He Built the Fund He'd Hold 30 Years | Eric Crittenden on What Investors Pick When Labels Come Off

Episode Summary

Executive Summary: The conversation centers on trend following as a systematic risk-transfer service that performs best during regime shifts, even though it can suffer sharp drawdowns before new trends emerge. Eric Crittenden explains why Standpoint combines short-, medium-, and long-term trend with global equities to build a durable, tax-aware portfolio that maximizes compounded wealth while avoiding the behavioral pitfalls that derail standalone trend products.

Main Topics: Regime shifts and drawdowns in trend following (Priority: 5/5): Eric describes how abrupt policy-driven market reversals created severe whipsaws for trend followers, especially during the tariff/trade-war period, and how disciplined risk management helped them survive a painful but temporary drawdown. Systematic discipline versus tinkering (Priority: 5/5): A major theme is that robust trend systems should remain stable across decades and avoid overfitting. Research can evolve, but live trading should change only when new ideas solve more problems than they create. Trend following as liquidity provision / risk transfer (Priority: 5/5): Eric argues trend followers earn a small but real premium by providing liquidity to hedgers and firms that need to lock in prices or manage balance-sheet risk. The premium comes from socially difficult behavior during supply-demand imbalances. Portfolio construction with equities and trend (Priority: 5/5): The discussion frames trend as a diversifier rather than a standalone product. Standpoint combines global equities with managed futures because the two assets tend to offset each other across macro regimes and improve long-term compounding. Behavioral barriers to owning trend (Priority: 4/5): Both hosts note that investors often treat allocations like report cards, selling what is down and buying what is up. This makes standalone trend hard to own, so packaging and client education become central challenges. Implementation details and portfolio exclusions (Priority: 4/5): Eric explains that Standpoint removed nickel and some short-term fixed-income exposures for structural reasons, not because of recent underperformance, emphasizing market implementability, leverage control, and simplicity.

Key Arguments: Trend following works because it supplies liquidity when hedgers and producers need to transfer risk, not because of simple momentum chasing. The best opportunities often appear when investors are under psychological and social pressure, exactly when trend systems are hardest to stick with. Short-, medium-, and long-term trend approaches should be combined to reduce regime-specific failure risk and avoid over-reliance on any one horizon. A systematic process is superior to discretion in fast-moving environments because it forces timely entry into new winners and exit from losers. Research should be stable across decades and based on implementable historical assumptions; not every theoretically elegant idea belongs in live portfolios. Standalone trend funds are hard for clients to hold, so combining trend with equities can create a more durable, more marketable compounding vehicle. Volatility-smoothing tactics and profit targets may make trend easier to sell, but they can reduce convexity and harm the very tail outcomes trend investors need most. Standpoint avoids dropping markets simply because they have been unprofitable; removals are based on structure, counterparty risk, and leverage constraints. A top-down empirical view suggests global equities plus trend creates a stronger risk-adjusted portfolio than most traditional 60/40-style allocations. Investors and advisors often want the benefits of diversification but behave as if every holding must be judged independently, which undermines the purpose of noncorrelated assets.

Data Points: Drawdown timing: Mid-February to early April - Eric describes the main whipsaw period for his trend portfolio during the tariff/trade-war regime shift. Unpleasant environment frequency: Once every 8 to 10 years - Estimated cadence of extreme whipsaw periods in trend following. Systematic approach performance note: April 2025 was one of the fastest on record - Eric compares the speed of new trend emergence to the COVID bottom. Long-term allocation: 50% stocks, fluctuating roughly from 30% to 70% - Eric’s personal/portfolio starting point for his blended approach. Trend allocation range: 30% to 60% - Objective optimization suggested this range for a broad portfolio. Trend premium estimate: 200 to 350 basis points - Eric’s estimate of the raw trend-following risk premium before leverage and diversification. Target return profile: 8% to 12% annualized - Expected result when the trend premium is leveraged and diversified across asset classes. Expected volatility/drawdown: 15% to 20% - Eric’s stated commensurate volatility/drawdown range for the diversified trend program. Risk budget: 10% - Standpoint’s trend program risk budget, set below what it could be to fit client and structure constraints. Short-term fixed-income leverage concern: Almost eye-popping leverage - Reason Eric removed some low-volatility fixed-income instruments from the portfolio. Funds outperforming 60/40: About 46% - Eric’s Morningstar screen of all ETFs and mutual funds since Standpoint launched. Funds with both outperformance and lower downside: Less than 3% - Subset of funds that beat 60/40 and also had lower drawdown. Funds with low beta to stocks: About 20 - Subset after adding a beta under 0.5 constraint. Final comparable strategies: About 6 to 7 funds - Remaining strategies that genuinely matched the desired return/downside profile. Standpoint age: 7 years - Eric characterizes the firm as in an early fund life cycle and still being evaluated by the market.

Pivotal Quotes: "The best opportunities present themselves when you are psychologically and socially under pressure." — Eric Crittenden: Explaining why regime shifts create fertile conditions for trend following. "But that's simply the right answer 85% of the time in this business." — Eric Crittenden: On the value of doing nothing and avoiding unnecessary tinkering. "I think that you need to have fixed income, you need to have metals, you need to have grains, you need to have currencies, you should have representation from all of them and don't discriminate just because they haven't trended well over the last five, 10, 20 years." — Eric Crittenden: On diversified futures exposure and why markets should not be dropped due to recent underperformance.

Implications: Trend following remains compelling as a crisis/regime-shift diversifier, but only for investors who can tolerate long dull stretches and periodic pain. The broader industry lesson is that portfolio design, not just strategy selection, determines whether diversification actually survives client behavior.