Shaun Martinak

Bravo, Corey Hoffstein and Steven Braun of Newfound Research for writing an excellent paper on replication of #cta #hedgefund returns. The big conclusions that build on our research: - Manager skill in managed futures exists but is evenly distributed and lacks persistence; hence, diversify. - Top down replication works as a repeatable, adaptable investment process to capture the drivers of returns of bona fide #hedgefunds. - Fee #alpha is real. Or in hedge fund language, “give me a 400 bps head start and I win 80% of the time.” The paper spends a good deal of time on tracking error. Tracking error to an uninvestable hedge fund index may not be the right question. Isn’t the right question, shouldn’t there be a practical, actionable, investable index that approximates the returns of the space? If only….

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Equity Distributions with High Cash Flow CLO Equity is having another stellar year. Reported IRRs for CLO Equity: ~15% YTD for many of the top CLO managers. CLOs start with a warehouse line allowing CLO managers to accumulate/ramp their BSL portfolio of performing & highly diversified loans (~200 BSLs when CLO is priced). The most favorable CLO warehouse lines have non-marked-to-market facilities with roughly 4x leverage. Bank facilities provided with favorable terms are about SOFR +125 to +150bp range. During the warehouse ramp, equity seeks to earn 20-30% IRR, but this can vary widely, however it’s for a short period (~3 – 6 months), so the MOIC is low as it’s just a component that drives the overall CLO equity return. The BSL market is performing well. I expect the credit markets to perform well in this environment with default rates for BSL declining in the coming year, which should prove positive for CLOs debt and equity. AAA CLO tranches represent about 60% of the CLO cap stack and AAA’s have tightened to ~+130 from its wide earlier this year of S+150. The CLO equity arb is driven by the difference between the rate earned on the BSL portfolio vs. the liability costs (and admin costs). Holding all things constant, tighter liability costs are accretive for CLO equity investors. Credit selection and asset management is critical to performance as the best CLO managers employ dedicated teams of investment professional’s expert in loan underwriting, building, and managing highly diversified CLO portfolios. Strong credit profile is key to maintain low default rates, and its best to avoid CCCs, as mitigating risk is critical to performance. CLO equity also benefits from reinvestment during the investment period, active management that can add alpha via relative value, and repricing/extensions of CLO liabilities later in the CLO life span. CLO equity holders earn strong current cash distributions for well performing deals, with the potential to earn mid-teens IRRs, strong DPI and MOICs. The added kick is when the CLO manager shares a portion (10-20%) of its management fees they earn from managing the CLO (~40 bps) with the CLO equity investors. This fee sharing arrangement was first introduced post-GFC when CLO managers raised CLO equity funds required under risk-retention requirements as The Volcker Rule was introduced. Since the Volker rule no longer applies to U.S. CLOs, fee sharing arrangements are less prevalent today, but available from select managers. For these reasons and more, I am a proponent of CLO Equity and believe there is a place within in broader portfolio to hold these high yielding assets. Big shout out to Marathon Asset Management's CLO team who just closed Bryant Park 2024-24, a $405M CLO yesterday, bringing Marathon’s CLO capital market transactions to $2.4B YTD.

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All areas of commerce are benefitting from data analysis, and our industry is no different. And when it comes to hard data, Henry Schwartz is among the very best. Good, punchy interview here fresh from the OIC on many hot topics in the listed options space, including the rise of the "ProTail" customer using options strategically. #Options #OptionsStrategies #Cboe #SPX #VIX #XSP #OIC #0DTE

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#SFLO from Victory Capital is an under the radar #smallcap #indexinvesting #ETF to VettaFi. Takes a distinct approach from popular peer #CALF. Starting with a universe of profitable and relatively liquid small- and midcaps, SFLO selects 200 stocks. These are chosen for having high trailing, as well as expected, #freecashflow yields and relatively strong growth prospects according to the index methodology. This has helped generate strong performance. https://lnkd.in/eu7gKHty Michael Mack Alex Chagoya Phil E. Scott Kefer, CFA Gary Goska Jr.- CIMA® Joe Geary Peter Tufts, CIMA® David Brown Peter Dietrich Joseph Markovitch Brian Coco

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Why is #GDX from VanEck in focus for VettaFi? Learn more about the #ETF in this segment. Kendall Harrow Laura Jones Edward Lopez https://lnkd.in/eaQ5zgA6

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💡 Something unusual is playing out in today's high yield marketplace: an inverted yield curve. Short-term U.S. high-yield bonds are actually yielding more than long-term ones, which potentially means more returns for taking on less risk. Quite an enticing proposition for yield-oriented investors. To learn more about investing in short duration high yield, visit https://lnkd.in/eE-D5U3d. This post is intended for U.S. Financial Professionals representing clients who are not U.S. Persons (as defined under Regulation S of the U.S. Securities Act of 1933), as amended, only. *This website is for U.S. Financial Professionals representing clients who are not U.S. Persons (as defined under Regulation S of the U.S. Securities Act of 1933), as amended, only. This information is proprietary and cannot be reproduced or distributed. Certain information may be received from sources Voya Investment Management ("Voya IM") considers reliable; Voya IM does not represent that such information is accurate or complete. Certain statements contained herein may constitute "projections," "forecasts" and other "forward-looking statements" which do not reflect actual results are based primarily upon applying retroactively a hypothetical set of assumptions to certain historical financial data. Actual results, performance or events may different materially from those in such statements. Any opinions, projections, forecasts and forward-looking statements presented herein are valid only as of the date of this document and are subject to change. Nothing contained herein should be construed as (i) an offer to buy any security or (ii) a recommendation as to the advisability of investing in, purchasing or selling any security. Voya IM assumes no obligation to update any forward-looking information. Past performance is no guarantee of future results. IM3592680.

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New Whitepaper from Caron's Corner: In this paper we discuss new management techniques required to capture higher returns in a higher inflation regime. A new market regime is upon us catalyzed by rising inflation risks. This presents a challenge to investors seeking to compound returns at target levels with stability because it increases correlation risks. Effectively, it pushes the efficient frontier inwards and reduces risk-adjusted return potential. In this paper, we explain how we counter this adverse impact to returns in this new regime through a new management approach with the goal of achieving stable target returns. https://mgstn.ly/3QNuw0f

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Emerging markets (EM) equities remind us of an important principle—diversification and strategic allocation are key to navigating market cycles. Despite recent underperformance, Cambridge Associates maintains a neutral stance on EM equities and recommends keeping allocations in line with global equity benchmarks. Learn more: https://ow.ly/MIhN50T4GiS

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Portable alpha overlays with low correlations to traditional asset class exposures can help provide diversifying, additive returns, particularly during drawdowns in risky assets that typically occur at the end of economic expansions. Is now the time to consider an overlay? Read the new white paper from PGIM Quantitative Solutions: https://on.pru/3WkGOAU

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Monitor: US BSL CLO New Issue Arb Trend Since 2017 The median arbitrage metric YTD at 195 bps is actually lower than in both 2022 and 2023, but this year’s new issue volume has already far exceeded the past two years’ volume on an annualized basis. Similarly, 2018-vintage deals had the lowest median arbitrage metric at 191 bps, but 2018 was a record-breaking year for new issue #CLO volume at the time. On the other hand, 2020-vintage deals had the best median arbitrage metric at 243 bps, but their new issue volume was the lowest. If you’re interested in learning more about the premium content or would like a walkthrough of the website via Zoom, please don’t hesitate to email me at [email protected]. https://lnkd.in/e6sUTfjw

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Big thanks to Hamlin Lovell, Rod Sparks and The Hedge Fund Journal for the valuable award and insightful interview. #absolutereturns#hedgefunds#alternativeucits#markets#investing#Finance#WealthManagemen#FinancialMarkets#FundManagement#AssetAllocation#RiskManagement#AlphaGeneration#PortfolioManagement#derivatives#familyoffice#portfolioconstruction#diversification#funddistribution#optionstrading#liquidalternative#award#ManagedAccount

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One thing I value about Meradia is that I am always learning from my colleagues. This brief article by Ryan Bond, CFA, MBA, PMP reminding us about the value of collateral management is just another example of the expertise Meradia can bring to the table. #meradia

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Reposting Sean Leger's post from Northfield Information Services. Annually this is one of the most superb research conferences in the continent. And they do not charge for the event. However, your admission does have to be approved. Kathy Prasad is the point person if you have questions. Elegant extras abound as well. Dan diBartolomeo is one of the most accomplished living educated quants in the United States, at least of my direct acquaintance. And he is huge on collecting thorough compendia of research. Anything you want or need to learn or incorporate about identifying and capturing risk and return factors - this is the place. Most highly recommended. Shouts: Richard Greene; Dr. Eugene O. Yeboah; Adam Apt; James Q. Rice, CFA; Todd G. Schwendiman, CHP, CAIA; Lauren Goodwin, CFA; Jennifer Bender; Sri Krishnamurthy, CFA, CAP; Max Golts; Jeremy Wee

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Global Allocator Discussion: Asset Class and Regional Selection, Weightings and Positioning, Thursday, November 21st @ 10:00am NYC time hosted by The Allocator Network. In my many conversations I speak to allocators who are looking for diversifying strategies, uncorrelated assets, niche credit, niche equity, emerging markets, developed markets, low beta funds, high beta funds, more liquid, less liquid, bank SRTs, biotech funds, risk on, risk off, etc. The Allocator Network will host a discussion with a small and diverse group of global allocators sharing thoughts on portfolio construction and positioning - and on specific managers and funds - going into the new year. Let me know if you have interest in joining the discussion.

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FundFire Alts: Hedge Funds Urged to Prepare for a Non-Compete Clause Ban A pending rule change may not survive court challenges, but managers must be ready for a range of outcomes; however, we have not seen these concerns affect hiring trends. "Firms continue to build out quantitative and technology capabilities around machine learning in large data sets, often non-financial in nature, and the implementation of large language models on the same front," George Wilbanks remarks. Great reporting by Christopher Larson! https://lnkd.in/ect6j6yu #alternatives #hedgefunds #hiringtrends

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Fixed income in 2024 - Lessons from History | Steven Friedman and Valentina Chen examine how asset allocators should consider the role of fixed income in their portfolios in 2024. Steve looks at the potential benefits but also analyzes three scenarios that present downside risks. https://bit.ly/440WKKe

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Heading into a volatile stretch, we look at commodity performance going into and coming out of the U.S. election. Commodities like #GSCI #gold & #Oil are among the lowest correlated assets to stocks. https://lnkd.in/eEiUnS-P

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With Nasdaq strength masking some deterioration in breadth indicators, we're looking to redeploy cash from recent sales across multiple equity strategies. Meanwhile, this week's CPI & PPI reports relieved some pressure on bonds, as our team awaits another big reinvestment period for Munis in July. Watch "Positions in Transition" here:

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