SI337: How Best to "Replicate" Managed Futures Returns ft. Katy Kaminski

This episode explores the complexities of trend following in systematic investing, particularly within the context of newly emerging ETF offerings. Against the backdrop of a challenging February for CTAs, the discussion pivots to the Bank of Japan's policy divergence and its potential impact on carry trades. More significantly, the conversation delves into the implications of co-movement factors for understanding market crowding and risk management, drawing on Nick Balter's work. For instance, the hosts analyze the optimal window for slow and fast systems, highlighting the idiosyncratic nature of yearly variations and the importance of diversification across time horizons. As the discussion progresses, the hosts examine different methodologies for accessing trend exposure through ETFs, comparing index replication and mechanical replication approaches, and proposing a combined "informed regression" method to reduce tracking error. Finally, the hosts address the challenges of defining and categorizing the diverse range of products currently emerging in the CTA ETF space, emphasizing the need for clearer nomenclature to distinguish between beta-like and direct implementation strategies. This highlights emerging industry patterns reflecting the need for investors to carefully consider the specific goals and characteristics of each product before investing.