Flirting with Models

My guest is Artur Sepp, Director of Research at Quantica Capital AG in Zurich.

In 2008, Artur was working on structured credit products for Merrill Lynch, giving him a front-row seat to the ensuing credit crisis. We use this experience as a jumping off point for our conversation, with Artur providing both pragmatic and philosophical lessons learned.

One of those key lessons was the role of liquidity, which Artur argues is the key factor behind many premia we see in the market.

Artur’s focus on liquidity grew as he transitioned to London in as an equity derivatives quant, where he was responsible for building models to hedge options on illiquid underlying assets. Here we get into the nitty gritty, discussing a paper Artur wrote about the practical realities of delta-hedging options under a framework of discrete hedging and transaction costs.

In 2015 Artur moved to Julius Baer’s advisory solutions group in Switzerland where he served as a client-facing advocate for alternative risk premia strategies. Here Artur had to learn how to translate his deep quantitative knowledge into client understanding. He shares with us some techniques and tricks he learned for effectively communicating what can be rather complex ideas.

Today Artur works at Quantica Capital, whose flagship product is a Managed Futures strategy. I ask Artur for his opinion on recent struggles in the managed futures space and what he thinks the future for trend following managers will look like. You definitely won’t want to miss his answer.

Artur is a fountain of quant knowledge and offers the unique perspective of someone who has both spent time deep in the weeds and time trying to explain the esoteric. There are lots of gems in this one, so stay tuned.

My guest this episode is Clayton Gillespie, VP at Deutsche Bank where he works in quant equity research for the QIS team.

Clayton began his career at Credit Suisse HOLT, where he got his hands dirty in extracting fundamental information. This formative experience dramatically impacted how he views how fundamentals should be incorporated into quantitative equity strategies.

Today, at DB, he strives to improve quantitative equity strategies by anchoring them with a strong fundamental understanding.

We discuss how fundamental and statistical interpretations can be at odds, how a strong fundamental understanding can help with the identification of emergent risk factors during regime changes, and how best to incorporate fundamental insights while avoiding potential biases from the analysts who deliver them.

Please enjoy my conversation with Clayton Gillespie.

In this episode I chat with Wayne Himelsein, president and chief investment officer at Logica Capital. To our conversation Wayne brings over two decades of experience managing long/short portfolios, ranging from statistical arbitrage to factor long/shorts.

For as deep in the weeds as he liked to go as a quant, Wayne has a philosopher’s streak and Twitter is his soapbox. Of course, 280 characters can be limiting, so I start out conversation by putting Wayne in the hot seat and ask him to explain the deeper meanings behind some of his recent tweets.

Using these philosophies as a foundation, we then dive into long/short portfolios. We talk about the practical difficulties of managing these strategies and Wayne explains why he believes that beta-neutral is a fool’s pursuit.

We then switch topics to tail risk hedging. These sorts of strategies are notorious for their bleed, and we discuss whether the payoff is ultimately worth the cost of insurance. Wayne describes a few ways in which the bleed can be managed and the ensuing tradeoffs with each method.

In discussing both long/short and tail risk hedging strategies, I ask Wayne what due diligence questions he would ask if he were evaluating another manager. I find this question always provides great insight into what managers of these strategies actually think is important. Wayne does not disappoint.

I hope you enjoy my conversation with Wayne Himelsein.

My guest is Devin Anderson, co-founder of Convexitas.

The theme of this episode, as you can likely guess from the title, is strategy versus structure. While we often focus on strategy specifics on this podcast, Devin hosts a masterclass as to why the structure you wrap your strategy in can ultimately determine the type of strategy you can deliver.

Specifically, we discuss option-based tail hedging and the types of strategies that can be delivered in hedge fund, mutual fund, ETF, and separate account wrappers.

In the back half of the conversation, we dive into how Convexitas implements their risk mitigating strategies. Specifically, Devin explains why Convexitas focuses on convexity with respect to the S&P 500 and actually refuses to customize this mandate, despite having the ability to do so at scale.

Finally, we end the conversation on a bit of a spicier note, where Devin explains why most market pundits overstate the influence large, scheduled derivative rolls might have on the underlying market.

Please enjoy my conversation with Devin Anderson.

In this episode, I am joined by JD Gardner, founder and managing member at Aptus Capital. In his time in the industry, JD has served in the role of associate financial advisor, analyst to a deep-value equity fund, and analyst at short-term, systematic, managed-futures fund.

These varying experiences have mixed to culminate into JD's ultimate philosophy: it's all about the investor's return, not the investment return.

I like to say, "No pain, no premium" as pithy shorthand for the notion that long-term outperformance requires short-term pain along the way. For JD and the team at Aptus, their funds are first and foremost governed by the question of achievability. For them, the contest is not in the theoretical purity of your factor exposure, but rather whether the investor can stick around long enough to harvest it.

A theoretically sub-optimal solution can be best if it helps the investor bridge the behavior gap.

In light of this philosophy, the team at Aptus has launched two strategies. We discuss their Fortified Value index, one of the more unique spins on value investing that I have come across. Not only does the strategy aim to employ a measure of value that leads to greater investor returns, but it also rolls out-of-the-money put options in effort to protect the portfolio against sudden, short-term declines in value that may otherwise invite client misbehavior.

Classic Graham and Dodd value this is not. But for some, JD argues, a much more achievable alternative.