Talk Your Book: Trend Following with Eric Crittenden

Episode Summary

Executive Summary: Eric Quinteton of Standpoint Funds explains a simplified, rules-based all-weather investing approach that combines market-cap global equities, T-bills, and trend-following futures. The conversation emphasizes investor behavior, survivability, robust backtesting, and why simpler systems often beat more complex ones because clients can actually stick with them through full market cycles.

Main Topics: Standpoint’s all-weather multi-asset structure (Priority: 5/5): Eric outlines the fund’s design: a core global equity allocation, a laddered T-bill sleeve, and a macro/trend-following futures sleeve layered on top to improve diversification and investor stickiness. Trend following and systematic investing (Priority: 5/5): The strategy is rules-based, using simple trend systems across short-, medium-, and long-term horizons rather than complex indicator stacking or discretionary prediction. Behavioral finance and investor stickiness (Priority: 5/5): A major theme is that good strategies fail if investors cannot tolerate underperformance or complexity. Standpoint is built to be understandable, durable, and easier to hold. Backtesting, data integrity, and survivorship bias (Priority: 4/5): Eric stresses that most backtests are misleading because historical data must be reconstructed realistically, with execution, liquidity, and survivorship bias properly modeled. Market evolution and liquidity (Priority: 3/5): He argues markets are always changing, especially intraday, but long-term trend behavior has remained broadly similar since the 1970s, while liquidity has improved. Managed futures versus integrated solutions (Priority: 4/5): He explains why managed futures often struggle as a standalone allocation and why bundling the diversifying elements into one fund can produce better adoption and outcomes.

Key Arguments: Simple, durable systems outperform more fragile, highly optimized approaches because investors can actually hold them through bad periods. Trend-following works best when it is implemented with multiple time horizons and rules that historically showed robustness, not with a sprawling set of indicators. Backtests are only useful if they reflect real-time implementability, including historical execution costs, liquidity constraints, and database bias. Most alternative strategies fail at the behavioral level: investors dislike line-item underperformance, even when the overall portfolio improves. Combining equities, cash/T-bills, and macro trends inside one fund makes the portfolio easier to own than offering the sleeves separately. Long-term trend behavior has not changed dramatically, but intraday trading has become more liquid and more crowded, which increases noise. Higher cash rates can help the strategy both directly through T-bills and indirectly through futures term structure effects.

Data Points: Number of markets tracked: 70 to 75 - Eric says the fund scans global exchanges and selects the most liquid futures markets each year. Long-term trend horizon: 1 year - Defined as the long-term trend window in the system. Medium-term trend horizon: 9 months - Defined as the medium-term trend window. Short-term trend horizon: 6 months - Defined as the short-term trend window. Equity allocation target: 50% - Starting allocation to global market-cap-weighted equities. Equity allocation range: 33% to 67% - The equity sleeve is allowed to fluctuate within this band. T-bill allocation: 28% to 33% - Typical allocation to a laddered Treasury bill portfolio. Macro risk budget: 10% - Risk budget applied to the futures/macro sleeve. Fund launch date: December 30, 2019 - Eric notes the fund launched right before COVID. Assets under management: about $1 billion - The fund started from nothing and is nearing the billion-dollar mark. Drawdown history: No 10% drawdown yet - As discussed by the hosts, the fund has not experienced a 10% drawdown so far. Expected future drawdown: 20% - Eric says investors should expect at least a 20% drawdown at some point. Backtest validity claim: 98% of all backtests are garbage - Eric’s blunt rule of thumb about unreliable historical tests. Personal industry experience: 27 years - Eric says he has been in the business for roughly 27 years. Risk-free rate example: 5.50% - Used to illustrate the tailwind from T-bill yields in the current environment.

Pivotal Quotes: "98% of all backtests are garbage, just go in the trash." — Eric Quinteton: He was explaining survivorship bias, database quality, and why realistic historical reconstruction matters. "We wanted a simplified version that was more durable." — Eric Quinteton: He described why Standpoint avoids overly complex managed-futures-style implementations. "I want to maximize the geometric growth of my true wealth over time." — Eric Quinteton: He summarized his personal investing objective at the highest level.

Implications: The episode argues that the best investment solutions are not the most sophisticated, but the most ownable. For allocators, combining diversification, simplicity, and behavioral fit may matter more than maximizing theoretical efficiency.