The Holy Grail of Macro Investing | Eric Crittenden

Episode Summary

Executive Summary: Eric Crittenden explains Standpoint’s “macro trend” approach: a mostly systematic, global, multi-asset strategy that blends trend following in futures, long-only global equities, and T-bills. He argues returns come from harvesting structural risk premia—especially hedger/speculator risk transfer—while controlling risk through disciplined stops, liquidity-aware sizing, and low leverage.

Main Topics: Macro trend investing framework (Priority: 5/5): Standpoint defines macro as top-down and global, scanning liquid futures across commodities, rates, currencies, and other asset classes for trends and dislocations. Systematic trend-following process (Priority: 5/5): Positions are driven primarily by price, term structure, and liquidity. The firm uses rules to go long rising markets and short falling markets, then exits losers quickly and lets winners run. Hedger/speculator risk premium thesis (Priority: 5/5): Crittenden argues trend followers profit by taking the other side of commercial hedging demand: buying rising markets from hedgers and selling falling markets to them. Portfolio construction and diversification (Priority: 4/5): Standpoint combines futures, a long-only global equity sleeve, and Treasury bills in one portfolio so uncorrelated return streams stack while volatility and drawdowns offset each other. Market examples: soybeans, oil, equities, gold (Priority: 4/5): He uses soybeans and crude oil to illustrate trend/term-structure logic, explains why U.S., Japan, and Europe were long ideas, and says gold is currently an obvious trend-following long. AI, machine learning, and skepticism toward inefficiency hunting (Priority: 3/5): Crittenden is favorable on AI as a research tool but skeptical of using it to discover fragile, crowded inefficiencies; he prefers durable structural premia over transitory alpha. 2020 launch and crisis behavior (Priority: 4/5): He says the model’s shorts in energy and longs in safe-haven assets helped Standpoint limit drawdowns during the COVID shock and later re-enter risk assets as conditions reversed.

Key Arguments: Macro trend investing is intentionally global and cross-asset, not limited to one sleeve of markets; liquidity and diversification are part of the edge. The strategy is more than 99% systematic, with only minor discretion for compliance, leverage, and mutual-fund constraints. Trend signals are built mainly from price/returns, term structure, and liquidity; price matters most, but the other two help identify supply-demand imbalance. The economic rationale for trend following is that it provides liquidity and insurance-like risk transfer to commercial hedgers who need to hedge core business risks. A 45%–50% win rate can still be profitable if losses are kept small and winners are allowed to run. The futures book is kept modest in leverage and sized by liquidity so the strategy can scale without changing its behavior. Combining trend-following futures, equity beta, and T-bills improves the overall risk/return profile because the three return streams are largely uncorrelated. AI/ML can be useful for gathering information, but it does not create new structural premia; overfitting and random-pattern mining are major dangers. Gold is currently, in his view, a clear long for any trend follower, while several industrial metals remain shorts. The 2020 drawdown was contained because the model turned short energy before the collapse and later turned long again as markets recovered.

Data Points: Systematic allocation: More than 99% systematic - Describes Standpoint’s investment process as overwhelmingly rules-based. Trend signal weighting: 40-45% price, 25-30% term structure, balance liquidity - Approximate weighting of the three inputs in the futures model. Win rate: About 45%-50% - Expected winning percentage from statistically derived stop-loss rules. Markets tracked: 75 most liquid futures markets - Universe used in the macro trend program. Historical data coverage: Back to 1970 - Research database includes global and U.S. futures history reconstructed through time. Fund launch: January 2020 - Standpoint fund began just before the COVID market shock. Crude oil move: From about $75 to negative $35 per barrel - Example used to show the benefit of short energy positioning during 2020. Equity sleeve size: About half of capital - Typical allocation to long-only global equity ETFs. Equity allocation guardrails: 33% to 66% of AUM - Equity sleeve is allowed to drift within these boundaries rather than rebalance exactly to 50%. Treasury bill sleeve: Two- to nine-month T-bills, typically three- to eight-month - Cash management sleeve used for the remainder of capital. Treasury bill yield: About 500-550 bps - Current yield cited for the T-bill allocation. Futures margin efficiency: 4%-6% of capital needed - Approximate margin required to run the futures program, leaving excess capital for other sleeves. Liquidity example: Palladium excluded; platinum included - Illustrates how liquidity determines inclusion in the futures universe. Risk premium count: 3 to 5 structural risk premia - Crittenden’s estimate of how many durable premia exist in markets.

Pivotal Quotes: "“If it's hard to do, it's probably worth it.”" — Eric Crittenden: On the psychologically difficult trades that often become the best winners. "“We attack this topic from two different angles... one is just purely computer science-based... but we also attack it from the other perspective... through [hedgers'] eyes.”" — Eric Crittenden: Explaining how Standpoint combines quantitative research with an economic rationale. "“I think it's the risk transfer premium is real.”" — Eric Crittenden: His core thesis for why trend following can generate persistent returns.

Implications: Listeners should understand Standpoint as a disciplined, multi-asset risk-premium harvest strategy rather than a pure CTA or discretionary macro fund. The big takeaway: diversification plus structural edges may matter more than prediction.