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Welcome to this June 2024 edition of “What’s Caught Our Eyes Last Month,” where we delve into the world of diversified systematic trend following. This curated list highlights the most compelling and thought-provoking content that has caught our eye here at ATS Trading Solutions. We aim to keep you informed and inspired by the latest developments, strategies, and perspectives in the realm of trend following. We apologize if we missed any notable content this month, and we appreciate your understanding.

This month, our focus spans the evolving landscape of trend-following strategies, the integration of advanced technologies, and the critical role of risk management.

• Notably, Katy Kaminski and Andrew Beer discuss the transformative impact of trend-following ETFs and the democratization of these strategies, making them accessible to a wider range of investors.
• The exploration of mathematical models and AI in trend-following by Richard Brennan and Rob Carver underscores the potential and limitations of these technologies in investment strategies.
• Additionally, the unique tax benefits of ETFs and their implications for portfolio management are highlighted in discussions with Dr. Wes Gray. The articles delve into the rise of managed futures ETFs, the strategic emphasis on commodities, and the application of machine learning in asset management.
• We also remember Daniel Kahneman’s contributions to behavioural economics and their relevance to systematic trading.

Overall, this month’s content emphasizes the continuous evolution and sophistication of trend-following strategies, the importance of innovative technologies, and the need for robust risk management to navigate complex financial markets effectively.

 

Podcasts

 

Title: The Trend Following ETF Revolution ft. Katy Kaminski

Produced by: Top Traders Unplugged

Summary: In this episode of Top Traders Unplugged, Katy Kaminski, Chief Research Strategist and Portfolio Manager at AlphaSimplex Group, discusses the ongoing revolution in trend-following ETFs. She provides insights into the benefits and challenges of incorporating trend-following strategies into ETF structures. Kaminski elaborates on the importance of diversification, the role of systematic strategies in managing market uncertainty, and how trend-following ETFs can enhance investor portfolios. Her expertise offers valuable perspectives on the technical and operational aspects of launching and managing these innovative financial instruments.

 

Title: Sharing the Trend Following Pie ft. Andrew Beer

Produced by: Top Traders Unplugged

Summary: In this episode of Top Traders Unplugged, Andrew Beer, Managing Member at Dynamic Beta Investments, delves into the growing trend-following space. He discusses how investors can access diversified trend-following strategies through liquid alternatives and mutual funds. Beer explains the advantages of these investment vehicles, including their cost-effectiveness, transparency, and potential for better risk-adjusted returns. He highlights the significance of democratizing trend-following strategies, making them accessible to a broader range of investors. Beer’s insights provide a comprehensive overview of the benefits and challenges associated with trend-following investments and their role in enhancing portfolio diversification.

 

Title: Finding the Optimal Trend Following Rules ft. Richard Brennan

Produced by: Top Traders Unplugged

Summary: In this episode of Top Traders Unplugged, Richard Brennan, a seasoned systematic trend trader, explores the quest for optimal trend-following rules. He provides an in-depth analysis of the mathematical approaches to trend following, focusing on the paper ‘Optimal Trend Following Rules in Two-State Regime Switching Models’ by Valerie Zakamoulin and Javier Gina. Brennan discusses the use of Markov processes and semi-Markov processes in determining optimal weightings and the equivalence between autoregressive models and Markov models. His expertise sheds light on the innovative methodologies in trend following, emphasizing the benefits of using AI to understand and apply these complex strategies.

 

Title: The AI Hype Within Investing: A Step Too Far? ft. Rob Carver

Produced by: Top Traders Unplugged

Summary: In this episode of Top Traders Unplugged, Rob Carver, a renowned systematic trader and author, critically examines the current hype surrounding AI in the investing world. Carver questions whether the enthusiasm for AI-driven strategies is justified, discussing the limitations and potential pitfalls of relying too heavily on AI in investment decisions. He emphasizes the importance of human judgment and experience in navigating complex markets and argues for a balanced approach that integrates AI with traditional investment methods. Carver’s insights provide a nuanced perspective on the role of AI in investing, highlighting both its potential and its limitations.

 

Title: Trend Following, Austrian Style ft. Michael Neubauer & Joseph Waldstein from SMN

Produced by: Top Traders Unplugged

Summary: In this episode of Top Traders Unplugged, Michael Neubauer and Joseph Waldstein from SMN Investment Services share their unique approach to trend following, rooted in Austrian financial principles. They discuss the development and execution of their strategies, emphasizing the importance of systematic and disciplined methods. Neubauer and Waldstein explain how their Austrian perspective influences their investment philosophy, focusing on long-term trends and risk management. Their discussion highlights the benefits of blending traditional Austrian economics with modern trend-following techniques, offering valuable insights into creating robust and resilient portfolios.

 

Title: Dr. Wes Gray Discusses the Unique Tax Benefits of ETFs and Other Topics of Interest

Produced by: Bogleheads

Summary: In Episode 70 of the Bogleheads podcast, host Rick Ferri interviews Dr. Wes Gray, CEO and CIO of Alpha Architect, about the distinctive tax advantages of ETFs. Dr. Gray explains how ETFs can offer superior tax efficiency compared to mutual funds due to their unique structure and the in-kind creation and redemption process. The discussion also covers other investment-related topics, including the benefits of systematic investing, the importance of disciplined portfolio management, and strategies for optimizing after-tax returns. Dr. Gray’s insights provide valuable knowledge for investors looking to leverage ETFs for tax-efficient investing and long-term financial success.

 

Videos

 

Title: Optimal Trend-Following Rules In Different Regimes
Produced by: Quantopian
Summary: In this episode, Dr. Tom Starke discusses optimal trend-following strategies using regime-switching models. He covers the theoretical basis and practical implementation, highlighting the advantages of Markov and semi-Markov processes in enhancing trend-following techniques. The conversation delves into market regimes, risk management, and performance improvement for traders. Dr. Starke also offers insights into the future of quantitative trading strategies, making this episode a valuable resource for those interested in advanced trading methods.

 

Articles

 

Title: The Managed Futures Ecosystem: The Rise of the Managed Futures ETF

Produced by: AlphaSimplex Group

Summary: In this article, AlphaSimplex Group explores the burgeoning ecosystem of managed futures ETFs. The piece delves into the growth and development of these financial instruments, highlighting their role in providing investors with access to systematic trend-following strategies. The article examines the benefits of managed futures ETFs, including diversification, risk management, and the potential for enhanced returns. It also discusses the operational and technical considerations involved in launching and managing these ETFs, offering insights into the future outlook for this segment of the market. AlphaSimplex Group’s expertise provides a comprehensive overview of the managed futures landscape and its evolution.

 

Title: Transtrend’s Commodity DNA Shines
Produced by: HedgeNordic
Summary: This article delves into Transtrend’s strategic emphasis on commodities within their Diversified Trend Program (DTP). Led by Toni Budimir, the team leverages dynamic commodity exposure, volatility management, and synthetic markets to enhance returns and diversification. Transtrend’s approach includes responsible investing and market engagement, exemplified by their decision to cease trading with the LME after a significant incident. Their innovative use of synthetic markets broadens exposure and provides unique trading opportunities, solidifying their expertise in commodity trading.

 

Title: How Mathematical Models and Machine Learning Could be Applied to Trend-Following Strategies
Produced by: ATS Trading Solutions
Summary: This article explores the application of mathematical models and machine learning in trend-following strategies. It discusses the limitations of traditional backtesting, highlighting the risk of overfitting, and advocates for a rigorous, statistically grounded approach using Markov models and machine learning algorithms. By identifying market regimes and dynamically adjusting trading models, these techniques offer enhanced performance and risk management. The article also covers various trend-following rules and the benefits of using autoregression and Markov models to develop robust trading strategies.

 

Title: Remembering Daniel Kahneman
Produced by: ECCM
Summary: This article commemorates Daniel Kahneman, the “grandfather” of behavioral economics, who passed away at 90. It highlights his contributions to the field, including Prospect Theory and the Reflection Effect, which explain human decision-making under risk and uncertainty. The article connects Kahneman’s insights to trend-following strategies, showing how systematic trading can overcome cognitive biases like loss aversion and overconfidence. It also emphasizes the importance of rational, data-driven approaches in financial markets, contrasting them with emotional and biased decision-making.

 

Title: Navigating the Complexities of Risk in Trend-Following Strategies
Produced by: Aussie Turtles
Summary: This article discusses the limitations of traditional risk metrics like the Sharpe Ratio and Sortino Ratio in evaluating trend-following strategies. It emphasizes the need for more sophisticated tools that consider the asymmetry of returns and path dependence. The article introduces advanced metrics such as Maximum Drawdown, Calmar Ratio, Ulcer Index, and Conditional Drawdown at Risk (CDaR) to better assess the nuanced risk profiles of trend-following strategies, ultimately guiding investors toward more informed and strategic decisions.

 

Title: Challenging Economic Orthodoxy: The Critical Importance of Timeliness in Complex Systems
Produced by: ATS Trading Solutions
Summary: This article discusses Jean-Philippe Bouchaud’s paper on the importance of timeliness in complex systems, challenging traditional economic models that assume stability. It highlights how efficiency-focused systems can become vulnerable to significant disruptions. The paper introduces the concept of “timeliness criticality,” emphasizing the need for adequate buffers to absorb shocks and prevent systemic failures. Real-world examples, such as transportation networks and supply chains, illustrate the practical implications of this theory, advocating for a balance between efficiency and resilience.

 

Title: Understanding Warehoused Risk and Why Stops Are Critical Risk Management Tools
Produced by: Aussie Turtles
Summary: This article explains the concept of warehoused risk in trading portfolios and the critical role of stops in risk management. It highlights how diversification spreads risk across multiple strategies, reducing drawdowns and enhancing returns. Stops act as release valves to prevent warehoused risk from overwhelming portfolios, especially in unforeseen market conditions. Despite criticism, stops are essential for maintaining balance, managing total portfolio heat, and ensuring long-term trading success. The article emphasizes the importance of strategic use of stops in creating resilient and adaptive portfolios.

 

Books

 

Title: The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail

Produced by: Clayton M. Christensen

Summary: In “The Innovator’s Dilemma,” Clayton M. Christensen explores the challenges faced by successful companies when disruptive technologies emerge. The book delves into the reasons why leading firms often fail to capitalize on innovative technologies, despite their resources and market dominance. Christensen introduces the concept of disruptive innovation and provides a framework for understanding how new entrants can displace established players. Through detailed case studies and analysis, the book offers valuable insights for business leaders on how to navigate the complexities of innovation and maintain competitive advantage in rapidly changing markets.

 

White Papers

 

Title: Optimal Trend Following Rules in Two-State Regime-Switching Models
Produced by: Valeriy Zakamulin and Javier Giner
Summary: This paper addresses the lack of theoretical justification in trend-following investment strategies by examining optimal trend-following rules when returns follow a two-state process, switching between bull and bear markets. It proposes that while a Markov model suggests using the Exponential Moving Average, a semi-Markov model—more realistic for market durations—indicates the optimal rule resembles the Moving Average Convergence/Divergence (MACD). Empirical studies confirm this semi-Markov model outperforms popular moving average and momentum rules across international markets.

 

Title: Timeliness Criticality in Schedule-Based Systems
Produced by: arXiv
Summary: This paper introduces a model highlighting the critical importance of timeliness in complex systems like socio-technical and economic networks. It demonstrates how reducing delay-mitigating buffers can lead to a critical state where delays propagate unchecked, causing system-wide disruptions. The study applies this model to real-world systems, revealing novel critical behavior termed “timeliness criticality” and exploring its implications through connections with Mode-Coupling Theory and the depinning transition. The findings emphasize balancing efficiency with resilience to prevent cascading failures in dynamic, schedule-based systems.

 

Well, that’s a wrap for June 2024! We hope you found this month’s roundup as enlightening and exciting as we did. As we dive into July, keep your eyes peeled for more intriguing insights, groundbreaking strategies, and inspiring stories from the world of trend following. Stay curious, stay informed, and most importantly, trade well and prosper. Until next time, happy trading!

The ATS mob

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