Welcome to Merrin Talks Money, the podcast in which people who know the markets explain the market. I am Maren summrset Web and this week I am speaking with Simon Judes, who's the CIO of Winton.
Now.
Winton is a quantitrative investment management firm, headquarters in London, but with officers around the world. The firm managers around sixteen billion dollars worth of cash, mainly for institutional clients, but I think increasingly with an idea of having ordinary investors and wealth managers by their products as well. So we will talk about that along the way. Simon, Welcome to Merrin Talks Money.
Thank you very much for having me.
Right, let's start by trying to explain what on earth it is that you do.
We hear a lot about quantitive investing.
We hear about CTA, we all those model systems, et cetera, et cetera.
What is it that you actually do.
Well, let me talk about quant investing in a more general term, and then I'll come on to CTAs in particular, which is one type of quant investing. So the way to think about it is imagine you start off with a more traditional style of investment. Where perhaps you have analysts thinking about a company and whether they should buy shares in the company, whether they think the company is
likely to do well. That would be something that a lot of effort goes into a lot of discussion, and if you want to make that decision not about one company, but about ten companies, you need to have ten times as much discussion, and that leads you to scale those organizations quite heavily and to focus on having a small number of positions that you have a high conviction in.
That's how traditional investment works, and quantum investment is based on a different idea where you say, well, maybe we don't have to have that high conviction in every single investment if we can have a larger number of them. So it's a little bit more akin to how an insurance company might treat its products. It doesn't have to make money on every single policy itsels as long as
it arranges things so that on average it does. So the idea is, well, what if instead of doing all this huge amount of analysis on each company that you decide to buy a share in, you instead come up with a rule that is perhaps much simpler. And it's something that's so simple that you can automate. You can
get a computer to do it. So I suppose that you look at some valuation metrics or something else about how the company's performed recently, and you decide based on that you will have a position of a certain size in the company. And that's something that you can get a computer to do for you, and you can do that with a much much larger portfolio. Now that might sound a little bit speculative, like how could you know that following a rule like that would be a good
decision for you in the long run. And the reason that you can get confidence in that is because you can do something that you can't do in the more traditional style of investment. What you can do is a back test where you take that rule and you test how it would have performed over a much longer time horizon. And that is what gives you confidence in quant investing that this is going to be a good rule for
you to follow. And if you think about what that then looks like, it means that when you are allocating money as a quant investor, you're not allocating or you're not really thinking directly about each individual investment. You're thinking about allocating to these rules, these ideas or algorithms that are themselves going to decide which companies they buy and which companies they sell. So that's the general idea of
quant investing. It's the difference from more traditional styles of investment, and that's how you can get confidence by doing these historical studies which show you how the rule would have performed.
How does that work with a long term idea that every time an anomaly or a gap in the market like that has found, it's almost immediately traded away.
That's a great question. You definitely see with many types of rules like that that they work for a while, and then you can even see in this back test that they gradually start to work less and less well. And that almost certainly is always because many more people are doing it. So what can you do about that? Well, the first thing you can do is that there are some ideas which don't have that fall off in a way.
Perhaps they're not based on discovering a simple trick or arbitrage, which once somebody else has discovered it, it will just stop working. They might be based on more general behavioral biases that people have, and that's really where CTAs and momentum and trendfall going to sit in this way of thinking about it.
So there's two types of rules that we might follow here. One would be purely in numerical statistical, and the other might be behavioral.
Well, even the behavioral ones we would still measure through data. They would still be measured through the way that either prices or other sort of days that we might use are behaving. So they're still encoded as systematic algorithms that take in data, transform it in some or other way, and then come up with a rule for how you trade. So I think those two things might end up being
the same. But the second way I was going to say that you can combat that people call it alpha decay, where the idea stops working, is by doing a lot of research and continuing to find new ideas. And that's a big component of our activity as well.
Okay, so there are still new ideas to.
Find, absolutely, because there's new data all the time as well.
Can you give us an example of a new rule.
Well, that's why you might be infringing.
In Okay, you don't want to do that because it's proprietary stuff. And this is one of the problems I think the retail investors often have with this type of fund is that they're told the theory, but it's not possible for them to be told the practicalities because that's your model, your proprietary data.
So why don't we go back a bit.
Maybe you can give us an example of a rule that you use that once worked and doesn't anymore. That way, we're not infringing on your corporate knowledge.
Well, I think we can do better on that because in the CTA space actually, which is a particular type of quant investment, the basic idea of how we come up with the trades is quite well known and it's
in something we can talk about very openly. So CTAs are a particular subset of quant hedge funds which apply that same philosophy that I was talking about earlier to macro markets, primarily through trading futures, so that they're trading equities, that they're trading bonds, they're trading currencies and their training commodities, and predominantly the way they're doing that is by looking
at recent price momentum. So the things that have gone up over some recent period, you have a long position, and if they've gone down, then you have a short position, and that is the algorithm. It really is looking mainly at recent price behavior.
Okay, so you've got a fund that trays in futures in all the asset classes based on the direction prices are already going, with the idea that you can spot where the turn will come.
No, we can't really spot when the that's very hard. It's based on the idea that if the price has been going in that direction, that's more likely than not to continue going in that direction.
Okay, so you've got to have an awful lot of positions for that general rule to work.
Yes, you need, you know, more than one hundred really to get the benefit of the diversification, because, like I said, in general, with quantuvesting, you don't have very much conviction in any one position. So I'm slightly suspecting at some point you'll ask me what gold is going to do next? For example, Yeah, that's coming. The answer is, I don't know.
When the question comes, I don't know, but we believe that there's a greater than fifty percent chance that it will continue to go up, which is not saying very much, but as part of a large portfolio, it's still a very valuable thing to do.
Okay, before we move into a CTR. What does CT stand for? By the way it.
Sounds for Commodity Trading advisor, which is it's a regulatory term from the seventies in the US, so it doesn't have very much.
It doesn't really the words don't really mean anything anymore. The acronym means something, but the words no longer mean anything.
Correct.
Okay, let's go back to the.
Pre CTA conversation about the different rules and evaluations. I am actually really really keen to nail you down a little bit on the kind of thing that you mean when we talk about all these different rules, all these different diversification, different models, etc. For the purpose of the retail investor who is not used to this kind of fund and is used to more traditional equity funds where we're talking about or we're doing growth and this is
what growth means, and we're doing value and there's more value means, and we're doing growth through a reasonaal price and that's what this means. And we're doing tech and that's but this means we're doing mining. That's what this means, etcetera. These this stuff is easy to get a handle on, but what you do is not. So a neat little example of one type of strategies, less models, less valuation metric, etc. That works or has worked for you would be super handy.
Absolutely. I think value is a good one to focus on. So if you think about traditional value investors, Warren Buffett entering gain this kind of thing there is.
We take issue with that one more on Buffet and value investing. Come back to that.
Maybe, well, think of somebody who's doing a lot of effort into assessing a company and deciding if the current market price represents good value. So maybe if that's the way, so.
That now describes every single investor there is, because no one buys something which they don't think is good value, even a growth investor. If they're paying seventy times for something, we'll think is good value because they expected to go up right absolutely same, same, same.
So yeah, okay, a lot of people would would fit
themselves into that that way of describing things. And now imagine instead of putting a huge amount of effort into each company into looking at what the management of said, into looking all over the balance sheet, into looking at the drivers of the company's profits and so on, and work out what the price should be Imagine that all you do is you look at the price siarnings ratio of every company that you can find, and you just rank them, and you just look at the ones that
have lower than average and the ones that have higher than average price sarnage ratios, and you just decide to go along the ones that have lower than average PE ratios and short the ones that have higher than average. That is an example of an algorithmic rule, which in and of itself is not very sophisticated or clever, obviously, because it doesn't involve any interesting analysis of what those companies are doing. It just takes one piece of data
per company and update it roughly once a quarter. Depending on how from these numbers are updated, it.
Would rebalance once a quarter.
Generally, yes, exactly. So this is an idea that many people have traded for decades. It doesn't work that well anymore as well as it used to, and many people have adopted more sophisticated tweaks on it. You know, perhaps you don't just rank every single company. Maybe you look at the ranking of a company within a sector. Maybe instead of looking at the trailing earnings, you look at analysts forecasts of earnings maybe you try to forecast what
the next earning announcement will be yourself. You know, there are lots of ways to make the idea still quantitative and systematic, but more sophisticated than that original base idea. But ultimately, what they're all doing is something that is much less in depth than what a traditional investor would do to assess whether a company's good value or not.
And on the flip side is that you can do it very easily for a very large number of companies, and you can back test it through history and you can see what following this rule would have done.
Okay, so you can do all that, and you have maybe a one hundred different strategies running in in a fund.
Do you said earlier?
It varies. We have different products. So some of the CTA products, for example, are really based around the properties of momentum of trend following on macro and markets, and there are good reasons for that because that has a specific function for investor portfolios, which we can talk about products. We have combined a much larger number of different strategies where we're really trying to benefit from the diversification you get from a large number of different ideas.
This sounds to me like the kind of thing that AI would be remarkably helpful for.
AI certainly is helpful for us. It's not something that's extremely new in a sense, it's the latest example of a fairly transformative technology or set for techniques. It probably wouldn't surprise you, given that we have a huge technology component to our business and the people we employ are people with backgrounds and software engineering and sciences and so on, that this has always been something that's very important for us.
Before AI, it was machine learning, and it was all times of data, and it was big data, and it was cloud technology, and it's very important for us to keep up with the way that all of these ideas develop and certainly the recent developments in large language models have been very helpful for us.
Does it make everything move faster, faster and faster, so the edge that you might get from each new idea is removed much more quickly?
Well, to some extent. I mean there's a general truth in investing that nothing you know ever totally transforms the business because at the end of the day, of everyone discovers something, then its value reduces because ultimately there's a certain number of dollars to be made out of forgiven idea. The more people who do it, the more they have to share it. But that doesn't mean that you can just not follow it. You still have to do these things.
All right, Let's move on for what I know you really want to talk about, which is the CTA stuff and the trend following fund.
Explain how that works.
Yeah, absolutely so. This is a quant strategy that trades the macro markets, primarily through futures, and it has a particular role in investor portfolios, which has always been there, but it's become increasingly important really since twenty twenty two. There have been other moments as well where investors have
become particularly interested in CTAs. The financial crisis was one, particularly where equities obviously fell a lot and lots of other asset classes that did poorly, and people start to look around for what things had done well. And at that time, the two things that had done well were bonds and CTAs, and so there was a big surge of investment into both of them after the financial crisis.
And then in twenty twenty two, the remarkable thing that happened, which is a headache not just for the retail investors that you mentioned, but actually for all investors, is that bonds and equities fell together for a year. The reason is the problem is because a lot of allocation philosophies had relied on the idea that bonds could provide divestification
to equities, and that wasn't a crazy idea. You'd had a twenty year period leading up to there where bond's and equities were negatively correlated, and not every time that pretty much every time stocks had gone down, bonds had helped, as they did in the financial crisis.
So the traditional sixty to forty portfolio worked for everybody for a very long time and then suddenly kind of stopped working exactly.
And in fact, it didn't have to be sixty forty. You know, any reasonable combination of bonds and equities would have performed extremely well over that time period. And then that diversification disappeared. Really starting twenty twenty, the correlation flip to being positive, which meant that the potential for them both to go down at the same time was there,
even if it hadn't actually happened yet. But then in twenty twenty two that potential was realized and they both did go down together, and that really drove home that you can't just rely on bonds to be your diversified equities, and so people started again looking at at CTA strategies, which had done very well that year. So why is it that CTA strategies provide this diversification. There are basically
two reasons. The first reason is that among the futures markets that they trade, there are a variety of things which are very uncorrelated. Exposures are things which are quite difficult for people to benefit from otherwise. So an example of that would be, for example, the big rise in the price of cocoa which took place in late twenty twenty three and early twenty twenty four, and then subsequently the big drop in the price of coca that happened
in the last few months. That's a trend that you can benefit from by trading the futures markets, but it's very difficult to get that exposure through stocks, for example. So that's one reason. The other reason that you can benefit a lot from CTAs in a portfolio is that because they trade futures markets, and futures markets have this amazing property that it's just as easy to be short as it is to be long. You can benefit from
short positions in the major asset classes. It's just as easy to maintain a position that short equities or short bonds as it is to be long equities and long bonds, and so trivially in the year like twenty twenty two, the strategy is short in those asset classes and it does well.
So that was a good year for CTA.
That was a period when you're the assets that you hold kind of peak, right, so that there's winter and as a whole managed less money now than it did at its peak. What's driven that is that because people looked at the successes in times like that and then go, well, since then, long equity has been marvel.
It's very easy to make money. And why do you need to mess around the edges?
Oh, our peak was at a different time from that, well, was it?
But earlier?
Yeah, well in twenty sixteen. But I think there's there's a peak of a single manager, which has more to do with what's going on in that organization. But the peak of the industry is a different question. So in terms of how much people allocating to CTAs, it's a little more difficult to tell because some CTAs are public like we are. Others are offered through products that perhaps banks offer, and is not publicly known how much is
being traded there. But what we're certainly seeing is that the interest relates strongly to the performance of the strategy, as you'd expect.
Of course, okay, and the performance of the strategy long term.
Well, look, long term, it's been a great addition and diversifier. So you can take any combination you like of bond's and equities, and it's been beneficial to add an allocation to CTAs as well over the long term. Beneficial like her, Beneficial in the sense that performance has improved, and particularly the drawdowns that you get when you have these big moments like twenty eight or twenty twenty two are mitigated to some extent.
Let's say, for example, you're a retail investor and you make five percent of your portfolio CTA.
How would that how would that have helped your performance over I say a decade long period.
Well, you know, the exact number is very depending on.
I know, I know the exac num is very bad.
But you know, we need we need to know that it would make a positive difference of more than a couple of basis points here are that it does.
It makes a positive and you can measure in a couple of ways. So you can say, well, there's an annualized number which might go up by one percent or something depending on exactly the waiting you give to it. But then what is also important is not just that sort of average, but the fact that historically, at least the CTAs have performed well in the periods which haven't
been good for equities. And so it's added the profits at particular moments when other things were doing badly, which isn't as easily quantified by just adjusting the annual return number, but it's a very important component of why people are allocating to it.
Yeah, can you tell from of course you can, But looking back, what how much of your performance comes from being long asset classes and how much comes from being short asset classes?
There any any differential there?
Are you equally good at both or do they both equally feed into performance?
You get good performance from both. So I'll give you some examples. So if we look at two thousand and eight at the financial crisis, that's a really good example to play through. So that year, a good portion of profits did come from long positions in bonds. Bonds did very well, but about a third of profits came from being short inequities. So you saw profits on both sides. Now you can pick other examples again on both sides. In twenty fourteen, that was a very good year for CTAs.
Why was it a good year, Well, there were two enormous trends. One was the downward trend in oil prices that was driven by the shale boom, and that is a great example of a trend that is very very easy for CTAs to latch onto. Being short oil is as easy, like I said, as being long oil, but it's not so easy to do in other contexts. So
cta'd very well being short oil in that year. The other thing that was going on was there was this tremendous upward trend in fixed income, particularly in buns, and it was quite surprising actually at the time, because yields on buns were getting towards zero, and in fact they ended up going below zero, which is something that people
generally didn't expect could happen. And these two examples actually reveal something quite unintuitive about momentum, about the idea of following trends in these markets, because often people think, well, if you're following a trend, you must be getting into some very crowded trades and you must be sort of following a herd, and just the general received wisdom, And in fact, these examples show you that very often you
can be doing precisely the opposite. And the way we know we're doing the opposite is that we can look at what fundamental analysts are saying about what the market is going to do at each moment, and we find there are these moments which are very profitable where the trend disagrees with what the fundamental analysts are saying. So if you look at what people were saying about where oil would be through twenty fourteen, people were not focused
on the shell boom. They were focused on the apparently unquenchable demand from emerging markets, the policies which might lead to the reduction in supply. You heard people talk about pee oil supply, for example, at that time, and every
analyst was predicting the oil would increase in value. And similarly, with that trend in buns, everyone was saying, well, buns cannot possibly go up from here, because why on earth would anyone give their money to the GM government to get less of it back in ten years time.
Yeah, well we might still ask that question actually simon why they did that, But here we are.
Yes, well you might. But the great thing about trend following and about these algorithms in general, is that they don't have to know. They don't have to have a theory about why the markets do what they do. They have a rule that this market has been moving in this direction, maybe it will continue, and they have evidence that following that in the past has been a good thing to do.
Okay, so let's move on to talking about what trends are interesting at the moment, because of course that's what everyone really wanted to know, is if, as you say, the market is moving in one direction, there is momentum there before it has become a consensus view, what you're really looking at at the moment.
Well, you know, the things are not necessarily things that are unknown. So the big trends that we've seen recently have been in the precious metals, to some extent, in base metals inequities. Obviously, equities have been going up in general. There's been good short trends in some places in US natural gas, for example, and particularly in cocoa, the example
I mentioned earlier. Well, it's interesting you mentioned that because it's obviously a fairly niche market, and particularly when we trade a few hundred markets, why am I mentioning this one. The interesting thing is that the strategy itself is very dynamic, So when there's a big trend, it will take a big position, and when there's not much going on, it
won't take a huge position. So what that means is that even though you're trading perhaps two hundred different things, it's not like building along any portfolio of stocks where you have to just always maintain this collection of posis. The strategy is behaving very dynamically, so at any given moment, there'll be a much smaller number of things which are really contributing, and it will be based on what those
markets have done recently. So I'm talking about cocoa because it's had this astonishing rise and then equally astonishing for recently, and that's why it's making a big impact on the portfolio, and that it didn't do for perhaps twenty years prior to that. So if you'd have asked at any point in the last twenty years I wouldn't have been talking about it.
Okay, this is great.
Interesting.
So when you talk about one of your funds, for example, having having all these different positions and things being traded, etc. The returns over over, say an annual period, will probably only come from a couple of those positions. There will only be a few that are of reasonable size.
Well, it's certainly a smaller number than the two hundred. You're right, it's typically a few big things that are that are happening every year. That's absolutly right. So coco yes, cocoa, gold here, some of the base metals as well, Copper, yeah, Aluminium, uranium, uh, less less uranium because it's a less liquid market for us to trade. But that the yen as well, there's been a big market for us over the last few years.
Uh huh.
And would you expect the yen to turn lots of conversations without the yen?
Absolutely?
Again, you don't know, right, that has to be the answer.
I don't know.
No, Although it is another great example of the fact that the algrim you know, doesn't have a theory it's trying to follow as a massive strength. Because obviously what we saw the last couple of years, was everyone predicting that the yen is going to rally and in not doing it, or doing it for a bit and then and then resuming its slum.
And you can tell so many good stories about would right, how it should rarely will rally, interest rates going up, inflation, and all the political change in Japan, etcetera, etcetera, and it never quite happened exactly.
And in fact, you can see these kinds of episodes. This is an interesting point. I think that often these kinds of episodes are almost necessary for a trend to appear, because if you think about what a trend is, it's a situation where a market moves a long way, but that slowly. Right, If a market moves a long way very very quickly, then you know it's kind of fifty to fifty if you're on the right side of that
or not. For there to be a meaningful trend that we can benefit from, it has to do it slowly. And that's a slightly surprising thing that it could ever happen, because what you hear about the way markets have developed is that information is incorporated into them at a never faster rate, and so you might think that if something is going to happen to a market, well it is
going to be very very quick. But there are ways, nevertheless, that things can happen slowly, and one of the ways is if the market kind of has to fight against the narrative that is saying that the thing that is going to happen actually can't happen. And that's exactly what was going on with the en right, because all of the narrative was saying the end has to rally, and the fact that for whatever reason, which I'm not going to be able to tell you, for whatever reason, the
marketing fact was really pushing in the other direction. The fact that that had to fight against what everyone thought was supposed to happen. It's part of the reason that it got drawn out into a long term trend and was therefore something that we were able to benefit from.
Interesting, are there any other things that you're looking at the moment that are moving remarkably slowly?
Well, look, gold is a good example. Well, but it's been over a couple of years that it's.
Had a low and then very fast, that's right.
And the dollar, obviously that the dollar has started to weaken over a relatively drawn out time.
Period silver again very slow and then very very fast, which.
Is in a way that is ideal behavior. Actually that there's another element of the algorithm which I hadn't talked about before, But what we do is when we have a strong signal that determines that we want a certain
amount of volatility from that position. So when you get the situation like with silver, particularly silver, but gold, to where it starts small builds and then accelerates, that means that we start with building in a long position, and then as it accelerates, well, the volatility of the market goes up, and actually we don't need to own so much silver anymore in order to get the amount of volatility we want. So actually, as that market is accelerating upwards,
we are selling again. It's another slightly surprising thing that you wouldn't necessarily expect from somebody who's following a trend, but that's typically what's happening as those markets accelerate, and in effect, you are locking in the profits that you make as you go.
Okay, there's a sort of a view that pretty much all investing these days is momentum investing or trend following investing, because everyone everyone in a passive investment is effectively a momentum investor, just on the longside.
In the sense of passive long in the aity investment.
You know, if you've been invested, for example, soil relatively recently in a global equity ETF of any kinds, you've effectively simply been following American and tech momentum for years. That's it. You're not value investing, you're not a growth investor, and not anything in just a momentum investor.
Yeah, there's an element of truth to that. I think it's slightly difficult to compare long only investments with long short investments because even though some of the ideas might be might be similar, the actual trading that you end up doing and the nature of the portfolio you end up holding is very different.
Obviously, Just just this idea that most people have one side of your portfolio already to a degree equal part.
Well, yeah, they have, yeah, one half perhaps of the of the equity portfolio. That in some sense that's right.
And the point being that's kind of dangerous in that most most people passively investing in a global ETF are not aware that they have a one sided momentum strategy.
Yeah, Look, it's an interesting point of view. You can think of any index, if you like, as a type of trading rule, as a type of algorithm, because it's it's effectively saying if it goes in the index, then you buy it. If it exits the index, then then you sell it, and other times you maintain it in
these proportions. And it's interesting because obviously that is another rule that you can you can back test over time, so you can, if you like, think of it as a as a type of qunch strategy, and we often do try to think of it that way. I don't think I have anything useful to tell you really about whether that's dangerous or not, that that perhaps is a deeper question, and then I'm prepared to address.
Listen, while we've been talking, remember I asked you earlier about about the extent to which it would have enhanced the performance of a portfolio. Luckily you have PR people, Simon, and they've sent me something saying. Winter research found that a ten percent allocation to trend following would have improved the returns of an equity bond portfolio in eighty seven
percent of ten year periods since nineteen seventy two. Increasing the portfolio is our performance overcash to four point eight percent from four point one percent on average, and there's return improvement nearly doubled in the bottom decyle of ten year periods for the equity bond portfolio, highlighting diversifying properties and portfolio resilient.
The VEGA fantastic. I'll congratulate them.
I think you did the work. They just wrote it down.
So in that sense, would you say that a ten percent allocation would be a reasonable amount for a retail investor? So let's say we've still got our long equity exposure, we've got some bond exposure. Maybe we've finally finally got the message, and we've got somewhere between five to ten percent in gold. Maybe maybe we've got three percent in bitcoin. Not recommending that, by the way, but maybe we.
Do one percent.
Should we also have ten percent in a trend following in a CTO strategy?
Does that make sense to you?
Look, it certainly makes sense that the right level of allocation depends on what your preferences are as an investor. If you allocate to things other than equities and bonds, then obviously you're departing from that benchmark and you introduce some risk of outperforming or underforming that benchmark, and different people have different tolerances for that. There's another way of doing it as well, where you get to maintain the exposure to equities, which we offer through a portable alpha
type structure. This is something that has been really always on the radar of institutional investors, and we're offering now for retail investors as well in the usage product.
Okay, and now I know I said you might have a couple of percentage points of your portfolio in bitcoin, but is crypto one of the asset classes that comes into your strategy.
We do trade crypto in that way. If you think about what we're looking for, particularly with that kind of mentum strategy, we're looking for markets which might have trends and which are liquid enough that we can trade them. Obviously, crypto satisfies both of those things. The only question would be is there a way to trade them which is operationally safe? And there is actually because there are futures
on some of the crypto assets. There are futures traded on CME on bitcoin and ether and a couple of others as well, and the structure of those is basically the same as most of the other futures that we trade. So it's fairly straightforward to add them in to the momentum system and to benefit from them, which we have done this.
Year in which direction?
Well, this year short, we benefited at other times. It's been long.
Yeah, And would you be sure now?
Well, look again, you shouldn't take any of this as insightful advice about.
Well, now, we're absolutely not.
We know that this is purely about momentum and trends, but we still want.
To know that's right. Well, really, you're just asking me have they gone up or down recently?
Now I'm asking you where are you expecting them to go?
Now?
How does a trend look?
Yeah, like I said, the trend is just what has happened recently, which is down. But the chance that means it's going to go further down is only marginally above fifty percent.
Okay, And what.
Makes it difficult yet for you? What are the risks in their strategy? What makes it go wrong?
Look, there are two kinds of situations where momentum investing is not going to do well. So one is where there aren't any trends, when markets just moved sideways The other is where there might be a trend, but then there's a sudden reversal. So we've had good examples of that recently. So last year, for example, there were big reversals in March and April our announcements, in particular calls for the equities that had been going up, they then
started going down. That all had been strengthening, then it started weakening. You know, a lot of commodities have been going up, then they went down. So those kinds of situations are other situations where the structure won't do well. The case where it does well is where markets move steadily and consistently in a particular direction, or at least enough markets do that to outweigh the ones that are behaving in a more negative way.
Yeah, so what are your expectations for the rest of this year, Well, you can only.
Tell me some things will go up, some things will go down.
But are you expecting the type of volatility that will make it a good year for you?
Look, we have evidence, you know, when we look historically, we see that there are some years which are good, some years which are less good, And we can't predict if we could time when trend following is going to work. We would just build it into our strategy that it would take more risk in those periods and less risk at other times. What we found in terms of allocating to trend following is that it works best if you don't try and time it, if you just regard it
as a permanent allocation and live with it. For example, after that period in April, April, May June were difficult months for the trend strategy for the reasons that I said, And if you'd been thinking about at that point, you get pretty depressed and you think, well, this just hasn't worked, is it. When is it going to start to work? And then what happened was over the course of the rest of the year we saw several big trends emerge.
So obviously the precious metals rally continued, equities went up relatively steadily. We saw some of the base metals do well as well, and there wasn't a continuation of that negative whipswew and behavior that was really a prominent feature earlier on in the year. So that meant that overall the strategy did very well. But there was nothing that you could have pointed to in July that said, oh
now is the moment. Now is the moment. It's definitely going to work, just as there was nothing you could have really pointed to in January which said now is them it's definitely not going to work. So unfortunately that that's that's the way things are, and I don't have any better answer to be able to predict it.
This is a kind of trust us strategy, isn't it?
Well not really, because this is where you can look back at the trap records and at the and we can look back at the back test, and it's those things that we are we are looking at. It's the more it's the more discretionary type of investor who's making one decision you know today, and it's totally different from the things they looked at last year and the year before. They're the people who are saying trust us because they don't have the history back test to look at.
Yeah, so let me ask you something.
One thing that comes up a lot on this podcast is ESG strategies and stewardship around investing. And if you're investing like this in a way that is entirely non company specific, you can't really have an EESG overlay of any kind.
Can you.
Not in the traditional sense that there are various things that you can you can do. There are, for example, ESG versions of traditional indices, and there are futures on those indices, so we trade those where there's sufficient liquidity to enable it. We obviously can't create that liquidity where it doesn't exist, so we're to some extent reliant on the marketmakers and other people to take an interest in those things. But we are we're well positioned to do it if if they become popular.
Okay, and tell us briefly about the appropriate vehicle that you have for retail investors. That's the Winter and Trend Fund, right the use.
Its Yeah, well, we have we have use sets vehicles for all of our major strategies. So we do have the Winter Trend Fund. In addition, we have another wint and CTA fund which includes some non trend elements as well.
They've got the Trend Enhanced Fund.
I'll hold on, I'll get back. There's the first one that I mentioned was the Winter and Armor divers Fied Fund. The Winter Trend Enhanced Fund is the fund I mentioned that has trend falling with and also maintains the exposure to global equities. So for example, if you wanted to add this into your portfolio, but you didn't want to disinvest from your equity portfolio, this is a way to do it because it maintains one hundred percent exposure to equities.
And then the last use that's fund that I you mention is the is our quant multi strat hedge fund, which is also there.
Okay, and these are all global funds, right, they're all looking at everything.
Everywhere all the time.
That's correct.
Very busy two hundred employees you've got.
There, They are very busy. But remember they're not individually.
They're not doing any individual analysis.
In the analysis, they're looking at the algorithms, and the algorithms are mostly things that can be applied relatively broadly.
And do you think that over the next decade these jobs will still exist, because an awful lot of it does sound as though I'm obviously it's hugely automated already. Will it get more so? Will there be two hundred people require to run sixteen billion dollars in a decade using this kind of strategy?
It's a good question.
Can we just code everything?
I don't think you'll be able to vibe code everything it's yeah, I struggle to make predictions about this. You can. It's interesting to look at.
And I'm going to get a prediction.
Ow do you before we got to the end of this podcast. If it kills me, don't make one.
On this, I'm sorry, Maaron. Well, look when you look at how particularly technology jobs have changed, what you find it's not necessarily that you need more of your people. You find a great variation in the in the skill sets that are required, and that that really is driven by technological change. Often that's change in the type of
software that we use. That you know, the development of Python as a programming language that's much more broadly accessible than previous programming languages, were the changes in the type of databases that we use the you know, going back a decade or two now, the introduction of virtualization of PCs, which drove a lot of the reduction in PC sales, and the types of expertise that were then required to maintain the computing resources also changed dramatically because you suddenly
are not dealing with a computer that's in sitting under your desktop anymore, but it's sitting somewhere in a remote warehouse. And then the development from there to using cloud resources. All of these drive changes in the type of expertise that required, and I'm sure that that will be true
with AI as well, but we are not. There are some types of business where there's just a fixed thing that you're trying to do, and if you can do it more efficiently, then you just have few people do that, And that is not really what our business is because
our goal is a bit more open ended. We want to drive the best investment returns that we can and if we can do the task that we're currently doing more efficiently with fewer people than what we'll do is we will keep the same number of people and we'll do more.
Okay, fair enough, What do you think you'll get your kids to study at university? When I asked this question, now there's a kind of clear division between people who still think it should be stem all the way and those who think, well, we're moving into an age when empathy is more important than anything else, and therefore you know, sold chemistry, do philosophy.
Where do you stand on that?
I'm not sure it's really up to me. My children have their own.
Nothing, nothing will be up to you.
But the bit where you try and feed it to them and make them think it's their own idea.
What do you think that'll be?
Well, my oldest son's interests at the moment are split between maths on the one hand, classics and history on the other.
Classic combo, isn't it?
They are? And I actually quite like that combination. I think there's great value in both.
Okay, here was me desperately trying to get something to finish about for you, about the future, and we're coming up with do both.
Was the path I took. So I studied physics and philosophy, and I think i've I've definitely benefited from having both.
Yeah, you were on holiday last week, what were you reading?
I was reading a Kubaqua detective fiction novel by Louise Penny. And then if you've come across those.
Folks, I've read them all.
I've just discovered them. So this is I think I was on my fourth one and I'm really enjoying them now.
They get a little Dell Towald to the end. There's an awful lot of them. I've now shifted towards a series of murder mystery suspenses in Dublin by Tana French, which I recommend very highly.
Oh, thank you, I'll give that a try.
Thank you very much, Simon, thank you so much. Thanks for listening to this week's Maren Talks Money.
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I'm marinas w and John is John Underscore Stepic. This episode was produced by Me Maren sumsep Web used by Somersardian Roses and sound designed by Blake Maples and special thanks of course to Simon Juds