Eric Crittenden, Standpoint Asset Management - I Enjoy Trying To Win A Marathon Rather Than Winning Sprints | #225

Episode Summary

Executive Summary: The episode centers on Eric Crittenden’s case for managed futures and trend following as essential diversifiers, but only if packaged in a way investors can tolerate. He argues behavioral framing matters as much as math, describes how Standpoint blends stocks with managed futures to improve adoption, explains their simple, liquidity-weighted, multi-model process, and highlights 2020 as evidence of the strategy’s value.

Main Topics: Managed futures as a superior diversifier (Priority: 5/5): Crittenden argues managed futures have strong empirical diversification benefits, especially during equity stress, and should be more widely used despite persistent investor skepticism. Behavioral framing and investor psychology (Priority: 5/5): A major theme is that investors reject optimal portfolios if they look unfamiliar or uncomfortable; packaging, naming, and presentation can dramatically change acceptance. Standpoint’s product design and portfolio construction (Priority: 4/5): He explains Standpoint’s approach: a simple, durable CTA-style core, liquidity-weighted market selection, and blending multiple horizons to reduce single-manager risk. 2020 market stress and managed futures performance (Priority: 4/5): The COVID-era crash and rebound are used as proof that many alternatives failed to diversify when needed, while managed futures and trend following delivered in key areas like energy and bonds. Stocks, market-cap weighting, and blending with futures (Priority: 4/5): He describes why boring market-cap-weighted equity exposure can blend better with managed futures than more tactical equity timing systems, due to overlapping blind spots. Discretion within systematic investing (Priority: 3/5): Although systematic, he argues real-world rules changes and market dislocations sometimes require judgment, citing negative crude oil and other rule exceptions. Longer-term research agenda and investor education (Priority: 3/5): He discusses experiments designed to expose biases and improve adoption, focusing less on market prediction and more on helping investors take action.

Key Arguments: Managed futures are among the best diversifiers available because they can profit in dislocations stocks and bonds often miss. Investors do not allocate based on pure optimization; they allocate based on what feels understandable, career-safe, and emotionally tolerable. A 50/50 blend of stocks and managed futures can be more acceptable to investors than a direct managed futures allocation, even if the economics are similar. The best strategy is often the simplest durable one; over-engineering may add fragility and model risk without improving results meaningfully. Liquidity weighting is the most intellectually honest way to construct a scalable futures program for real capital. Market-cap-weighted equities can blend better with managed futures than tactical equity rotations because they do not double up on the same hedging logic. In real markets, some discretion is unavoidable because rules change, contracts go negative, and automated systems cannot anticipate every exception. The goal is not to maximize return in every environment, but to create an all-weather portfolio people will actually hold through cycles.

Data Points: Managed futures allocation experiment outcome: 9 out of 10 people rejected a direct 5% managed futures allocation - Crittenden’s behavioral experiment showing investors dislike standalone managed futures when they see years of underperformance versus stocks. Mystery asset class acceptance: About 80% success rate - When the same economics were wrapped as a 50/50 stocks-managed futures blend, most participants accepted even a 10% allocation. Optimal portfolio experiment sample: 100% of 30 people chose managed futures first - In a blind optimization exercise using return, volatility, drawdown, and covariance, participants selected managed futures as the foundational asset class. Stock market decline speed in 2020: Fastest 30% decline in U.S. stock market history - Used to highlight the severity of the COVID shock and why diversification mattered. Prior annual underperformance streak: About 6 or 7 of the last 10 years underperformed - Rough characterization of managed futures’ weak calendar-year record leading up to 2020. Bond example current yield: 65 basis points - Used in a blind exercise to show people reject bonds once they see their low yield, despite many already owning them. Bond correlation history: Negatively correlated with stocks about 30% of the past 100 years - Illustrates that bonds’ diversification properties are more nuanced than commonly assumed. Standpoint futures universe: 75 most liquid futures markets legally accessible by U.S. citizens - Describes the market set used in the managed futures program. Equity sleeve mix: About 60% U.S., 20% Europe, 20% developed Asia, 0% emerging markets/China - Current global equity allocation described by Crittenden. Model structure: 3 models: short-term, medium-term, long-term - Standpoint uses multiple horizons to reduce single-manager risk and improve consistency. Crypto futures open interest: Still too small to include - He says Bitcoin futures interest is rising but not yet meaningful enough for the program. Discretion frequency: Roughly once every two years - Estimate of how often rule changes or market disruptions require manual intervention.

Pivotal Quotes: "the results are so compelling that the board of any institution, along with the portfolio manager, should be forced to articulate in writing their justification not having a substantial allocation to the liquid alpha space of managed futures" — John Lintner (quoted by Eric Crittenden): Used to underscore the strong academic case for managed futures and the puzzling lack of adoption. "It's not enough to be right. It's not enough to educate. You actually have to facilitate behavioral change." — Eric Crittenden: Core thesis of the episode: investor behavior must be addressed directly, not just with data. "Maybe we've just missed the point. Maybe we're supposed to deliver something that people need and can tolerate." — Eric Crittenden: His framing for why Standpoint combines stocks and managed futures into a more palatable package.

Implications: The episode suggests advisors and managers should prioritize implementable, behaviorally durable portfolio design over abstract optimization. For allocators, managed futures may work best when embedded in all-weather structures that investors can actually hold through stress.