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Ep. 512: Tim Price Interview with Michael Covel on Trend Following Radio

Tim Price
Tim Price

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Tim Price has worked in capital markets for over 25 years across three management firms. His book is “Investing Through the Looking Glass.”

Tim thought Brexit would be the biggest thing in politics during his lifetime, until Trump. People love a narrative and those behind Brexit and Trump produced a great one. People were so fed up with the establishment that even though they may not have agreed with the idea of Brexit or the agenda of Trump, they wanted a vote against the establishment.

“What was the driving force behind wanting to write your first book?” The seminal event for him was the collapse of Lehman Brothers, which led him to think: “How on earth did we end up in this mess?” Interest rates are still at zero eight years post crisis and central banks are still printing money out of nowhere. He has spent the years since 2008 researching what the causes were and essentially the “Who done it” in the bailouts. Michael and Tim talk about the economy and the avalanche that is building on the horizon. Michael asks, “How did we get to the point where so many of us have just accepted that there are these show figures making decisions for us that we have no choice in?”

In Tim’s work he takes people on a detailed journey through the banking system, bailouts, bond market, stock market and the solutions. “What other options in trading exist after you have value, momentum and gold?” Michael and Tim discuss why there aren’t really any other options beyond those.

In this episode of Trend Following Radio:

  • Trusting central planners
  • Going against the establishment
  • Banking system
  • Owning gold
  • Lehman Brothers collapse
  • 2008 bubble
  • The Brexit and Trump narrative

“Mankind has survived because of our ability to believe in things that do not actually exist.” – Tim Price

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June Trend Following Performance Kills It

Trend following performance rock and roll for June (source):

Sector titans ride Brexit to record largest monthly gain since November 2014, SocGen benchmark shows

London-based trend manager Mulvaney Capital Management surged 27.4% as one of the standout CTA performers in the wake of the Brexit vote.

The $224m London-based manager, founded in 1999 by CEO and CIO Paul Mulvaney, a former Merrill Lynch options trader with computer science background, takes a long-term approach to capturing trends, holding positions for six months on average.

Its Global Markets Program was reportedly up 17% on Friday 24 June as global stock markets tumbled and the pound fell to a 31-year low after the Brexit vote, marking its best day ever.

The program, which has an annualised volatility of 31% was also the standout performer in Europe in 2014, gaining 67% as CTAs had a stellar year amid tumbling oil price and sinking bond yields.

Mulvaney’s return last month recovered earlier losses this year to advance to 15.1% YTD.

Switzerland-based Amplitude Capital saw strong gains, with the firm’s $929m Klassik fund returning 9.98% for June.

Amplitude’s $540m Dynamic fund also saw monthly gains, returning 7.19% with 3 out of 4 asset classes contributing to this result.

Among smaller managers, New Jersey-based NuWave Investment Management also had a strong month, with its main $36m futures portfolio gaining 13.3% in June having been broadly flat YTD at the end of May.

The largest CTAs recorded their biggest monthly gain since November 2014, according to Societe Generale’s benchmark.

The SG CTA Index, which tracks a group of the largest 20 CTAs, ended the month up 4.4% to return to positive territory for the year, up 4.1% YTD.

Among the best performing constituents of the index, Transtrend’s $4.8bn enhanced risk version of its Diversified Trend Program surged 7.5% to hit 8.4% YTD.

Lying flat YTD coming into June, Brummer-backed Lynx Asset Management was up an estimated 10.3%, likely to go down as the $6.3bn Swedish manager’s best month since August 2010.

London and US-based ISAM saw its $1.4bn Systematic Trend program gained an estimated 4%, to pare back YTD losses to -3.2%.

Trend-followers jumped 5.3% in June, according to the SG Trend Index.

It was their best month since August 2014, and they hauled themselves back into the back this year, up 1.9%YTD.

Short-term traders advanced 1.6% in June to remain the best performers this year, up 5.8%.

For Sydney-based Boronia Capital, June was best return since a 10.2 gain in May 2012. The $842m manager was up 5.7% last month to climb to 9.7% YTD.

Quest Partners’ $325m AlphaQuest Original Program was up 6.6% in June and advanced to 18.3% this year. It scored its bets returns through vol breakout systems.

The SG CTA Index had surged 2.3% on 24 June, the day after the UK’s EU referendum. It was its best one-day gain since a 2.7% jump on 20 December 2000, when the Nasdaq plunged after a flurry of analyst downgrades and corporate results drove US technology stocks sharply lower.

Eighteen of the managers in the index made positive returns on 24 June. A similar number reported positive returns for the full month.

Performance figures announced last week showed that CTAs weathered Britain’s EU referendum result well, despite mid-month market uncertainty, having benefitted from diversification across asset classes and positioning.

“CTAs have, so far, managed to weather the Brexit storm by benefitting from diversification across asset classes and positioning,” said James Skeggs, global head of alternative investments consulting at Societe Generale Prime Services.

“The strong returns seen in June were the result of trends in bond, commodity, and currency markets.

Attribution data from the SG Trend Indicator suggests gains in the bond (+4.6%), commodities (+1.1%), and currency (excluding GBP/USD +1%) sectors.

Skaggs added: “In the current environment there is understandably a great deal of investor interest in these strategies which have posted positive returns in eight of the last nine quarters.”

Next Brexit? Are you ready?

Ep. 465: Sunrise Capital with Michael Covel on Trend Following Radio

Sunrise Capital with Michael Covel on Trend Following Radio
Sunrise Capital with Michael Covel on Trend Following Radio

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Jason Gerlach and Chris Stanton are the CEO and CIO of Sunrise Capital Partners. Sunrise Capital is a systematic firm located in San Diego. They were featured in The Little Book of Trading. Sunrise has been in business for four decades trading. Their goal is to invest in an intellectual way by taking human emotion out of their decision-making.

Michael opens the conversation up with Brexit and how Sunrise Capital reacted. There are foreseeable events and unforeseeable events. Brexit was a foreseeable event. Jason and Chris breakdown the weeks before Brexit, and how Sunrise has been positioning their portfolios in contrast to other firms. Jason and Chris say that in the systematic world there have been two different camps of thought in how to approach Brexit.

Michael moves the conversation from Brexit to Oil dropping in 2014. Jason and Chris say that these events are not just moneymaking events, they are also risk management events. People live in the middle of a bell curve and never think of the tail events in life. They trade and invest for the non-random times and are always shocked when events tend to go further than expected. Sunrise does the opposite and uses technology to curb our human irrationality.

Michael and Chris dive deeper into risk management and the importance of diversification. Sunrise has five systems that operate differently in all market situations. Chris explains risk adjusted return and how setting the “heat” is really the heart of leverage. “What kind of return is optimal for you?” The higher expected rate of return, the more drawdown you may have. When you look at someone’s rate of return, you have to look at what their drawdowns are like. Leverage is a reality in strategies; you just need to be responsible with that leverage and cater it to each individual investors needs.

Michael moves on to ask, “Has Brexit opened up Pandora’s box?” Chris and Jason say Sunrise believes that price distribution has changed since 2013. Intraday volatility has changed and prices now make huge jumps in smaller time-frames than they ever have before.

In this episode of Trend Following Radio:

  • Brexit and systematic trading
  • Price distribution
  • Price action
  • Directional betting on a coin flip event
  • Preparing for black swan events
  • Are computers good or bad?
  • MAR ratio
  • Diversification

“Systems control the trading ideas. What they do is they give you a statistical edge in creating your trading ideas.” – Chris Stanton

“It’s a bad idea to get the insurance after the catastrophe.” – Jason Gerlach

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Ep. 464: The Next Brexit with Michael Covel on Trend Following Radio

The Next Brexit with Michael Covel on Trend Following Radio
The Next Brexit with Michael Covel on Trend Following Radio

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Everyone was told to trust the system and be happy: “Save your money and interest income will be your retirement.” This has come to be completely untrue and people are collectively beginning to wise up, as seen in Brexit.

Michael goes into a timeline of market crashes illustrating trend following success: 1973-1974 stocks go down 50% and trend following kills it. 1987, known as Black Market Monday, US stocks go down 20%+ in a day and trend following kills it. Barings Bank collapses spring of 1995, trend following kills it. August 1998, Long Term Capital Management craters, and trend following made a fortune. It was almost a zero sum transfer from LTCM to trend followers in August of 1998. Spring of 2000, the dot com bubble bursts and trend following cleans up again. 2002 was one of the best trend following performance years ever. After 2002 another bubble is built and when it burst in October of 2008, trend following had outstanding performance results yet again. When the majority of people think the world is ending, trend following is reaping the profits. Brexit? Yes, too.

Nobody can predict the future but if you want to play the game, you have to place bets. Trend followers were in established trends once Brexit hit. They do not predict, but they have educated bets. Michael ends with one question, “What side are you going to be on? The side of the winners or the side of the losers?” It’s your choice.

In this episode of Trend Following Radio:

  • Boom and busts
  • Brexit
  • Certainty in markets

“Certainty in markets, that is the delusion. That is the media cacophony.” – Michael Covel

Mentions & Resources:

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Brexit Hysteria Might Be Contagious

Feedback in:

Good morning from the U.S.,

I wonder how many fundamental analysts could have “predicted” the market’s reaction to the Brexit news. It amazes me how many people still believe these “experts” on TV know what they are talking about. Hopefully some day people will learn that trend following is the only way to prepare for these 100-year floods that seem to happen quite often. Thank you for your podcasts and continuing to educate those who are looking for the right way to trade.

“Ride the bucking bronco.” – Bill Dunn

Michael D. Jr.

Thanks!

Let me add some relevant feedback from Sunrise Capital:

At a philosophical level, it is important to understand that while Brexit is in some respects novel and shocking (no country has ever left the European Union and many polls suggested that Britain would stay), from a broader perspective, Brexit is no different than any of the many exogenous geopolitical events that have periodically disrupted markets over the course of our 37 year investment history. As we see it, Brexit is simply another example of an “unexpected” event happening and investors overreacting to that event in such a way that it causes a great deal of immediate market turmoil.

The financial pain caused by this turmoil is real, it is not enjoyable and it is generally not good for the global financial system or people’s faith in that system, particularly in the short term. However over the long haul, as history has proven over and over again through world wars, revolutions, and numerous other types of global disruptions, markets are resilient and ultimately right themselves to some kind of equilibrium level. Accordingly, our approach to Brexit has been quite similar to the approach we’ve taken to numerous other global shocks and that is to plan, prepare and then “keep calm and carry on” as the British would say.

Wisdom.

Contagious?
Contagious?

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