performer this year?


Tim Pickering  51:23

Well, what did they think it was gonna be? Crazy, because let’s be wrong,


Jeff Malec  51:27

let’s do a little pool every year I’ll call you guys people


Tim Pickering  51:29

talk about in it’s funny when natural gas, he’s talking about natural gas on the upside. Natural gas is the longest short trade I’ve ever had in my career. It was 1000 days. 1000 days short, because natural gas. So I always just on the upside.


Jeff Malec  51:44

Brian, why systematic?


Brian Meloon  51:46

I think. So I think we all do systematic strategies. Hopefully I you know, don’t say anything that you guys disagree with. But


Jeff Malec  51:54

I think systematic has, it makes for a good panel gonna say something.


Brian Meloon  51:58

I think systematic has really two advantages over sort of discretionary approaches. So the first is being systematic, and you know, having a computer do your trading for you, it takes the emotion out of it, trading is a tough business, you’re gonna be wrong, a lot of the time, as I heard recently on a podcast, sorry, not yours, but on a different podcast. You know, if you’re, if you’re even if you’re a really good trader, you’re gonna be, you’re gonna be wrong, you’re gonna get kicked in the face a lot. And that burns people out, it’s really tough for smart people to be told they’re wrong over and over again, it’s really tough on them. So I’ve heard anyway, the so you know, being systematic takes out motion, it takes out all of that, you know, I want to do this trade, but, you know, the stock is down to I really want to buy it, and the computers just gonna buy it, and you know, it’s gonna make, it’s gonna make the right decision more than hopefully more than half the time. The other thing that the other benefit of systematic trading is that you can scale right, so the cash equities program that we trade in, at Campbell that I’m responsible for, we trade 5000 stocks globally, if I tried to do that, you know, with a discretionary approach, I would need, you know, an army of analysts, you know, looking into each of these individual names and doing deep dives. But you know, pulling in data systematically building models that can take aspects of you know, company information and price information and other exogenous information allows us to really diversify the program in ways that would be very difficult in a in a discretionary context. So, I think those you know, and ultimately, that leads to I think, return streams that are different than you would get from, from discretionary trading. And so, you know, we can be uncorrelated to traditional assets and our return stream can and at the same time, be very diversifying also to, to discretionary managers and their return streams.


Jeff Malec  53:56

And just to clarify, when you say systematic, what I think per my understanding all of you, you’re not throwing it into chat GBT. It’s a joke, but you’re not throwing into an AI and it’s blackbox and you have no idea what the system’s doing. It’s highly supervised, highly constructed system.


Brian Meloon  54:14

Yeah, very much. It’s, you know, all of our strategies start with an investment thesis we think this should be the way things you know, the markets react, we build you know, we choose specifications, we test multiple different ways to express the same idea and we go through a you know, pretty rigorous process very similar to you know, academic peer review that challenges these ideas and so ultimately all of our strategies have a thesis behind them it’s not just you know, what did the machine say to do we let it go and


Jeff Malec  54:43

so won’t kick out by sugar on Wednesdays because that tested really well.


Brian Meloon  54:47

It will it will not do that unless we find a reason yeah. Why exactly should expect that seasonality.


Jeff Malec  54:54

Cora you got left with the awkward one here, or maybe not, but why why leverage


Corey Hoffstein  55:00

that presumes I answered your question. I always find it amazing. And I’m guilty of this, when you get a panel of quants, we’re willing to dive really deep really quickly into the weeds. So I’m going to step way back and say something controversial, which I think is true for all of us here, which is, diversification is good. Right? Don’t just start with that very controversial take diversification is good. And that’s really what we’re all trying to promote. When we talk about commodities. When we talk about a systematic macro, no matter how you do it, at the end of the day, all else held equal, if you can add more diversification to your portfolio, your wealth is going to compound faster, and it’s going to compound with greater certainty. If you’re an advisor, that’s good for your clients with financial planning, it’s also good for your business, right? If you can build more stable client portfolios, that means the revenue of your business is more stable, it allows you to plan better. So win win for everyone. Diversification is like finally, the one thing in the world in our industry that everyone wins, right? The managers when the advisors win the clients win. The question is, how do you get people to stick with diversification? So back? To your question, why leverage? Again, I love what both of these guys do. I have seen firsthand and trying to manage similar strategies that maybe I’m just bad at this, trying to get clients to stick with them during that sorry, it’s not a decade, the five years, that commodity suck, they will fire you after one. And they won’t be there in 2022. When you completely kick ass, right, they’re not going to be there to reap the reward, but they’ll certainly take the punishment. And so why leverage? Well, for me, it’s about being able to add that additional diversifying return stream in a way that clients can actually tolerate it. For those growth clients. Hopefully, it’s adding an extra return stream that can be beneficial over the long run. And for those conservative clients, hopefully, you’re able to add a diversifying return stream. If we look today, at traditional portfolios, almost every advisor I work with has their version of a 6040. And if you look at their dollar weighted book, where most of their clients allocated, it’s a 6040 portfolio. And if you look at the pre 2000, environment, stocks and bonds had an average correlation of about point three 2000 through about 2020 2020. I guess they had negative point three. So you got all the wonderful diversification benefits. Today over the trailing three years, it’s been about a correlation of zero. If we get inflation volatility coming back, and that’s remains the headline risk, you’d expect stocks and bonds to have a positive correlation that substantially changes the risk profile of a 6040. So again, all I would argue is why leverage why any of this, it’s because diversification is good. A traditional stock bond portfolio as 2020 proved can go through periods where that diversification doesn’t work as well. In fact, historically, stock bond correlation has been positive, the abnormality has been the career we’ve all had over the last 20 years. And I think we need to sort of think about what happens if that goes away? What happens if positive correlation becomes the norm? And how can other strategies introduce hopefully beneficial diversification to the client portfolio? And how can we make that sustainable?


Jeff Malec  58:13

So it’s not so much as is 6040? Dead? It’s is 6040. Enough? Is it enough diversification great, because a lot of those advisor portfolios, I would guess, are heavily air quotes diversified inside the 60. And inside the for the realities


Tim Pickering  58:26

isn’t enough in an inflationary time. And you don’t have to look very far back if your whole career has been since 2000, as Corey was saying, and we were talking about the timeframe earlier. I mean, it looks very obvious what to do. But you just have to look a little bit further back and you go from 2000, all the way back to the 40s. And you realize that in normal inflationary times, stock and bond, they correlate, you know, they just don’t give you that diversification. So this should be very obvious. But again, we’re humans, right, we have recency bias, and we fall into these traps. And, you know, and I add, you know, to what you’re saying about, you know, the, the leverage side of it, you know, again, we explain it to clients is like, just use your cash efficiently. You know, you can you can invest with us this way. Or you can invest with us another way where we take the rest of that capital and put it into a beta side and overlay those things. That’s a no brainer, right? That’s how I use you know, that’s how I invest my money. I want that $1 to go do a couple things. Makes a lot of sense. But but we have regulatory challenges as soon as we do that, and so that comes to the adaptation and innovation


Jeff Malec  59:42

and so we don’t get to in between these fine people in their cocktails. Let’s quickly the why now. Brian, want to start with that one.


Brian Meloon  59:53

Yeah, I guess so. I’ve got two two answers to this. One is you know, I think this is a you know, it’s an interest environment, it’s a, it’s an environment that, you know, maybe we haven’t seen, you know, a high interest rate environment we haven’t seen recently. And, you know, at least some of our models are really looking forward to or, you know, potentially well poised to take advantage of the differences in inflation and growth expectations across the globe. So some of our systematic macro models should thrive on that sort of diversification. The, the, I guess the longer answer to the question of why now is we view an allocation two, to one, to two to manage futures. And more, more generally, to systematic multi strat really should be a core strategic allocation as opposed to a tactical allocation. So our models, for example, you know, we had a very good 2021, driven by our cash equity strategies in our short term strategies, and very good 2022 driven by momentum strategies and macro strategies. And then this year has been mostly macro strategies and our momentum strategies have struggled, we aim to provide an attractive risk adjusted return every year. That’s why we do you know, the diversity diversification that we do. But we don’t know which style is going to work in every year. And that’s why we maintain that diversification over time. So, you know, I guess, you know, the question of why now, you can try to tactically time an allocation to alternatives, especially uncorrelated alternatives, we find that very difficult, which is why we equally roughly equally allocate to, to our styles. And so we view a strategic allocation as probably a, you know, a better a better long term goal than then trying to tactically time it. Go for him.


Corey Hoffstein  1:01:53

Alright, I’ll jump in. So I think this panel was something about 6040 being dead.


Jeff Malec  1:01:58

Yes, that was, that was the landing page hook. Yeah,


Corey Hoffstein  1:02:01

that’s always the hook. Um, I, as I mentioned, the beginning, I joined this industry in 2007, my career really started 2008. And I think every year since I have heard that the 6040 portfolio is dead. I think in the first decade of my career, that was the best realized Sharpe ratio for the 6040 Us 6040 portfolio ever in history. So every year it’s dead. And then it goes on has the best realized Sharpe ratio ever. I would never call the 6040 portfolio debt right at the end of the day, stocks and bonds have, at least to me the highest confidence risk premia you could possibly have in anything. Every client portfolio should be built upon stocks and bonds in my portfolio, in my opinion, like, there’s a good reason why they go up over the long run, to believe in what we do you have to believe in trading p&l, and that’s a very different thing than believing in why stocks and bonds go up at the end of the day. So 6040 dead? Absolutely not. But it doesn’t mean you can’t go beyond the 6040. Right. So as my last little spiel product pitch, why today why now, what has happened recently is the regulatory environment has changed to allow products like what Tim has been doing for institutions for a long time, you can now put in an ETF and a mutual fund, esoteric regulatory code 18, four makes it very clear to managers like us how we can put different derivative structures into ETFs and mutual funds in a way that did not exist before. Which means all of a sudden, we can start to do really interesting things with that cash capital that in the past was just sitting around and T bills, at least say the T bills aren’t something but the question is, can you take those T bills and invest them in stocks? Can you invest them in bonds? What are the other things you can do? And so why today? Well, the regulatory environment change, in my opinion, for Once a positive way, new regulation was good. That’s not normally how it works. But it was it was good in my opinion, and made it clear for managers like us. And so now these products can come to market that I think makes it much easier and gives you much more flexibility in terms of introducing diversification into your portfolio in a way that was not possible for most advisors five years ago.


Tim Pickering  1:04:13

There’s an absolutely fantastic answer. Why now? Let’s make this short and sweet. It’s never too late to do the right thing. I’m just gonna do it


Jeff Malec  1:04:30

we’re gonna open it up to some questions. You guys in the front row gonna have a bunch? Go ahead.



So Tim started talking about sort of a global vision. I know sort of a theme has been adaptability. I guess I’ve heard various things about, you know, emerging markets and America sort of falling behind the rest of the world. If any of you can speak to it, I guess. What’s your perspective on that? You know, you is if the rest of the world is never going to catch up? Or Is America the place to be going forward for the near future?


Corey Hoffstein  1:05:07

To live or from an investing perspective? Both?


Tim Pickering  1:05:15

Man. Again, I’m gonna take it back to what I talked about, and that’s commodities. And, you know, look, is America slowing down or not, I mean, I come with a little bit different lens, because I don’t live here, I have a daughter who’s American who lives here and goes to school in the States. You know, this machine is unstoppable. It’s the most inspiring one there is in the world, I say that as a Canadian, with all due respect. However, when you go abroad, you see the development happening, and they’re all pointing to catch up to what we have in the Western world. And to do that, you need commodities, there’s the punch line. And so we can slow down here, and that’s okay. And we can talk about where we’re going to get the oil from, you know, and the shale boom and lack of supply and or we’re going to get it from somewhere else here in America, bearing in mind, Canada’s the largest oil reserves in the world. I know, they don’t want you to talk about that, or anything. So you got it through your best friends. But the development happening outside of the western world is staggering. It doesn’t care as much about ESG, green and a bunch of BS, it’s just going and happening. And so whenever I travel outside of that, it assures me that there’s going to be opportunities, especially in the commodity side of the equation. And I’ll leave it with you on India, which I talked about earlier. You know, the really fun thing about India, as opposed to China is that it’s democratic, it’s educated, and it’s hermetic. And it’s entirely corrupt. And what that means is there going to be more volatility in the commodity space because of that. And that excites me every day.


Corey Hoffstein  1:07:00

So I’ll quickly chime in and say, one you don’t have to choose, you can just invest globally, right and let the market take care of it. Equity markets are pretty darn efficient over the long run. It’s one of the most competitive markets out there. What I will say, though, at least from two maybe interesting nuggets, I do think emerging market value is particularly cheap. Today, I’ll plug my podcast again, I had a great conversation with Michelle Lagasse, from AQR, I would recommend you listen to that episode, if you’re interested in her taking their take on emerging market value. I think there’s a trade there. But again, it’s a trade not long term structural, the pitch for maybe Tim and Campbell is going to be and myself, I guess I’ll throw myself in there is that when you look at emerging market returns, a huge part of the return is going to be correlated to what’s going on with currency markets, and what’s going on in commodity markets. And so you don’t even need to necessarily have exposure to emerging markets to get some of the benefits of what’s happening there, you could have only US equities, and throw in some systematic macro, or some commodity driven trend following and you could actually capture a lot of the coincidental benefits of what’s happening in those markets, when emerging markets tend to rally.


Brian Meloon  1:08:14

Like I said, I go and just mentioned, you know, the majority of derivatives markets we trade are not in the US. And so you know, as we see the rise of some of these countries, and you know, the the increase in liquidity in their in the derivatives contracts, and you know, the expansion of their stock, stock markets and more stocks listed, our portfolios will naturally adapt to, you know, picking up on that and allocating more risk there.


Jeff Malec  1:08:40

Who else? Don’t be shy? Over here? I’ve got one. If we all become not all, but all these companies are adding technology at a increasingly rapid praise pays, like, what becomes the difference between the s&p and the NASDAQ? Or does it just become a game of like, who got the listing? Kevin, you want to answer that one? But that’s what struck me like we’re saying, this technology is happening, all this stuff is happening. And of course, that’s reflected in the NASDAQ. Where else is that going to be reflected? I’ll say real quickly. It’s reflected in commodity prices, right? We used to be able to just drill down. Now we can drill down 1000 feet over 1000 feet down again. 1000 feet.


Tim Pickering  1:09:28

Well, technology side of commodity, yeah, is staggering. Simplified. And you guys may have saw this too, there was this little study that came out or an article, and it was talking about the amount of energy that it takes to build a good, right. And so that used to be directly linearly correlated, you know, the bigger the thing was, the more energy it took. But now the amount of energy it takes to make an iPhone versus a fridge is totally skewed to the iPhone, right? So think about that the amount of energy we’re going to need require the commodities that go into these things that are technological


Jeff Malec  1:10:02

is staggering, or is it takes more energy to build a smaller thing because it is oh, it’s


Tim Pickering  1:10:06

not even just a smaller thing. But say some of the rare metals that are required in that device require energy to extract and all the rest. I’ll take another twist on that. How many kids? Do you know wanting to go work in a mine? Or be in a commodity business? Not many, right? So we’ve got we got like a big problem from a labor perspective in the extraction of commodities on a global basis. All these things are putting pressure on the system.


Jeff Malec  1:10:37

Last Chance, oh, he has one in the sunglass.



Just think about the Congo and about when the virtue signaling comes out and stops at mine. And that goes on. For those who are bells, what happens in commodity market? At that point? I know it sounds like a silly question. But when you think about


Tim Pickering  1:10:59

well, I want to be long at that point. I mean, you know, frankly, I mean, the reality is, like, forget the Congo was all respect. I mean, you know, your point is, is well placed. But I mean, the commodity business is inherently an invasive process. And so the pressure on it, the pressure for capital, is incredible. So, you know, we’re not making it any easier. And I was just in DC, and I just so wanted to like, go wave my flag at the Fed and say, like, you know, we’ve raised rates, and we’re going to make inflation go away. Like, that’s a laughable, right? Because you can’t control that you don’t have the lever to control the commodity market and supply and demand, the fact that we have 10 years down, capex, declining capex? So I mean, we can virtue signal, we can do all those things. And all those things are good. Let’s be green. Let’s be ESG. Let’s do the right thing. I agree with all of those things. But that doesn’t mean we don’t need commodities, and it’s just foolish. Yep. Hey, let’s not get political. I’ll get all excited here. And yeah, yeah, well, it’s going. And in the meantime, the Saudis, the Saudis, and the Russians are going to squeeze all of us.


Jeff Malec  1:12:18

Anyone want to weigh in on the Congo, Saudis or Russians? One more in the weeds. technical question for you, Brian. Systematic macro versus trend following.


Brian Meloon  1:12:32

You’re asking for like definitions, or


Jeff Malec  1:12:34

however you want to answer it. Just those are confusing terms to some, I think, and you guys label yourself as systematic macro. So yeah, I


Brian Meloon  1:12:41

mean, it’s fair question. I think, you know, historically, maybe they were synonymous. But we view trend following as sort of one style or maybe a strategy, a particular strategy and systematic macro is maybe a broader class of strategies, one of which is, you know, trend following. So you can do systematic macro, as we do in our in an RV sense, that doesn’t have any market directional exposure at all, it’s still sort of systematizing the way a macro trader looks at the world, maybe taking advantage of one currency versus another based on the price of natural gas or something like that. Those are all sort of systematic macro approaches that don’t necessarily look like trend following. So I would think systematic macro is a broader category and trend following is a very specific strategy style.


Jeff Malec  1:13:30

Last question, how does ESG play in Calgary?


Tim Pickering  1:13:34

Sediment look, I’m in a completely biased joking, but yeah, but I’m completely I’m completely biased here. But I mean, we believe we have the, you know, the most sort of risk responsible, you know, oil there is in the world. But, you know, you’re so villainized right? I mean, anything in the commodity space is, I mean, for all sorts of reasons people don’t have commodities in their portfolio. Anybody hold the calm ETF? Love it. Yeah, I’ve got I’ve got a hat for you and a hat for you if you want it


Jeff Malec  1:14:02

nice. out real. We’ve got one more minute to the bar open. So did anyone get pushback I did actually of making money in the first as of 22 in oil and wheat, because of the war in Ukraine. Right? So get talking about getting Villanova’s but Korea’s shaking his head.


Corey Hoffstein  1:14:22

I mean, people were happy, be, you know, like, no one’s no one’s ever really too upset when they make money until they really think about it. And then there were questions about the ethical response of trend followers who inherently if they all pile in, we’ll push those markets up and make things people perceive the higher prices as being worse. But you could argue higher prices are good. It’s a signal to producers to take projects online. That’s just how the market works. net net, I think, you know, you’ve got producers, you’ve got consumers and you’ve got speculators in the market speculators bring efficiency and liquidity.


Jeff Malec  1:14:57

Did any of you get a thank you note? in the mail for natural gas being down 1000 days and


Tim Pickering  1:15:03

we get lots of thank yous when we make money. I will take the other side of that a little bit in terms of, you know, in terms of trend followers pushing markets up or down. I honestly think that’s kind of silly. I mean, there’s a lot bigger traders out there than me. You know, I look at what I do as a trend follower here at ospas. Versus to what I did at Shell, I’m like a dot, I’m a grain, right? There’s so big and they’re using the markets generally, and people start now getting into the weeds to lose, right? They’re hedging. They’re using the markets to lose, we’re just on the other side, and we’re small, right? They have the might not not the CTAs and the trend followers.


Jeff Malec  1:15:47

We’re gonna leave it there unless any last person has something they really want to get off their chest. I’d also like to congratulate this panel on all having our hair that’s a rarity in the financial space at this age. So good work. Thank you, everyone. Thanks, panel. Okay, that’s it for the pod. Thanks to Kevin. Thanks, Tim. Thanks, Cory. Thanks, Brian. Thanks to RCM, Tidal and NASDAQ for sponsoring the event. And most of all, thanks to all the people who showed up in real life and ask real questions. We’ll see you next week. Peace.


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