Talk Your Book: How to Eliminate Negative Alpha
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Today's Animal Spirits Talk Your Book is brought to you by Longboard Funds. Go to longboardfunds.com to learn more about the Longboard Fund, which is a trend following strategy we were talking about in the show today. That's longboardfunds.com.

Welcome to Animal Spirits, a show about markets, life, and investing. Join Michael Batnick and Ben Carlson as they talk about what they're reading, writing, and watching. All opinions expressed by Michael and Ben are solely their own opinion and do not reflect the opinion of Ritholtz Wealth Management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast.

Welcome to Animal Spirits with Michael and Ben. On today's show, we are joined by one of the OGs in trend following, Cole Wilcox. Ben, I love the idea of systematic investing, trend following, removing the emotion. If only I could follow it. I mentioned this on the show that I sold Netflix and Meta

I don't know, both 50% ago. Why? Because I doubled my money and I was out. That is obviously not the right way to invest, but I guess I need to learn that lesson 10,000 more times before I finally follow the trend. But what I'm attracted to about what they do is

There's no emotion. They don't get scared that the profits are going to go away. There's a trend, there's a system and they follow it. It's also probably one of the reasons that trend following is not in concentrated positions either, right? Most trend following strategies are diversified because they don't want to be in the position of holding a handful of stocks. And then if one or two of them goes right or wrong, it totally screws everything else up, right? Like you'd have to have a bigger basket of stocks of Netflix's and Facebook's to do that strategy. My

My favorite part, my favorite point that he made in the conversation today, not to step on too much of it was, listen, it's not that like the trends are necessarily predictive. It's that they're systematic so that you don't have to decide is now the right time to sell because obviously that's impossible. And again, not that there's anything magical about trend following, but you're not going to shoot yourself in the foot. And so we, Cole works for Longboard Funds and it's a company that we've mentioned on our podcast and our blog that

I don't know, eight, nine, 10 years ago. And their work looked into the distribution of stock market returns that I, it sounds like it kind of was a motivation for Hendrick Bessembinder, who we've also mentioned before that shows like the top 4% of stocks accounts for the large majority of the gains. It is not a bell curve. No, not at all. And so we get a little into that research and he's got a new fund out. So

Very interesting strategy. And plus the trend itself, there's so many different ways that you can take it and ways that you can think, put it on this or that asset class or this security or that. It's very interesting. So we get into all that with Cole Wilcox, Founder and Chief Investment Officer at Longboard Asset Management.

So Cole, you've been doing this for a long time on your website, Longboard Funds. It says optimizing alternative investments for financial advisors. Alternative investments are like all the rage these days. So I'm curious, what does alternative investing mean to you? Like when you hear that word, what do you think about?

It's a big category. For us, we think about it's really anything that can be that third leg of the portfolio outside of stocks and bonds that is designed to provide additional diversification, lower the risk, correlation, et cetera. So you have a more balanced portfolio. And obviously, there's a lot of ways to

whether it's public vehicles, private vehicles. It's quite a big category to kind of dissect with alts. You're an OG trend follower. Like I said, you've been in the game for a while. I'm curious because we've never spoken before. Just like a 30-second background, how do you get to here? What's your background? Background is we've been doing this 25 years now. Originally, I started...

As a private asset manager, we ran a hedge fund, Fund of Funds, that specialized in allocating money to trend-following managers, managed futures, whatever you want to call it, and macro hedge funds.

And that was kind of how we got into the space originally. And through that process, started to do our own research and development on our own internal strategies, which kind of started in 2005 and led to the publication of a lot of pioneering research that we did in that 2005 to 2007 publication time. So one of the research pieces that Michael and I have used

I think on our blogs over the years, we might use it in the firm too. Just you did this distribution of returns for the stock market just to show that it's just a very small number of stocks that account for the majority of the games from a market cap perspective, which I think when it came out was kind of mind-blowing to a lot of people. You would think, well, half the stocks do good and half the stocks do bad. What did that research in conclusion tell you about trend following? What was it about that stuff that made its way into your work?

Well, that concept of the vast – we're not in an equally distributed world. It's not a bell curve the way that it may be with indexes. At the individual stock level, most companies and most stocks are actually very, very bad. Investments in a small minority are driving all of the market's cumulative returns. So another way of saying is that power law kind of concept is very, very real and is a fundamental law concept.

of the stock market and capital markets, you know, sort of like it is in venture capital returns, you know, a small minority of deals end up generating all of the returns. It's the exact same outcome in, in public markets. When you, when you dissect this, what we saw was that, you know, being able to predict winners and losers, you know, after the fact, it's easy to say, Oh, this 7% of stocks made all the returns. Everything else was garbage, but,

being able to predict which is going to be that 7%, which ones is going to be the winners. I mean, if we knew how to do that, we'd all be billionaires pretty quick. Trend following doesn't have a predictive advantage. It doesn't know which companies are going to be winners and losers, but it does have the advantage of a systematic process of holding your winners and folding your losers as markets kind of evolve and play out. So it's very, very naturally

positioned and predisposed to be able to benefit from that power law distribution that exists in markets. So, Cole, I blame you. I blame Hendrik Bessenbender, who you inspired, and I blame JP Morgan's The Agony and the Ecstasy of Stock Picking. What do I blame you for? Showing me the light and making it so that I can't hold my winners because

I know the math of how most stocks are not worth holding for the long run. So, but I also, I should have taken your advice and do a better job of riding my winners. So for example, like I sold Netflix, I don't know, a couple of months ago, I sold Meta last year. After I make a double in a stock, I'm out. Like that's like my upper bound. I can't get a 10X because I'm afraid of,

that the gains are going to be ripped away from me. But instead of being driven by my emotions, I should just follow the damn trend. But it's so easy to say, and it's so hard to do, which is why I am really drawn to the idea of systematic. To your point, it's not that it's going to know for sure, but it eliminates the emotional aspect of

of riding winners. It's hard, right? Because a lot of these winners have big drawdowns. And so you want to stay invested, but you also don't want your gains to be ripped away. So I'm rambling here, but it's important. The systematic part of it, I think resonates with a lot of listeners.

Yeah. I mean, I would not be able to do what we do and capture the kinds of gains that we capture on individual positions. If this was a discretionary strategy, I'm a human. I understand my natural biases just like everybody does and the desire to book winners and, and hold onto losers and kind of all of the psychology that exists out there. I'm not immune, you know, from that, but by being aware of it and then designing strategies and systems that can, uh,

eliminate the negative alpha that comes from your human failures and put it into a process like this and allow this insight around what is the real distribution of the markets and what is the real human psychological flaws that we end up screwing things up and put it into a process that can hold your winners together.

cut your losers and have that repeat kind of over time to successful outcomes in a very disciplined way is why we do what we do in our strategies. From a 10,000-foot view, trend following seems relatively simple. It's cut your losers short and let your winners run, right? But if you get into the weeds and the details, there's a lot of different ways that people interpret trend following. Some managed futures funds will invest in dozens, if not hundreds, of different futures, you know,

commodities and rates and foreign exchange and all this stuff. Some people use trend following to do an asset allocation switch. They'll go from owning stocks to owning bonds or cash or something like that. Other people will use trend following on individual names. Where do you fall in terms of trend following and how you implement your strategy?

So in our strategy, we do something unique and different where we specialize on trend following on individual securities. So our investment universe is quite broad. It's the entire Russell 2500 index of US companies. So there's 2,500 companies that we start with and we're analyzing the long-term trend and performance behavior of every stock that is with inside of that index.

And then we're going to bottom up, build that portfolio by whatever the breakouts are that are making new highs. We're going to own every single one of those securities in our portfolio. And every stock that is breaking down in trend to new lows is going to be eliminated from the portfolio. So we constantly just own the cream of the market through every evolutionary process.

cycle. And we're constantly eliminating tax loss harvesting and exiting the majority of stocks that are ultimately a big drag on performance at the index level. So this is basically like a SMIT cap strategy. It's Russell 3000 minus the S&P 500. Correct me if I'm wrong. Why no love for the large caps? It's not that we don't have a love for large caps. If you think about the

On average, most stocks are small and mid-cap companies. So we do own some large cap in our portfolio, but it's the minority part. 90% of the portfolio is small mid-cap exposure, or it's 10% is large cap. It's really just due to the fact that we like to have the whole universe and catch those big winners. There is more...

10 baggers and 50 baggers that come out of the small and mid-cap universe relative to a mega cap universe. It's hard for Facebook today at its current market cap to become a 50 bagger from where it's at today. But a stock like Sprouts Farmer's Market is an example of a company we made a lot of money in over the last few years.

you know maybe it becomes as big as walmart someday but it still have a lot of runway and a lot of growth in front of it so you see those growth opportunities uh and these big opportunities for huge multi-bagger winners that are naturally predisposed to trend following that come out of that small and mid-cap space it's interesting too to look at the opposite of that because the stat we always hear is i don't know 40 of russell 2000 stocks have no profits

Is it just as important to avoid the losers in this space, too, because there are probably so many smaller and mid-cap companies that don't make it or languish or potentially go out of business? So is taking off that side of the tail just as important as funding the winners? It's more important than anything. I would say the biggest source of alpha is taking out the losers. But how do you take out the losers? Yeah.

is what's important. There's a huge amount of performance drag and a huge amount of opportunity cost in owning those junk stocks that exist inside of the Russell. But just because a lot of companies are junk, that doesn't mean that every company is junk. It cuts both ways. And so being able to sift through that and only

own the top performing companies that are with inside of that, you have to do both. But a huge part of the alpha is eliminating the performance drag of just garbage that's in the rustle. So the 50 baggers or the 20 baggers, whatever, correct me if I'm wrong, they don't go up in a straight line. They have drawdowns. And a lot of them have severe drawdowns. So how do you

I guess it's like a push-pull. How do you ride the wave and avoid the 35% drawdown or whatever it is that's almost inevitable? How do you do that?

Well, one, you kind of understand that those drawdowns are natural kind of ebbs and flows. I mean, Bessam Binder did another paper where he analyzed the average drawdown of the biggest winning stocks over a decade period of time in the previous decade. So if Amazon was the biggest winner in this decade, you went back the previous decade and said, what kind of volatility did you have to suffer to hold? I think the average drawdown was like 50%.

So big winning stocks have huge, enormous drawdowns in their life cycle. And that's just kind of a reality. For us, it's also the recognition that these big trends, they play out over multiple years. We are not talking about capturing short-term momentum and something. Our average hold time on a position is going to be measured in years. In a highly profitable position, it's going to be measured in multiple, multiple years.

So by being, you know, patient, giving you these, these positions room to, to run and not being overly aggressive in how you calculate your stop loss levels is, is kind of where our focus is at more of a very long-term, you know, approach to versus the kind of the short-term trend speeds that we don't, we don't focus on. So if you have a stock that, that you felt for three years, that's up, you know,

4,500% or whatever, do you give that more room to run or more room to draw down? Because if you were to zoom out, a stock that's up 30X could have a 40% drawdown and the long-term uptrend can still be very much intact. So do you have a different set of criteria for different stocks or is it universal? ISKRA, the long-term uptrend, is still very much intact.

No, our criteria is universal. And it's not rocket science or necessarily even like proprietary. We just published a paper this week on SSRN called, Does Trend Following Still Work on Stocks? Where pretty much fully disclosed the entire logic of what we do, how we get in, how we get out, the calculations kind of around that. But it's a universal entry-exit kind of criteria approach.

that self-adapts to the volatility of each individual stock. So a stock that has a lot of volatility, you're going to give it more room. A stock that has less volatility, you're going to give it kind of less room. But they're volatility kind of like neutral between one another, if that makes sense. So I guess the hardest thing about most trend following strategies is the pivot and the turn, right? Going from an uptrend to a downtrend. And

And no strategy is perfect in catching those turns. If it was, as you mentioned, we'd all be billionaires. If you could get out of the top, get right back into the bottom. Most trend following strategies, you know, obviously are going to miss like the exact peak and the exact bottom. But you have this table in your presentation that shows the five worst quarters for the Russell 2000 since inception of your fund, which is kind of funny because it only goes back to 2018 and there's been some really nasty Russell 2000 trends.

It was down 30% plus for that first quarter of 2020, or that first two months or whatever. And you show your performance in there for your fund, and it outperforms by a ton in those quarters. So how quickly does going from an uptrend to a downtrend turn in your stocks, and how quickly can you get out? And then do you just go to cash, or what happens in those events? I mean, how quickly is very much dependent upon the market cycle and what happens. I mean, in COVID...

macro environment, we de-risked the portfolio in a matter of weeks because, but that was also the macro environment was it was the fastest decline like on record, you know, kind of that we had had. And our strategy is going to naturally self-adapt to that massive increase in volatility. Your stops all get hit. And what we do is, you know, unlike a lot of other people that are trying to move money into gold or some other kind of low correlated asset, we want to

absolute stability in a moment of crisis. And what we have found in our research is that the most reliable source of non-correlation in a market crisis is short-term treasury bills to provide stability, capital preservation, and a source of non-to-negative correlation. So that's the asset that we go to in a risk-off environment is to hold more treasury bills and weather the storm until the next kind of

trend bull market cycle emerges in the future. Is there anything inside the structure of the market that you've seen a noticeable change on over the years where trend following used to work really great in, I don't know, the 04 to 06 range and it's a little bit trickier now given whatever XYZ or have you noticed no change at all? When it comes to trend following on individual stocks, we have not seen

any change at all. There's actually in the paper that we just published, like a stability of alpha section where we answer that question, has there been any change or any kind of stuff? And there hasn't. In fact, last year was actually one of the most successful alpha producing years for trend following on stocks. What I have seen, but it has nothing to do with trend following, is obviously the

the huge performance dispersion between small and mid-cap stocks and large cap stocks, right? So everybody kind of knows that, you know, the S&P 500 has been driven by, you know, a handful of companies and they've really substantially outperformed their small and mid-cap

uh, cousins by a wide margin relative to history over the last decade. So obviously a strategy like ours that, you know, if you benchmark it against our, you know, the Russell, which is our universe, we produce a lot of positive alpha and it looks great, uh, in terms of the raw returns and the, um,

the risk adjusted returns. But if you looked at it against the S&P, you'd be like, eh, S&P outperformed you, right? But it's like, well, the S&P has outperformed everything. Dude, nobody outperformed S&P. Everything and everyone. Yeah. So, you know, if we had been running trend and it was only on those S&P stocks, right, well, then we would have much better performance because you'd have more trend, you know, in these stocks that had turned out to be these, you know, huge winners. Right.

But I have not seen anything there in the individual stock side of it that there's any deterioration that is specifically trend related. In the multi-asset trend stuff, I would say probably for sure you started not – it's come back in the last few years, but there was a – that period of time from like 2010

16, 17, 18, 19, all that pre-COVID thing, government intervention. It was hard to make money in currencies and other kinds of trends. Managed futures had a very, very rough difficult period of time because you just didn't... The macro environment of what was going on with central banks and the rest of the stuff just didn't, and the compression in interest rates...

Eventually, it blew up. Post-COVID, now you saw inflation, huge moves, and that's been very, very beneficial. There's been a resurgence in the performance of those multi-asset managed futures kind of stuff. There was a period, a minute there, where you would have been a very, very unhappy investor in those kinds of strategies for quite a while. For setting expectations for a strategy like this, if you're a financial advisor and you want to put your clients in this strategy as an alternative,

Are you setting expectations of, hey, you should expect the Russell 2500 returns, but with much less volatility and lower drawdowns? Or are you saying, no, this is positioned to outperform? Or how do you position this in terms of setting expectations?

Setting expectations and just performance, we've been fortunate to be able to match or exceed the returns of the Russell successfully, like net of all fees. So I think that's a reasonable expectation. I certainly don't expect to outperform the S&P 500 because it's not the appropriate benchmark for us. But against the Russell, it is.

And to do it with substantially less volatility and substantially less drawdown and meaningfully lower correlation and meaningfully lower beta. But the way that we – the fund is – and the strategy is best used, and this is kind of what we focus on, is not so much providing a fund but providing –

optimizing alternative sleeves for financial advisors and how our fund fits into that sleeve and the right use case for it. Because we have incredibly low correlation to any other alt strategy that's in the market. But we also happen to have, right now, I think, of the top 20 alt funds, the third highest nominal rate of return.

So we can add returns into an alt sleeve without blowing up the diversification value or the risk profile of that sleeve.

And, you know, that's where we find kind of the most, you know, success is helping advisors dial in and optimize the performance of their overall alt sleeve and how our strategy kind of fits with inside of that. We don't position this as like, you should replace your small cap, you know, exposure in your small cap beta, you know, with this. I don't think that's the right use case.

I like how you talked about the potential upside here because I came from the institutional space where one of my biggest problems with hedge funds that all these large endowments and foundations were in is that they were never set up to keep up at all in a bull market. And trend following, to me, seems like a much more logical way to hedge because you have the ability when things are going down to get out or to go short or whatever you're going to do.

But then when things are going up, you're going to ride that wave. I'm curious what you think about the hedge fund structure and how that space has performed versus just a simple trend following model. For us, we're in the hedged equity category, and that's kind of where people put us. I don't like a lot of the products in that category for long-term holds because they tend to look more like buffered strategies where you're giving up a lot of your upside. If it's some covered call type thing,

you know, it'll reduce volatility. Like I think the largest fund in that category is the JPMorgan hedged equity strategy. And, you know, the issue with it is that over the long term, you know, it's not going to give you anywhere near the rate of return of the S&P 500 because every time there is an up move that's outside of the option collar that they have on, you're giving up that upside. And that upside is incredibly important to the long-term distribution and return of like being an equity investor.

In our case, we want our cake and eat it too, right? The ability to have trend following hedge on the downside and reduce volatility and reduce drawdowns, but still be able to be fully invested and capture your full upswing when the trend kind of is there is what we prefer about kind of this approach.

And then relative to hedge funds, what you said is like, you know, you also need to be in a structure or something where the fees are fair, right? Like if you're taking, you know, management fees and performance incentive fees and, you know, maybe taxes on top of that, if you have an inefficient kind of structure of what you're doing, those things really start to eat into the returns that the investor actually ends up receiving, you know, in their wallet and what they can kind of eat from.

And that's something that we're very, you know, kind of sensitive to is making sure that our, our fees, our taxes, and the net of everything that we're delivering is actually really adding value to our shareholders. What's the, what's the worst market environment for a strategy like yours? Like what are, what, what are some things that investors need to be aware of as they consider allocating to us?

Well, I mean, the average person, I would say probably over the last 10 years, that's like the worst environment for us because our universe sucks so bad compared to what everybody thinks is the general market, right? Like, oh, you look at us versus the S&P and we're like, oh, you're not very good. And I'm like, well, we're actually great, but it's the wrong frame that you're looking at it through. The other part of it that's worst would be incredibly like,

markets that go to new highs and then go to new lows and then go to new highs and then go to new lows. But I'm talking about maybe like the 1970s kind of period of time where you have these big, wide channels of ups and downs can potentially be challenging for the absolute returns. The relative returns may still be better than less volatility and whatever. But for actually just making net money, if the market truly just goes

nowhere for an extended period of time. Um, and not the market, but like the underlying components of the market, right? Cause that can be, you know, difficult, but the truth is because we have such a wide universe and, and we're covering everything, we generally usually can find something somewhere, you know, that's working. Um,

Like an example of that was in 2000, 2002, you would have said, oh, you were in a bad bear market. And it was for the NASDAQ and tech. It was just terrible. But underneath the market hood, there was, you know, small and mid-cap value was just raging and doing quite well. So if you had a more diversified universe like we do, you were able to find all these positive trends that were working, even though your average investor out there was just getting hammered in the tech wreck.

How often does your fund go to cash? And then maybe what is an average percentage where the fund is in that risk-off mentality? Well, the question about how often it would go completely to cash or treasuries is very, very rarely. The kinds of event that has to happen for those models to trigger that

You're talking about a full-blown financial crisis. We had that happen briefly in COVID. How about 2022 as an example? How did your fund handle 2022? Obviously, there were some stocks that still ended up doing pretty well that year. Yeah, some stocks. I think that our maximum cash T-bill holding in 2022, the market would have bottomed in September of 2022. Yeah.

And that was probably 50% would have been like the peak cash to stock. So even at the low, we were still half invested with quite a broad portfolio of holdings that we had of the relative strength winners that were still there that ultimately then kind of came back. And as the market bit higher, we reestablished things. 2008, the global financial crisis, that definitely took us out of all of the

positions and fully de-risked. 1987 stock market crash is going to kind of trigger a similar type event. So these are once-a-decade type scenarios that you ever see that level of de-risking in the portfolio. And then you'll have other normal ebbs and flows that may range between

25% to 50% risk-off type thing that happens throughout different market cycles. Did you ever expand to beyond the 2,500? It's impressive that you've remained laser-focused on one area of the market, but I'd like to hear the thought process there. Well, we've done some research on international stocks there. It's just as robust and works well internationally.

As far as the individual stock research, I haven't really gone beyond that. The reason that we don't do those things in the portfolio is more of an investor demand kind of thing. If you have a fund and you're mixing everything, it's like you're all things. That means you're nothing to no one kind of thing. Sticking to U.S. equities...

With a specialty kind of in this small to mid-cap opportunity zone that tends to be underrepresented. It also tends to be an area that is more volatile and more risky. So something that can reduce that volatility, reduce the risk, reduce the drawdowns, and enhance returns. And there's limited good options in the market for that.

is kind of why we stuck to it. And also, honestly, my philosophy truly is I do have a US bias. I figure if you can't make money in stocks in the United States, I don't know why you think you're going to be successful somewhere else. I mean, there are certain legal issues in terms of why I prefer the jurisdiction of investing in US equities and the governance and the court systems, et cetera, that we have here relative to

some other place. I probably learned that the hard way. I have my own fair share of personal investments in emerging markets that I thought were some amazing value opportunities, but instead Vladimir Putin just decided to steal all my money. There's a long history lesson in being a minority shareholder, you have to have partners that are treating you fairly. I think the best jurisdiction to have

your majority partners treat you fairly is in a U.S. jurisdiction. Those Russian assets you owned fell out of the window. Yeah, that Gazprom stuff that I thought was the world's cheapest energy company was actually the world's most expensive energy company.

So what does your beta end up being to the market? Is it like a 0.6, 0.7 kind of deal to the market? I think our beta long term is about 0.45 on average, so a little less than half. That's measured against the S&P 500. And we tend to have a correlation that's about 0.5, 0.55 also. So

This isn't the lowest correlation product in an alt portfolio. It's not designed to do that. It's actually designed to have enough low correlation to be a reasonable diversifier and add value in an alt sleeve, but also to be more of an anchor leg and a very reliable source of return that you can have there. Because if you look at the return distributions of most alt funds, they're not very...

impressive. And most of them certainly aren't worth the fees that they're charging in terms of what it is that they're

they're delivering. So we try to strike a sweet spot between a high expected rate of return relative to other alt peers, but still being solidly in the camp of legitimately low beta, low correlation. When you say low beta, low correlation, I want to make sure that the listeners don't misunderstand. And I don't want to put words in your mouth, but I would assume that if there's a swift drawdown and you're fully invested, there's not going to be any correlation or

There's going to be high correlation there, but over time, not on any given day, but over like, I hate to use the word full market cycles because I hate that phrase, but like, I don't know what else to say, but you know what I mean? Like it's not going to, if the market's on all time high and it's down 4% because of whatever, like you're going to be down as well. Yeah, this is our strategy, you know, like right now, you know, we're invested. I think, well, right now we're like 25% cash, 75% invested, you know, 700 positions or something roughly. The,

you know, yeah, big market sell-off from here, we're not going to be in lockstep with the market in terms of a market beta, but we would be correlated, you know, if the market were to sell off. I'm giving you an average, you know, kind of number over time because, yes, that has bull markets, bear markets, times we had more cash, less cash, kind of an average, you know, over time. But, you know, I would say that's no different than really, I don't know, let's pick on my favorite asset class to pick on, Manish Futures.

And, you know, it's sold as a zero correlation strategy. And everybody's like, oh, it has no correlation to the market. And I was like, well, you got to look at the path traveled in the variance of that correlation. Because yes, on average, managed futures has zero correlation. But it could be plus one or minus one with an annualized volatility of like 80%.

So, managed futures is not a hedge. It could easily be 100% correlated to the market. It just depends on what trends it was in at the time that the market blew up and whether or not those were correlated with the market. But on average, it's low correlated. So, if you're thinking about things long term, those are correct numbers. If you're looking for a short-term hedge, then most of these strategies would not be

would not be reliable sources of a short-term hedge. You're a trend-following guy, but it sounds like you're not a huge fan of the managed futures as a way to implement trend-following. No, I'm not a huge fan of the way a lot of how it's sold, you know, to a lot of people. I think the expectations that are presented are mismatched. I think it's overly sold as a hedge and a crisis hedge, and it has had that feature kind of historically. But it's not...

They don't have – there's not like an entitlement to managed futures that it's always going to kind of deliver that. It is absolutely an uncorrelated strategy. The structural sources of returns that come from managed futures are structurally uncorrelated to other things. And over time, I would expect that to be near zero. So it can be a great source of portfolio diversification.

It's just not a reliable short-term hedge, and I think it's overemphasized or overpositioned that way. And it leads to investors being disappointed or frustrated with stuff that's happening. I think a lot of products that are out there now where they're blending managed futures with other stuff, whether equity beta type things,

or using it as part of a multi-strategy kind of approach. I, you know, I think that's more of an appropriate way to do it inside of the context of a diversified multi-strategy alt portfolio. That's, that's my kind of take on, on, on stuff. Cole, last question for me. So a lot of what you do, or I guess all of what you do inside the portfolio is systematic. It's rules-based. So what,

I imagine that you spend a lot of your time communicating with advisors and clients or

Correct me if I'm wrong. Yeah, no. I mean, the majority of my time is working with financial advisors and helping them construct and optimize their alternatives portfolio. And sometimes our fund is a fit for that portfolio. Sometimes it's not. It really just depends on what goals they have. And that's what we focus on first is just trying to be helpful with the consulting side of it. And then maybe our fund makes sense.

So if advisors want to learn more about how you work with them and their clients, how do they find you? The website, you know, longboardfunds.com is a simple website, easy to get in contact with us there. And, you know, we offer kind of, you know, free consulting to analyze our specialty. We're not experts in everything, but when it comes to liquid alternative strategies and all of the products that are out there in the market, we are.

And that's something that we kind of help to just fine tune and dial in returns, risk, fees, taxes, et cetera, and transfer for free whatever knowledge we can to help advisors make more informed decisions in that area of expertise. Perfect. Thanks a lot, Cole. Okay, thank you to Cole. Remember, if you want to learn more about the Longboard Fund, go to longboardfunds.com and email us, animalspirits at thecompoundnews.com. See you next time.