WEBVTT - Clear as Mud 0:00:13.760 --> 0:00:17.160 Hello, and welcome to What Goes Up, a weekly markets podcast. 0:00:17.239 --> 0:00:19.920 My name is Mike Reagan. I'm a senior editor at Bloomberg, 0:00:20.600 --> 0:00:23.560 and I'm val Donna, Higher, across asset reporter with Bloomberg. 0:00:24.079 --> 0:00:26.840 This week on the show. Well, obviously this is not 0:00:26.960 --> 0:00:30.639 an easy environment to invest it. Stocks are up big 0:00:30.680 --> 0:00:34.120 one day, down big the next day. Bond prices are 0:00:34.200 --> 0:00:37.879 rising some days but following most days. So what are 0:00:37.920 --> 0:00:40.160 the right asset classes to be in right now? While 0:00:40.159 --> 0:00:43.640 the Federal Reserve is fighting inflation with both fists. We'll 0:00:43.640 --> 0:00:46.520 get into it with an executive who focuses on multi 0:00:46.600 --> 0:00:51.000 asset portfolios and hedges at a major hedge fund firm. 0:00:51.000 --> 0:00:53.559 But first of all, Donna, I have to confess, um, 0:00:53.600 --> 0:00:57.160 if I drift off into outer space during this podcast 0:00:57.560 --> 0:00:59.000 and you have to bring me back hurt, it's only 0:00:59.000 --> 0:01:02.200 because I'm going on vacation in less than twenty four hours. 0:01:02.200 --> 0:01:06.440 I'm going to southern Californy. Yeah, because I hear that 0:01:06.480 --> 0:01:09.319 they have some beaches in southern California that are almost 0:01:09.400 --> 0:01:12.240 they do, almost as nice as the Jersey Shore. So 0:01:12.240 --> 0:01:15.319 I'm gonna look into that almost as nice. New Jersey 0:01:15.400 --> 0:01:17.240 is always number one, right, at least for me and 0:01:17.319 --> 0:01:20.600 you and a lot of our listeners. Maybe we'll see. 0:01:20.680 --> 0:01:22.520 We'll see. It depends if they have ski ball or 0:01:22.560 --> 0:01:25.080 not on these these so called California beaches. I think 0:01:25.080 --> 0:01:27.720 that's that's an important Where are you going in California. 0:01:27.760 --> 0:01:31.200 We're going to Santa Monica and uh for like three days, 0:01:31.200 --> 0:01:34.240 and then San Diego and the whole Reagan clan, all 0:01:34.400 --> 0:01:37.399 three kids, my wife, we're all we're all flying out 0:01:37.440 --> 0:01:39.880 in about twenty four hours. We're big ski ball players, 0:01:39.880 --> 0:01:41.840 so that lot's going to ride on how good the 0:01:41.880 --> 0:01:45.319 ski ball tables are out there. I don't know. You're 0:01:45.319 --> 0:01:47.320 gonna have a really great time. San Diego is my 0:01:47.319 --> 0:01:50.280 my number one favorite city, I think, is it? Yeah? 0:01:50.520 --> 0:01:52.720 I love it because it's sunny, like three hundred sixty 0:01:52.720 --> 0:01:54.720 four days of the year or something. You're well more 0:01:54.800 --> 0:01:56.680 traveled than me. I've I've been there once and it 0:01:56.800 --> 0:02:00.200 was I don't remember much of it, but maybe when 0:02:00.200 --> 0:02:03.080 you were there, you're you're a big jet setter, and 0:02:03.120 --> 0:02:04.600 so you gotta find someone to fill in for me 0:02:04.680 --> 0:02:08.560 next week? All right? Yeah, I do heads up for 0:02:08.600 --> 0:02:11.640 all the listeners. Mike won't be around. I'm gonna have 0:02:12.040 --> 0:02:15.520 fun on your behalf. I'm sure probably make fun of you. 0:02:15.639 --> 0:02:19.600 I can. I can feel the roasting already. Yeah, I 0:02:19.639 --> 0:02:21.679 do want to bring in our guests this week, and 0:02:21.919 --> 0:02:25.280 maybe he can enlighten us on where he's calling us from. 0:02:25.320 --> 0:02:29.120 But welcome to Peter van doye Ert. He's the managing 0:02:29.160 --> 0:02:32.919 director of Multi Asset Solutions at Man Group. Welcome to 0:02:32.960 --> 0:02:34.919 the show, Peter, thanks so much, thanks for having me on. 0:02:35.000 --> 0:02:37.320 I'm in New York for what it's worth. Um, oh 0:02:37.360 --> 0:02:44.720 there you go. Well, some some ugly beaches maybe best. Yeah, 0:02:45.680 --> 0:02:47.520 But Peter, maybe just to start off, can you tell 0:02:47.600 --> 0:02:50.080 us about your role at Main Group. Sure? So I 0:02:50.080 --> 0:02:52.720 sit inside Man Solutions and I worked pretty closely with 0:02:52.840 --> 0:02:56.320 clients who whatever problem they might have. For example, it 0:02:56.400 --> 0:02:59.040 starts off typically as I have a bunch of risky assets, 0:02:59.040 --> 0:03:01.120 how do I go about hedge them? And then it 0:03:01.320 --> 0:03:03.680 kind of morphs into this inflation thing scares me? So 0:03:03.720 --> 0:03:05.359 what do I do about that? And you know, maybe 0:03:05.400 --> 0:03:06.919 I should get out of bonds. So we spent a 0:03:06.919 --> 0:03:09.760 lot of time talking about risk mitigating portfolios, but we 0:03:09.800 --> 0:03:12.280 also spend a lot of time just talking about asset allocation, 0:03:12.320 --> 0:03:15.720 whether it's risk based, technical, asset allocation or you know, 0:03:15.840 --> 0:03:19.639 something broader like strategic asset allocation. Just for some background 0:03:19.680 --> 0:03:22.120 on the firm, Man Group is a hundred forty billion 0:03:22.160 --> 0:03:25.520 dollar hedge fund manager UM. In terms of assets center management, 0:03:25.880 --> 0:03:28.040 we do a lot of different things. We have discretionary managers, 0:03:28.040 --> 0:03:31.560 we've got systematic UH in form of c t A resparity, 0:03:31.560 --> 0:03:34.359 those sorts of things, and we've got a countimental kind 0:03:34.360 --> 0:03:36.760 of long only firm called Numeric. So we do a 0:03:36.800 --> 0:03:39.200 lot of different things, and all of those different things 0:03:39.320 --> 0:03:42.200 come to bear to this sort of market where it 0:03:42.760 --> 0:03:45.160 takes more than one one way to figure out what 0:03:45.200 --> 0:03:48.160 to do, more than just discretionary, more than just systematic, 0:03:48.640 --> 0:03:51.200 And I think that's what Man Solutions tries to help 0:03:51.240 --> 0:03:55.000 clients with, how to access different approaches to what seems 0:03:55.040 --> 0:03:57.160 to be a really big problem, you know, developing the 0:03:57.160 --> 0:03:59.280 market with a FED and what to do with bonds 0:03:59.280 --> 0:04:02.640 and those sort of things, Peter. It seems like especially 0:04:02.640 --> 0:04:05.080 tricky time to be involved in risk parity. You know, 0:04:05.120 --> 0:04:07.440 if you're if you're used to having a balanced portfolio 0:04:07.640 --> 0:04:11.240 of stocks and bonds and maybe even levering up one 0:04:11.240 --> 0:04:15.600 side or the other, how are risk party strategies reacting 0:04:15.640 --> 0:04:18.960 to this environment. Are they sort of abandoning their old 0:04:19.320 --> 0:04:22.479 uh playbooks? Are they? Are they thinking outside of the box? 0:04:22.480 --> 0:04:25.120 I mean, I don't know how much. You know, Uh, 0:04:25.200 --> 0:04:27.520 it's sort of coded into their DNA that they can't 0:04:27.600 --> 0:04:30.800 sort of stray too much from the main stocks and 0:04:30.800 --> 0:04:33.800 bonds strategy. But what's some of the discussions going on 0:04:34.160 --> 0:04:37.200 around risk parity these days? Yeah, I think there's It 0:04:37.200 --> 0:04:38.599 depends a little bit how you manage it, and it 0:04:38.600 --> 0:04:40.480 depends what the risk parity fund is set up with. 0:04:40.600 --> 0:04:42.680 So you know, for our own risk parity funds, they 0:04:42.720 --> 0:04:45.920 actually have waiting in commodities. So you start off the 0:04:45.960 --> 0:04:47.760 year if you're a sixty four manager and you're stuck 0:04:47.800 --> 0:04:49.839 with bonds and equities, they both went down the first corner, 0:04:49.880 --> 0:04:51.680 and what are you supposed to do about that? And 0:04:51.720 --> 0:04:54.400 it turns out if you have if you diversify your 0:04:54.520 --> 0:04:56.720 bonds and equities, And that's what risk parity tries to do, right, 0:04:56.720 --> 0:04:59.240 It tries to diversify first between bonds and equity, so 0:04:59.240 --> 0:05:00.960 it takes more bond risk. I think that's what you're 0:05:01.000 --> 0:05:04.600 alluding to. Problematically, Um, Secondarily, we might look at other 0:05:04.600 --> 0:05:07.479 asset classes. We do use tips for inflation we have commodities, 0:05:07.600 --> 0:05:09.000 and I think a lot of our peers as well, 0:05:09.120 --> 0:05:12.280 so there's a bit of you know, the huge spike 0:05:12.360 --> 0:05:14.479 up and commodities has been a big benefit for risk parity. 0:05:14.520 --> 0:05:17.880 So I don't think you see a substantially horrible underperformance 0:05:17.960 --> 0:05:20.840 versus say sixty forty UM. And it also goes about 0:05:20.839 --> 0:05:22.680 how you risk manage it. You know, there are very 0:05:22.680 --> 0:05:24.800 passive versions of this where you just own bonds and 0:05:24.800 --> 0:05:27.600 equities and you own too many bonds. The more actively 0:05:27.600 --> 0:05:30.600 you manage it, you start looking at correlations among these things. Right, 0:05:30.600 --> 0:05:33.359 what if it turned out that all of my assets 0:05:33.360 --> 0:05:35.839 were correlated and they all went down together, then my 0:05:35.960 --> 0:05:38.039 risk parity matrix is a bit wrong. Right, I'm trying 0:05:38.040 --> 0:05:40.880 to target at ten vall or kind of a consistent 0:05:41.200 --> 0:05:44.359 volatility in my fund. If everything goes down together, I 0:05:44.360 --> 0:05:47.599 have no diversification. That's problematic. So you know, firms like 0:05:47.640 --> 0:05:50.360 ours we have correlation overlays to help mitigate this. So 0:05:50.680 --> 0:05:53.840 between correlation and trend overlays, things that take you out 0:05:53.839 --> 0:05:56.920 of basically assets that aren't working. And I think in 0:05:56.920 --> 0:05:59.000 a way that's what man Solutions is about too, and 0:05:59.000 --> 0:06:00.960 how we talk to client. We take some of those 0:06:00.960 --> 0:06:03.160 approaches that we see in our disparity fund and say, 0:06:03.200 --> 0:06:05.280 why don't you start applaying this to your own portfolio. 0:06:05.560 --> 0:06:07.800 Even if you don't do it a risparity approach, you 0:06:07.839 --> 0:06:09.839 at least have something going on that, Hey, bonds and 0:06:09.839 --> 0:06:12.800 equities are correlated. They're not supposed to be correlated. That's 0:06:12.839 --> 0:06:15.360 bad for me. I'll cut some risk here and that's 0:06:15.800 --> 0:06:18.400 and that's that's that's how risparity. If you're if you're 0:06:18.440 --> 0:06:21.599 taking that approach, you're surviving. Um, you're probably in line. 0:06:21.839 --> 0:06:24.440 Nobody wants to be in line. But after years about performance, 0:06:24.920 --> 0:06:27.480 that's not bad. And maybe we'll talk about it a bit. 0:06:27.839 --> 0:06:29.200 You know, bonds are at a level where they might 0:06:29.200 --> 0:06:32.440 be useful again, and that's probably not in everyone's mindset 0:06:32.440 --> 0:06:34.360 because right now, I mean we've had clients, you know, 0:06:34.440 --> 0:06:36.440 last year, clients would say, you know, our bonds still 0:06:36.440 --> 0:06:38.280 any use Should we get rid of them? What should 0:06:38.320 --> 0:06:41.480 we do this year? Two basis points higher in bonds? 0:06:41.560 --> 0:06:43.400 Or should I just get rid of these? Should I 0:06:43.440 --> 0:06:45.640 sell these? There's a bit of a little panicky feeling, 0:06:46.200 --> 0:06:48.479 and I would say they're dead wrong. But when I 0:06:48.480 --> 0:06:50.480 see a CPI print of eight and a half percent. 0:06:52.880 --> 0:06:55.279 You can't blame them, right, there's a there's a little 0:06:55.320 --> 0:06:58.599 something that that you know, makes you feel awkwardly uncomfortable 0:06:58.600 --> 0:07:03.320 about that. Well, speaking of the sell off that we've 0:07:03.320 --> 0:07:05.560 seen in bonds and stocks, we've heard a lot of 0:07:05.560 --> 0:07:08.599 people say that sixty is dead and I'm wondering what 0:07:08.640 --> 0:07:11.040 you make of that and and actually where you might 0:07:11.040 --> 0:07:16.200 recommend people find diversification. Yeah, you always hate to say 0:07:16.240 --> 0:07:18.240 dead because then like next year we'll be back. And 0:07:18.240 --> 0:07:20.000 you guys, so you said always dead, And did you 0:07:20.040 --> 0:07:23.200 see the returns on sixty four last twelve months? And 0:07:23.240 --> 0:07:26.840 so I'm not gonna say dead just for others, But yeah, 0:07:26.960 --> 0:07:28.640 I guess my question is, you know, was it ever 0:07:28.680 --> 0:07:31.840 really alive in a sense that it was a It 0:07:31.920 --> 0:07:34.160 was kind of a random to begin with. I mean, 0:07:34.200 --> 0:07:37.200 if you think of waiting sixty equities and bonds on 0:07:37.200 --> 0:07:40.080 a risk basis, you're like equities most of the time, right, 0:07:40.360 --> 0:07:43.200 Occasionally bonds sell off, usually equities go up most of 0:07:43.240 --> 0:07:45.600 the time. For the last thirty years, you've just wanted 0:07:45.600 --> 0:07:47.200 to own a lot of equities, and that's what sixty 0:07:47.600 --> 0:07:50.520 pretended to let you do. So I think where we 0:07:50.560 --> 0:07:52.720 are now is a bit different. We're in a universe 0:07:52.760 --> 0:07:56.040 of equities and bonds going down together. There feels a 0:07:56.080 --> 0:07:57.720 lot there's a lot of instability. We could talk about 0:07:57.760 --> 0:07:59.960 evaluations and the interplay with bonds in a bid, I guess, 0:08:00.040 --> 0:08:04.040 but that instability is disconcerting if they're both going down. 0:08:04.080 --> 0:08:06.640 I need to find things that don't behave like bonds 0:08:06.640 --> 0:08:09.880 and equities, which means commodities. And so it's always great 0:08:09.880 --> 0:08:11.520 when a person like me tells your investors, you know, 0:08:11.520 --> 0:08:14.200 you feel, buy a bunch of commodities because that's diversifying. 0:08:14.680 --> 0:08:16.920 And your investor will say, but you know, crude was 0:08:16.960 --> 0:08:18.600 like a hundred and thirty two weeks ago, and it 0:08:18.640 --> 0:08:22.280 was minus fifty two years ago. So where am I 0:08:22.280 --> 0:08:24.800 supposed to live with that asset? I don't have any 0:08:24.880 --> 0:08:27.000 reasonable way to use it. But the truth of the 0:08:27.040 --> 0:08:28.560 matter is, if you're going to get out of this 0:08:28.680 --> 0:08:31.360 is sixty dead conundrum, or at least find a place 0:08:31.400 --> 0:08:33.480 to stay, you know, while you figure out what you're 0:08:33.480 --> 0:08:36.400 gonna do with sixty bonds, it's got to be multi asset, 0:08:36.400 --> 0:08:40.400 whether it's multi asset via commodities or real assets, infrastructure, 0:08:40.480 --> 0:08:42.079 hedge funds. You know, I work for hedge funds, so 0:08:42.080 --> 0:08:43.719 I have to say hedge funds. But you know, these 0:08:43.720 --> 0:08:46.120 sort of things, you need to find different ways to 0:08:46.120 --> 0:08:49.480 make money that aren't just beta and bonds and beta 0:08:49.480 --> 0:08:51.360 and equities. And I think that's the challenge that are 0:08:51.400 --> 0:08:54.800 in faced with right now. Is there anything popping out 0:08:54.840 --> 0:08:58.240 of you in that real asset space? Uh, you know, 0:08:59.679 --> 0:09:02.880 that's to a tractive in this environment, you know. So 0:09:02.960 --> 0:09:05.199 for us, we tend to focus on the liquid part 0:09:05.240 --> 0:09:08.400 of the curve of the asset classes. So you know, 0:09:08.679 --> 0:09:11.760 perhaps buying an airport works, um, but that's not what 0:09:11.800 --> 0:09:14.360 we do. So we're very much we take we we 0:09:14.440 --> 0:09:17.280 invest in liquid assets, we risk manage them, and we 0:09:17.320 --> 0:09:20.079 find ways to make them fit in portfolios, and using 0:09:20.080 --> 0:09:22.520 the risk control, we try to suck something more out 0:09:22.559 --> 0:09:24.160 of them. Right. So, last time I was on we 0:09:24.200 --> 0:09:27.800 had the bond problem conversation. We talked about using tail hedges, 0:09:27.840 --> 0:09:30.840 which are relatively cheaper than to hedge an equity portfolio. 0:09:30.880 --> 0:09:33.760 Instead of doing six just go all equities and hedge 0:09:33.760 --> 0:09:36.080 it pretty aggressively, and you kind of get rid of 0:09:36.080 --> 0:09:38.520 your bond risk and and you isolate what you're really 0:09:38.559 --> 0:09:40.760 after high yield and equities. It's kind of a risky 0:09:40.760 --> 0:09:43.920 portfolio today's universe. I think you do have to live 0:09:43.960 --> 0:09:47.000 in commodities. It's just you have to have some approach 0:09:47.040 --> 0:09:49.360 to it, right, There has to be some how do 0:09:49.400 --> 0:09:50.680 I get out of this? One of my you know, 0:09:50.720 --> 0:09:53.360 one of my is it as simple as a stop loss? Maybe? Right? 0:09:53.400 --> 0:09:55.400 You know you can stop in and out of position. 0:09:55.840 --> 0:09:58.040 I don't find that a very satisfying answer. So the 0:09:58.080 --> 0:09:59.679 way we tend to look at it is on two 0:09:59.679 --> 0:10:02.480 basic is one and a trend format. And that's something 0:10:02.480 --> 0:10:04.000 you should expect from Man Group. We have a big 0:10:04.000 --> 0:10:06.959 trend following firm. But it turns out in these big 0:10:07.040 --> 0:10:11.280 regime shifts, where markets go through six twelve month regime shocks, 0:10:11.679 --> 0:10:14.199 you have very long moves in asset classes. So we've 0:10:14.240 --> 0:10:16.600 seen it in bonds of steadily sold off. We've seen 0:10:16.600 --> 0:10:19.840 commodities steadily rally. Admittedly there's a bit of a war 0:10:19.880 --> 0:10:22.600 premium that's built in there, but that's a starting point 0:10:22.600 --> 0:10:24.440 of how you might go about using that. Now, maybe 0:10:24.559 --> 0:10:27.120 use trend or maybe use some other lead lag models. Right. 0:10:27.160 --> 0:10:29.760 It turns out when commodities start to go down aggressively 0:10:29.800 --> 0:10:32.640 before a big market correction, it's kind of a good 0:10:32.679 --> 0:10:34.400 signal that equities could be in trouble. So if you 0:10:34.400 --> 0:10:36.640 look back to COVID, commodities went down first and then 0:10:36.679 --> 0:10:40.360 equities tank. So the more you can deal cross asset 0:10:40.360 --> 0:10:42.840 and the more you can take signals from these cross assets, 0:10:42.880 --> 0:10:45.320 whether it's from emerging market to warn you about commodities 0:10:45.400 --> 0:10:48.480 or FX to warn you, the more integrated your portfolio 0:10:48.600 --> 0:10:51.199 can be. And into some extent it takes an asset 0:10:51.200 --> 0:10:53.079 manager to do it because you really have the time 0:10:53.200 --> 0:10:55.400 to chase all this stuff, right, are you gonna wake 0:10:55.440 --> 0:10:58.600 up tomorrow and say, so, where is this lattis today 0:10:58.679 --> 0:11:00.880 or where is the re I? And is that working 0:11:00.920 --> 0:11:03.640 for me? I think that's quite difficult, And so trend 0:11:03.720 --> 0:11:05.640 kind of goes after that by getting you not just 0:11:05.760 --> 0:11:09.520 multi asset commodities, but the FX markets are really fascinating, right, 0:11:09.880 --> 0:11:12.480 you know people have gotten accustomed to so I most 0:11:12.520 --> 0:11:14.160 of my career as of all, guy in a tail heager. 0:11:14.360 --> 0:11:17.440 Before before this role, people loved owning the end for 0:11:17.480 --> 0:11:20.720 every crash and so all of those yn options and 0:11:20.760 --> 0:11:23.520 we own some ourselves because you know, we're agnostic were tailhages. 0:11:23.600 --> 0:11:25.400 We don't try to outsmart the market. We just try 0:11:25.440 --> 0:11:28.240 to find cheap hedges, and you know, we struck them 0:11:28.280 --> 0:11:31.160 at one twelve and one thirteen in in in in 0:11:31.200 --> 0:11:33.439 the end and Jan Feb and the ends at one 0:11:34.040 --> 0:11:36.320 right now and just keeps going the wrong way. If 0:11:36.360 --> 0:11:38.840 you're invested kind of naively like us, we just say 0:11:39.120 --> 0:11:41.280 I lost very little premium. It's a good, you know, 0:11:41.320 --> 0:11:44.800 explosive tailheage. If you're someone who says, I'm an investor 0:11:44.800 --> 0:11:46.839 in the nique, but in a way that the yen 0:11:46.960 --> 0:11:50.040 helps me out, so I'll kind of dollarize my investment. 0:11:50.400 --> 0:11:52.319 You've been pretty shocked because the nique is down and 0:11:52.360 --> 0:11:54.520 the end is down, so it's just not working. And 0:11:54.559 --> 0:11:56.680 so those are the things where trend can help you 0:11:56.679 --> 0:11:58.600 out a lot, where you just simply say there's something 0:11:58.679 --> 0:12:00.320 new in the market. It's a re team that I 0:12:00.320 --> 0:12:03.079 don't understand. So when I see this kind of thing, 0:12:03.080 --> 0:12:04.600 I'll get out of the way, or I'll change my 0:12:04.640 --> 0:12:08.679 focus to be tighter. I guess, right, Bill, do I 0:12:08.760 --> 0:12:10.920 cancel my plans to buy an airport? I was thinking 0:12:10.960 --> 0:12:15.400 about buying an airport, But where would your airport? New Jersey? Yeah, 0:12:15.640 --> 0:12:17.520 that's the that's the other problem with it. Yeah, I 0:12:17.520 --> 0:12:18.760 don't know. I don't know where I would put it 0:12:19.360 --> 0:12:23.480 where it's It's pretty fascinating what people will ask you too. 0:12:23.480 --> 0:12:25.800 They'll say, can you model our portfolio? You know, see 0:12:25.840 --> 0:12:28.160 how your approach might change things. So what we often 0:12:28.160 --> 0:12:30.320 do is say, look, you have some liquid assets, We'll 0:12:30.320 --> 0:12:33.160 take some index proxies, like there's a private equity index 0:12:33.320 --> 0:12:36.040 proxy and really in the in the public markets, we 0:12:36.080 --> 0:12:38.880 can use rates for real estate, and there's an infrastructure 0:12:38.880 --> 0:12:41.160 index that uses all kinds of public empity proxies. So 0:12:41.200 --> 0:12:42.440 we tried to do that for a client. We just 0:12:42.480 --> 0:12:45.599 couldn't match the result. It turned out about eight of 0:12:45.640 --> 0:12:49.679 their infrastructure assets were in airports and travel, and so 0:12:49.840 --> 0:12:53.959 it's tricky to pick that up after COVID. We I'm 0:12:54.000 --> 0:12:55.960 not sure what we're missing because everyone's still you know, 0:12:56.040 --> 0:12:57.960 use a highway between now and the next six years 0:12:59.160 --> 0:13:02.320 and so pretty good. Yeah, the following questions you get 0:13:02.360 --> 0:13:04.280 like from that, is there anything I can do to 0:13:04.360 --> 0:13:10.840 hedge that? And you're kind of left non blust and Peter, 0:13:10.960 --> 0:13:12.920 just to wrap up that conversation we were having about 0:13:13.040 --> 0:13:15.800 bonds earlier, I think you wrote recently that for the 0:13:15.840 --> 0:13:19.480 first time in my career, I have investors increasingly asking 0:13:19.480 --> 0:13:21.640 me if they should be shorting bonds as part of 0:13:21.640 --> 0:13:25.600 their asset allocation. And I'm wondering what you tell them, 0:13:25.600 --> 0:13:28.680 So I'm I'm a bit reluctant to say short bonds 0:13:28.720 --> 0:13:31.280 as part of an asset allocation. So there's some there's 0:13:31.280 --> 0:13:33.800 a difference between tactical and strategic, right, So the first 0:13:33.800 --> 0:13:35.880 thing you're gonna get is fired by your board if 0:13:35.920 --> 0:13:39.280 you take a strategic bet short bonds. And there's the crash, right, 0:13:39.320 --> 0:13:41.840 So we know that bonds have a lot of benefits 0:13:41.880 --> 0:13:43.920 of the crash at these yields. I mean, if you 0:13:43.960 --> 0:13:46.000 hate bonds today at to seventy five, then I'm not 0:13:46.040 --> 0:13:48.600 sure why you like them at one fifty before COVID 0:13:48.960 --> 0:13:51.960 And admittedly there's a totally different inflation paradox. I'm not 0:13:51.960 --> 0:13:55.360 trying to be too glib about it, um. So I mean, 0:13:55.600 --> 0:13:58.280 I look at trend you know, most systematic managers inside 0:13:58.320 --> 0:14:00.839 trend funds are probably short bonds. Um. I don't think 0:14:00.840 --> 0:14:02.760 there's any secret there. You can see the open interests 0:14:02.760 --> 0:14:05.200 in some of the futures, So I think it's the 0:14:05.280 --> 0:14:08.000 right position. I just worry that, you know, people are 0:14:08.000 --> 0:14:10.000 going to manage it right, right, So when when that 0:14:10.320 --> 0:14:12.840 when bonds start to kind of you find a level 0:14:12.920 --> 0:14:14.840 and then you sort of get out of these trend positions. 0:14:15.160 --> 0:14:17.080 So there's some kind of process to getting out of 0:14:17.080 --> 0:14:20.360 it when you're maybe wrong or the the lack of 0:14:20.440 --> 0:14:23.320 utility has gone. For me, I'm much more focused on 0:14:23.360 --> 0:14:25.840 the correlation, and right now does seem like bond equity 0:14:25.840 --> 0:14:29.200 correlations aren't working well. So the idea of short bonds 0:14:29.720 --> 0:14:32.800 isn't crazy, right, it seems to be stabilizing your portfolio, 0:14:33.240 --> 0:14:35.000 but you need to do it in a pretty tight way. 0:14:35.080 --> 0:14:38.160 So I, you know, my general senses, is a bridge 0:14:38.160 --> 0:14:40.520 too far for a lot of passive managers. Right if 0:14:40.560 --> 0:14:43.160 you're if you have a big pension board with twelve 0:14:43.280 --> 0:14:46.600 fifteen trustees who are of mixed background, and you know 0:14:46.680 --> 0:14:50.680 between industries and hedge funds and finance, you're gonna get 0:14:50.720 --> 0:14:53.360 some really nasty questions and probably the terrific examples that 0:14:53.480 --> 0:14:55.920 the big pension that stuff tail hedge. You know, they 0:14:56.200 --> 0:14:58.120 caught a lot of flak in the press for that, 0:14:58.200 --> 0:14:59.600 but there are a lot of good reasons they have 0:14:59.680 --> 0:15:01.320 done it right to have tail hedges, and a lot 0:15:01.320 --> 0:15:03.080 of good reasons not to tail hedge. So people make 0:15:03.480 --> 0:15:06.320 kind of intellectual decisions. It's a question of how badly 0:15:06.360 --> 0:15:08.520 you get second guests. And I guess my example of 0:15:08.560 --> 0:15:10.200 that is you don't want to be the guy who says, well, 0:15:10.200 --> 0:15:12.960 what happened was this right? Because once you're saying that too, 0:15:12.960 --> 0:15:15.240 and I see you're sort of you know, you're already 0:15:15.240 --> 0:15:16.880 in trouble, just like if you said it to your spouse, 0:15:16.960 --> 0:15:19.720 you know you're in trouble with what happened was you know, 0:15:19.760 --> 0:15:21.760 a commentary? And so I think, you know, I think 0:15:21.760 --> 0:15:23.760 it's the right technical house at allocation. If you put 0:15:23.800 --> 0:15:26.080 some risk around it, great. If you can rely on 0:15:26.080 --> 0:15:28.000 a trend type manager, another type of you know, as 0:15:28.080 --> 0:15:30.440 a manager who has some clear quantitative signals around it, 0:15:30.720 --> 0:15:32.640 that probably helps you a lot more too, and it 0:15:32.680 --> 0:15:34.640 gives you some coverts saying you know what, the way 0:15:34.680 --> 0:15:36.760 they think about it is right. I like the signals 0:15:36.760 --> 0:15:39.880 they use, and it should keep me out of some 0:15:39.960 --> 0:15:42.680 big trouble if some big trouble comes up. Because after all, 0:15:43.120 --> 0:15:45.920 bonds were ballast for you for thirty years. So to 0:15:45.920 --> 0:15:47.440 turn around and say I'm not going to use it, 0:15:47.480 --> 0:15:50.440 I'm gonna go the opposite way. You know, most of 0:15:50.440 --> 0:15:52.920 the people you talk to aren't going to have experienced that, 0:15:53.080 --> 0:15:55.000 and including me, right, I'm not going to have experience 0:15:55.040 --> 0:15:57.640 to say, yeah, bonds are lethal, you know, get out 0:15:57.680 --> 0:16:01.160 of the way, no matter what real rates are. As recommener, 0:16:02.400 --> 0:16:04.880 I'd like to unpack the notion of trend trend following 0:16:04.960 --> 0:16:07.160 a little bit. You know. It's one of those um 0:16:07.440 --> 0:16:10.520 things that sounds simple enough on the surface, you know, 0:16:10.640 --> 0:16:13.160 but by it go along when the price is going up, 0:16:13.200 --> 0:16:16.880 short when it's going down. Um, you know, and typically, 0:16:17.440 --> 0:16:19.760 you know, if you're talking about trend following in a 0:16:19.800 --> 0:16:22.600 hedge fund context, you're talking about c t A s 0:16:22.840 --> 0:16:25.400 like you guys managed commodity trading advisors that are pretty 0:16:25.480 --> 0:16:28.920 much only involved in the futures market. Um. But I'm 0:16:28.920 --> 0:16:31.520 wondering about a year like this where we saw, you know, 0:16:31.520 --> 0:16:35.120 an obvious down trend inequities and then a quick snap back, 0:16:35.800 --> 0:16:37.760 and then now we're back to the down trend. I mean, 0:16:37.800 --> 0:16:42.320 does your typical ct A trend following strategy is it 0:16:42.400 --> 0:16:44.960 able to ride both of those trends or is it 0:16:45.280 --> 0:16:47.200 you know, the the quick snap back. Is that something 0:16:47.240 --> 0:16:49.320 you just take on the chin and and just hold 0:16:49.360 --> 0:16:51.720 on longer for the down trend? You know? I guess 0:16:51.760 --> 0:16:54.000 it all depends on on sort of how fine tune 0:16:54.000 --> 0:16:58.120 the strategy is. But you know, what's what you're thinking 0:16:58.160 --> 0:16:59.840 on that, you know, is it is that sort of 0:17:00.080 --> 0:17:03.200 sure snap back rally something you can actually you know, 0:17:03.200 --> 0:17:06.199 flip sides on and take advantage of or not. So 0:17:06.240 --> 0:17:09.600 it depends who you are and your speed. So it's 0:17:09.600 --> 0:17:11.359 a bit like saying I bought a one year tail 0:17:11.400 --> 0:17:13.919 option to hedge my portfolio, and another guy bought a 0:17:13.920 --> 0:17:16.120 three month one. If the market crashes in the first 0:17:16.119 --> 0:17:18.680 three months, he wins because he spent less money. So 0:17:18.840 --> 0:17:21.360 on the trend side, if you're a super fast trend guy, 0:17:21.440 --> 0:17:24.199 so you react to these kind of quick rebounds and 0:17:24.200 --> 0:17:27.160 then you chase the trend quickly, then you might pick 0:17:27.280 --> 0:17:29.720 up the sharp reversals very very quickly. You did well, 0:17:29.880 --> 0:17:31.960 you'd find in COVID and you've got the bounce back 0:17:32.000 --> 0:17:34.800 in COVID very well. The problem with fast trend guys, 0:17:34.800 --> 0:17:37.400 which is not a I shouldn't say problem, the thing 0:17:38.480 --> 0:17:41.679 there's a tradeoff. The tradeoff is that sometimes you make 0:17:41.720 --> 0:17:43.600 a mistake and you know, you know, a bunch of 0:17:43.640 --> 0:17:47.000 dealers come out in February, all these strategists trying to 0:17:47.000 --> 0:17:49.480 call the bottom and say we love stocks here. You 0:17:49.480 --> 0:17:52.680 should pile in, and then the trend reverses quickly. That's 0:17:52.840 --> 0:17:55.800 the faster guy might chase it, and so he may reverse. 0:17:56.000 --> 0:17:57.680 And then it turns out strategists are just trying to 0:17:57.680 --> 0:18:00.520 be on CNBC, so you know they're call to buy 0:18:00.520 --> 0:18:02.720 stocks wasn't a good one, and it all went down again, 0:18:02.760 --> 0:18:05.280 so you turned. On the other hand, if you're really slow, 0:18:05.880 --> 0:18:08.840 you missed Covid entirely. You started to sell COVID went 0:18:08.840 --> 0:18:11.160 to zero, and then you started selling on the way 0:18:11.160 --> 0:18:12.960 back up, which feels all backwards. And if you're in 0:18:12.960 --> 0:18:15.240 the middle, um, you can guess we're in the middle, 0:18:15.320 --> 0:18:18.119 because I'm gonna sound more friendly. If you're in the middle, 0:18:18.160 --> 0:18:20.560 you kind of try it to navigate that course. What 0:18:20.840 --> 0:18:23.040 I think is interesting about trend though, you know, there's 0:18:23.080 --> 0:18:24.840 mighty to be made in equities. There's no question it's 0:18:24.840 --> 0:18:29.200 a decent risk tool for controlling how your portfolio runs. 0:18:29.320 --> 0:18:30.679 You know. So if you have a lot of equity 0:18:30.760 --> 0:18:33.919