The 6-Year Test 10,000 Tickers Failed: with Eric Crittenden of Standpoint Funds

In this episode of The Derivative, host Jeff Malec welcomes back Standpoint Asset Management founder and CIO Eric Crittenden for his third appearance, diving deep into what’s happened since Standpoint launched in late 2019 and why their approach has remained fundamentally unchanged. Eric explains why he deliberately resists the industry’s obsession with “constant innovation,” instead favoring disciplined stability in his trend-following and multi-asset process, and how the last six-plus years, COVID, fast crashes, violent reversals, and energy shocks, have served as a real-world stress test for both his risk management and investor behavior.



Jeff and Eric dig into the “abandonment problem” and “bucket problem” in advisor portfolios: why investors love managed futures when they’re hot but can’t stick with them through full cycles, and how combining global equity beta with trend-following in one vehicle can make diversification actually holdable. Eric walks through his three simple metrics for what advisors say they want, beat a 60/40, with lower volatility, and low equity beta, and reveals how shockingly few of the 11,000+ mutual funds and ETFs available at Standpoint’s launch have delivered on that promise.



The conversation also hits replication strategies, capacity and market selection, correlation myths (non-correlation vs negative correlation), and why Eric prefers trend plus cap-weighted equities over bonds as a long-term compounding mix. They close with thoughts on AI as an analytical force multiplier, the future of product structures (mutual fund vs ETF), and how categorization and reporting frameworks can work against good investor outcomes.



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Check out the complete Transcript from this week’s podcast below:



The 6-Year Test 10,000 Tickers Failed: with Eric Crittenden of Standpoint Funds



Jeff Malec  00:09



Welcome to the derivative by RCM Alternatives. Send it. Hello there. Welcome back to the Derivative by RCM Alternatives, where we have a new page on the new website dedicated to liquid alts, mutual funds, and ETFs, giving you exposure to managed futures and crypto and the like, showing performance, giving descriptions, using our own categorizations, so you know exactly what’s under the hood. So go check it out at rcmalts.com/liquid, rcmalts.com. com slash liquid, and you’ll see Standpoint’s BLNDX fund on there. And just so happens, we have Standpoint founder Eric Crittenden as our guest today, talking the abandonment problem, the bucket problem, the Chipotle burrito solution, and how to filter funds for what investors are really after, participation on the upside, less risk, and low correlation. Send it.



Eric Crittenden  01:12



All right, everyone. We’re here with Eric Crittenden. Eric, how are you? I’m good, Jeff. How you doing? Good. What happened to your? We’ve done a few pods before. What happened here? Nice artwork in your background. Oh, it’s still on the wall. It’s just the wall in front of me. I had to flip the office. A little bit of construction, some electrical work, other things. It’s temporary, so forgive the bare background. We’ll be back to normal in a couple months.



Jeff Malec  01:36



Love it. All right. It just makes me worried. You’re like one of the maybe you are. Like you’re the mad scientist just in a plain office, nothing on the walls.



Eric Crittenden  01:44



Try to stay sane.



Jeff Malec  01:46



Yeah, you start go mad land in



Eric Crittenden  01:47



life,



Jeff Malec  01:48



right? Take some dry erase markers and just start doing formulas on the wall.



Eric Crittenden  01:53



A beautiful mind style. Yeah, exactly. Now, now that era is past for me, so I’m done. I’m done. It’s just in execution mode now.



Jeff Malec  02:02



Love it. So, third time on the pod. Can you remember the the first time, the year?



Eric Crittenden  02:08



You know, I felt like I was a teenager back then. But what was that? Seven years ago? Six and a half years ago, I think.



Jeff Malec  02:14



Yeah, it was July of 20. So nearly six years ago



Eric Crittenden  02:17



on the.oh. yeah, that’s right.



Jeff Malec  02:20



So we yeah, I



Eric Crittenden  02:21



remember. Feels like we’ve been through four or five market cycles since then. It’s been kind of a wild time. Exactly. So we’ve done nearly 300 podcast episodes then. Since then, you had just launched, and you’re still going since then. So what else? What’s what’s changed since then? What stayed the same? Well, I mean, a lot of things in the world have changed. What’s that word, chronocentricity, where we always think that whatever’s happening right now is more important than anything that’s ever happened historically? I think we all fall victim to that from time to time, but definitely the past six years have been consequential, different. I thought it was recency



Jeff Malec  03:00



bias. I like your word better. Yeah,



Eric Crittenden  03:02



chronocentricity.



Jeff Malec  03:03



Chronosenses.



Eric Crittenden  03:04



Yeah, it’s not my word. I stole that from Liz Chevelle. Elsie Buck. Yeah, he may have used it as well. Yeah, a lot has changed in the world. Nothing really has changed here at Standpoint. We’re just continue to do the same thing that we’ve always done. You know, our my research goes back to 1970. I like to invest the same way I would have invested back then. That’s important to me. So unless we’re forced to change, you’re not going to see us changing. You know, there’s a fine line between changing and breaking discipline, and we don’t want to we don’t want to test that. But assets have changed, right? So back a year in, I can’t remember what you’re at, maybe 50 million or something. Yeah, yeah, about 50. So yeah, we’ve had nice asset growth. I think we’re at 850 now. So yeah, I think I’m thankful for that. You know, you like assets to grow. So so far so good. It’s been a fairly successful journey. We hope to get a lot bigger in the future, though. Right, and how



Jeff Malec  04:00



it’s a weird thing too. Like you’re just based on the compounded growth. Like you don’t even need to get new clients, right? Like the compounded growth, the assets will grow on their own.



Eric Crittenden  04:09



Yeah, I mean that’s the the physics of finance, right? If you’re compounding at whatever 810, 12 a year, you’re growing your own asset base. But we’re actively looking for inflows. You know, I built this thing to have capacity over 20 billion, I don’t know the way we get to 20 billion, but I’d like to get into the you know two 3 billion. That’s kind of the sweet spot for a strategy like this. So we’re going to attempt to grow assets and generate returns.



Jeff Malec  04:32



Market wise, right? We said politic, politically, and economically, things have changed a lot. What about market wise? Have you seen more electronic, less trending markets, anything like that? What’s the last six years were looked like market wise?



Eric Crittenden  04:49



You know, I stopped looking at the micro structure of markets a while back because it doesn’t really affect what we do. You know, we’re medium to long term in our approach, so I haven’t really been paying attention. You would know more about. Know with all your execution desks and algos, your guys are always trying to get me to sign up for. Yeah, we like to keep it simple. You know, use time weighted average price orders. So, and we don’t fear the the microstructure. That’s why we don’t have short term trend following. If we had short term, like very short term, you know, less than six months, maybe even less than three months, we would spend more time looking at the microstructure of the markets, but because we don’t, it’s really outside the scope of what we do and what we need to worry about. So I couldn’t tell you. You tell me what? How much has the microstructure changed



Jeff Malec  05:30



on your end? I don’t know either. So we’ll skip over that time. I don’t think much, right? But how about the trendiness, right? A lot of times, April of last year, the first tariff tantrum. April of this year, when the war, a lot of whipsaw market movements. People are saying, “Trend is broken. Look how it doesn’t catch these this new crisis period. What have you seen in those six years since we’re last on? Like, has the market changed? Has the trendiness changed, or is that just always



Eric Crittenden  06:00



people putting narrative on what’s happening. I think it’s more narrative. I mean, the trendiness of the market, the signal to noise ratio, is always changing. Sometimes it’s getting better. Sometimes it’s getting worse. During COVID, you know, things sped up to a very high rate that people were not familiar with if they hadn’t looked at data from, say, like the 70s, where things high. We had a high signal to noise ratio, a lot of whipsaws from time to time. Other times, you get beautiful slow trending markets. It comes and goes. If there was a way to predict that, we’d be trying to do that. But it just turns out that, according to my research, there’s just no way to predict whether you’re going into a trend friendly era or a counter trend friendly era. So in the last six and a half years, I think we’ve gotten like multiple market cycles compressed into one relatively short period of time. So, like I said, we’ve had you know fast trends during COVID. You had slow trends after that, and then you had the tariff tantrum where it became extremely difficult. You know, I remember one day the S and P I think was up 11% in like 20 seconds in the morning, so you know there’s really not a lot you can do about that. It’s just you have to account for the fact that it’s going to happen to you from time to time, and have that budgeted into your risk management process, and accept your lumps when they come. So, but it’s been you know it’s interesting that a lot of people tell me that you know you launched you know right before COVID ended to 2019, and it’s been a an amazing period of time for for managed features trend following. And there’s some truth to that statement. There’s also a lot of trend following managers had their worst drawdowns ever during that period of time. Yeah, I’d say



Jeff Malec  07:35



it’s been a hard period.



Eric Crittenden  07:37



Yeah, it’s been both productive and and profitable, but also incredibly difficult at other times, and incredibly unprofitable. So I think it was, I think the last six and a half years have been a great stress test for somebody who’s running a managed futures trend following program to see if they stuck with their strategy and how way they did. You know, my risk management philosophy certainly got stress tested during that period of time, and I’m happy with what it did, but there was some pain along the way, and it wasn’t insignificant.



Jeff Malec  08:06



Are people asking you that? Are they kind of saying, “Hey, you’re doing great, but that was just this great trend period that we went through. Is why you’re doing great,



Eric Crittenden  08:14



right? You know, I hear that quite a bit from from from the smart people, you know, and then I just point out that while that’s true, on the back end of that was probably the toughest period of time I’ve ever seen. So you know it’s it’s kind of a good period of time to evaluate someone. Did you make money when you were supposed to make money? Yes or no. And did you manage risk on the back end when a lot of people were giving all of that back and more? So they look at the scoreboard and kind of evaluate how someone did during that iteration?



Jeff Malec  08:42



Yeah, point them to me. I’ll tell them. We’ll go through the battle scars of April and May 25. I’m getting 2625, and April of 26. Yep, April of 26 was great. Let’s talk about that for a second, right? The what everyone’s thinking. Oh, now you just made money because there was a war and energy prices went up. True or untrue for Tren?



Eric Crittenden  09:05



True, you know, and that’s our job. Yeah, our job was all. It



Jeff Malec  09:09



wasn’t all energy, right? It’s more to my point. Like, yes, made money in energy, but the greater performance was from some other markets in that period, like metals early on in q1.



Eric Crittenden  09:21



Yeah, metals some degree, but I would say a big chunk of it came from energy, a big chunk, and that was our job. You know, when we find supply demand dislocations like that, our job is to be on the right side of the when when the pressure valve gets released. You know, that supply demand imbalance gets resolved over time. Be on the right side of that convexity. So that’s our job, and I think we did it pretty well. And then, of course, you give some back when it is finally resolved and reverses. The question is how much. Yeah. And then the last six years too, you’ve seen a lot of. I’ll hesitate to call them copycats. I don’t know. We’ll ask how you feel about them. But right, you were one of the first to put base.



Jeff Malec  10:00



With the trend, with the alpha, you put the beta in there. The the worldwide equity coverage. Now that’s been you know many many people have launched similar products putting beta with their alpha. What



Eric Crittenden  10:12



yeah?



Jeff Malec  10:12



How do you feel about that? Like, are you honor flattered by the comparisons, or are you saying, hey, they’re coming from my turf? What’s your thoughts? A little of both. I need to go around. Yeah, a little of both. I can’t complain because I was screaming forever



Eric Crittenden  10:25



that the product like that should exist. You know, in the mid 2000s, like why the managed features industry has been showing these efficient frontiers for for three decades now, showing how much your portfolio would improve if you put 20% in trend, 30% 40% and then you know the efficient frontier, your max sharp ratio or your optimal sortino is right around 50% You know risk from trend and you know equal risk contribution from trend and and equities are 6040. I always wondered, well, why don’t if you guys keep telling people this, why don’t you launch a product that does it and prove it? And then one day it recurred to me, why don’t I just take my own advice? Yeah. So in the summer of 2019, I sat down to build that product, and and we launched it, and here we are today. So the fact that other people are now doing it, I can’t get upset at that. You know, it may be that they’re looking at the risk-adjusted returns and saying, “Well, that’s compelling. Our clients might like that, so they’re launching it, or they just were convinced by the evidence themselves and said, you know, that is a good way to prepare for a very uncertain world to get something in the portfolio that has a good shot at being on the right side of convexity when it matters going forward, with enough juice to move the needle. I can’t blame them for coming along for the ride.



Jeff Malec  11:50



And what do you think over these six years too? There’s been a lot of replicators have launched, whether they be in sort of risk premium shops, trying to replicate the trend index or the managed futures index or outright ETFs and mutual funds. I’ll get full stop there. Like, what’s your first blush thought on the replicators, and then we’ll dive deeper.



Eric Crittenden  12:10



Well, I have kind of a love hate relationship with the concept of replication. I spent about a year looking at it myself, and there’s various different ways to try to replicate some sort of a beta that you want, and it’s a good practice to take a look and say, like, well, how much of it can I get? How durable and reliable would my process be? And you know, everything’s a trade-off. You know, you’re going to get something, and you’re going to give something up. So, what you get is low fee done correctly. You’ll get scale and capacity. What you give up is the ability to take responsibility for the underlying positions. You’re essentially replicating something, you know, and you give up the ability to control those positions. You’re kind of looking at something after the fact. I mean, most of these guys are going to be using some sort of a multivariate regression. Some are using very sophisticated ones, and they’ll attempt to fit what they see other managers producing, and I’ve done that kind of work, and and it does work, but it does introduce a delay of some sorts. I think people fear that delay more than is justified, but there is some risk in the delay. So you are giving something up, but what you’re getting in return might be a lot more valuable. You know, not paying two and 20. You know, using representative sampling to get the portfolio down to a manageable, a manageable scope portfolio scope that would work in just a U.S. context. You know, some of the old school managed futures programs really wouldn’t fit too well into an ETF structure, at least historically. That it’s starting to become more plausible because they’ve got overseas contracts that are closed when the U.S. is open and whatnot. The replication process can bring that scope down to just North America, where the time zones line up and you don’t have markets that are closed while the ETFs trading. That can make a lot of sense. So you know it’s capitalism. It’s a free market. So if the replicators want to give it a shot and they’re successful, then they deserve the success. I mean, they’re just trying to create product market fit. You know, clients want if clients want managed futures beta and they can deliver it, then more power to them. So I took a long, hard look at it and and and decided that I just wanted to build my own program and not charge two and 20 like the big CTAs do. That was a better fit for me, my personality, and you know how I wanted to run the business, but I don’t. I don’t have a philosophical problem with replication.



Jeff Malec  14:26



But but at the end of the day, you thought designing your own program gave better long term success for your clients.



Eric Crittenden  14:34



Yeah. Well, it’s it allows me to make the decision. You know, the systems that we build make the decisions about what markets to get into and when, on how long to stay, rather than because now it’s on me whether it works or not. If I’m replicating other people, it’s like, well, if their stuff works and I replicate it effectively, well, then we all win, and that’s okay. I have no problem with that. It’s just I like to line up the accountability with the risk. Responsibility in a certain way, and that fits my personality, and that meant building my own systems that I like better than the systems of the people that I’d be trying.



Jeff Malec  15:10



Yeah, but it’s a it’s like ties my brain in knots, right? Of one, if every one you were replicating just went down to that, call it a North America 12 market portfolio or something, then would the replication change? Like then would the replicator have to go even smaller on markets? So it’s a weird thing that those what they’re replicating has to do the full universe of markets in order for the the representation to come through to that subset of markets? Question mark. Yeah,



Eric Crittenden  15:40



that’s a good question. I don’t think so. I think that the the reason that they sample down is just to make it convenient to fit into the ETF structure. And the question is, how much do you lose by doing that? And it’s less than you think, at least historically. I can’t tell you what’s going to happen in the future. But maybe a time,



Jeff Malec  15:57



yeah. How many markets do you have? Like



Eric Crittenden  16:00



65,



Jeff Malec  16:01



right? So somewhere in there, your math has said it’s. I know I want these extra 10 over here, and five over here, and three over here.



Eric Crittenden  16:10



Yeah, it helps with signals, right? Like if you’re just trading like the 10-year U.S. Treasury, you know. But if you’re trading, you know, 12 different, you know, bonds around the globe, you get a more granular signal process. You know, you may get into some of them long before you get into the U.S. tenure. You may get out early or whatnot. It increases capacity. It increases diversification, but the benefit is not as great as a lot of people make it out to be.



Jeff Malec  16:37



And then, last bit on replication: Is it weird to you mathematically or as a operator in the space, if the replicator beats its index, to me that’s a failure of the replicator. Right? It’s not trying to beat it; it’s trying to replicate it. It depends on



Eric Crittenden  16:50



why. It really does depend on why. If they’re beating it because they’re not charging two and 20, that makes a lot of sense. Yeah, yeah, but more if they’re



Jeff Malec  16:59



a factor, a different factor, yeah,



Eric Crittenden  17:01



right. So you would look at the replication engine, and then you’d look at the underlying the what’s being replicated, and if they’re moving the same, but the replicator is pulling away, and you can map that alpha or that outperformance back to to lower fees, then that’s a win. If it’s not that, if it’s because the replicator is only trading, you know, 12 markets, and those 12 markets have trended better and been more profitable than, say, the 70 markets that other CTAs are trading. Well, then you have to say, well, there’s some tracking error there that’s going in my favor right now, and maybe it goes against me in other market environments. So you’d have to answer that question.



Jeff Malec  17:49



So these seven years since you launched, I guess I’ll ask how much has changed in the model itself. First, I’ll ask that first.



Eric Crittenden  17:58



Yeah, we haven’t had to make any material fundamental changes. Every now and then, there’s some compliance things around exposures. You know, it’s just when you’re in a 40 Act fund, you have to do this really complicated value at risk analysis and whatnot. Hasn’t really affected us because our risk appetite is relatively modest compared to other people. But I’ve seen where other people have had to like you know, deleverage or change the portfolio. The only change that I’ve made is really short-term fixed income contracts, which are basically just leveraged versions of cash, and they’re totally redundant with all the other dozens of fixed income global fixed income markets. I just made the call that it’s just too crowded in the fixed income space to have all the short-term interest rate contracts in there, they did that very early on, and you know you’re putting very large notional positions on for what’s essentially a leveraged cash position, and then it shows up. It looks like leverage, and so we didn’t want to be a particularly leveraged fund.



Jeff Malec  18:55



Those are like so far futures and euro dollar and stuff like



Eric Crittenden  18:58



that. You know the old euro dollars, which don’t exist anymore, but you know Euro Swiss stuff like that. They don’t add a lot of. They’re not helpful to the fixed income portfolio very much, but they do eat up a lot of cash. So we don’t trade those. We don’t invest in those. That’s pretty much the only thing that’s changed. Well, nickel too. You know, like we made a lot of profits being long nickel back during the chaos when it went way up, and then we took a long, hard look at that market, and you know it was controlled by a few oligarchs over in Ukraine or Russia or whatever.



Jeff Malec  19:27



Yeah, and exchange those profits-that was part of the problem, right?



Eric Crittenden  19:31



Yeah, well, yeah, we did get most of them, but you know, the exchange was acting weird. They were saying weird stuff, and it’s a small market, and it’s not a



Jeff Malec  19:40



bunch of those trades.



Eric Crittenden  19:41



Yeah, it wasn’t consequential to us one way or the other having that tiny metal market in the portfolio. So to avoid having to do all this constant compliance due diligence stuff, you just kick problem markets out like that. So it’s a tiny market. Is one of 68 markets we were trading at the time. So we just made the decision to not. Participate in a market that’s not trading freely,



Jeff Malec  20:03



but model-wise, 100% the same.



Eric Crittenden  20:06



Yeah, besides



Jeff Malec  20:07



the market, so that in itself is amazing to me, right? A lot of people are promoting and saying like you got to be one step ahead and innovating and always changing in order to survive in the market. Like, how have you gone run counter to that and saying like, no, I want to stay stable. I want to have this solid base that I’m going to keep going with. Like, how do you think?



Eric Crittenden  20:29



Yeah, there’s there’s two things happening there. It’s what they say and what they do. So yeah, what I’m in my 30th year in the industry now, and I’ve I’ve made friends with a lot of the old guard people that have been doing it for for decades, and then I I try hard to put them into two camps: the the successful and the unsuccessful. And what’s unique or interesting about is that some of the smartest people I’ve ever met are very unsuccessful in this business because they’re just too smart. They’re too smart to let a good thing happen. They’re always tinkering, always changing things, trying to make it better. That that concept of continuous improvement works in most aspects of life. It’s a really good philosophy, but it’s not in in this discipline, in my opinion. And I say that because the people that were wildly successful, when you look under the hood, they’re generally doing about the same thing they were doing back in the day. I’m not saying there are no lessons to be learned, but once you’ve got it locked down and you’ve got a mechanism for collecting these risk premia, don’t mess it up. It’s like if you know a good poker player, when do they do well? When they stick to the tried and true, and they know, you know, they’re being disciplined and and they’re sticking with a winning strategy. It’s the ones that go full tilt and try to mix it up and and be unpredictable. That’s when they melt down. So the people that have been successful, generally speaking, under the hood or using the same, effectively the same systems they were using in the ’80s and ’90s. Now their marketing department might be spinning it a different way because people want to hear about the continuous improvement, and they are doing research. Even we’re doing research, but research doesn’t mean that we’re constantly changing things. We’re constantly questioning and probing and seeing if there’s some lessons that need to be learned. But for the most part, kind of like Berkshire Hathaway would tell you, sit on your hands when you have something that works, and don’t over-engineer it and make it too fragile to work on new, unforeseen data.



Jeff Malec  22:26



It’s kind of like this will come out all wrong. So I apologize, but it’s like a broken clocks right twice a day kind of thing, right? So you would say it’s not broken. It’s a it’s a working clock. It’s maybe right nine hours out of the day, or seven hours out of the day, so just keep it right. If it’s right, that many hours out of the day, keep it going. If



Eric Crittenden  22:46



it’s doing what you designed it to do, don’t mess with it. That’s the philosophy that that wins in this industry, and that’s the philosophy that that fits my personality too. Be strategically lazy about things that are working. Don’t go in. Don’t mess up a good thing.



Jeff Malec  23:03



And then, are there periods? Probably that April 25 or one of the Aprils where you see equities down and trend down. Where you question that? Where you’re like, okay, is this a problem? Could we have a year or two years or three years of you know, equities down 25% trend down 25%



Eric Crittenden  23:25



Yeah, you know, every time we have something like that, there’s a one or two or five or 10 people that call me up,



Jeff Malec  23:31



yeah,



Eric Crittenden  23:32



and that they’re ready to they’re ready to call it quits, right? And this time was not an exception to that. I remember back in 2013, there were guys that are like neighbors of yours were calling me up, and they have great long term track records. But now they’re in you know 23% drawdowns or whatever, and they just want to get out of the business and retire to Florida, and they’re calling it quits. This time around, there were people doing that too, and I’ll tell I’ll tell you the same thing I tell them is that you know you’ve got assets, you know, because they’re worried about their correlation with the stock market and drawing down at the same time that the stock market draws down. You got two random variables that are completely uncorrelated. They’re both going to be down at times, you know, together just due to random chance. So if that’s what’s happening, you signed up for that. I signed up for that. It’s going to happen from time to time. So your risk management process needs to account for that. That once every four years, six years, whatever, that’s just going to happen. You’re going to have a bad quarter, a painful quarter. Not going to, not necessarily bad. It’s just painful. Yeah, that’s all that was, in my opinion. So you just you get past it and you move on. Now, if you want to address that issue, if you want your alternatives sleeve to not be down in a market environment like that, there are ways to do that, but they’re going to cost you long term. You know, you have to use options, you have to use tail risk hedging, you have to. So, essentially, you’re a purchaser of insurance at that point. So you’re no longer a premium collector; you’re a premium payer. Now, it’s not always a bad thing. It could be that paying premiums in order to get negative correlation into your portfolio actually lifts the geometric return of your portfolio overall more than the premium that you’re paying. So there are some smart people that attempt to do that. There’s there’s a case to be made for that. So I don’t I don’t begrudge people for doing that, but this you just pointed out: stocks and managed futures trend being down at the same time in April. Yeah, it was painful, but that’s what we’re signing up for. You know, every now and then that’s the way it’s going to be. It’s not a reason to throw in the towel unless you were, you know, your risk allocation was simply too high and you couldn’t deal with the amount of drawdown. Ours came in right where we budgeted it. No surprises, so we were okay with



Jeff Malec  25:43



it. Two things there. One, I think we talked about this before, right? It’s people confusing, conflating non-correlation with negative correlation. Like I thought these things were negatively correlated. No, or yes, they are non-correlated. They’re not. So to your point, that’s what that means. On average, it’s going to be doing different things at any one point. Could be doing the same thing.



Eric Crittenden  26:04



Yeah, and well, one of the things we run into with people is in a structural bear market like 2002 or 2008, where markets roll over, they start to go down. You know, trend starts to go short, and then it follows through and goes down a lot more. And they’re saying, “Oh, that’s the negative correlation I’m looking for. I want that all the time. You only get it in the you know innings four through nine. You know you don’t get it in innings one, two, or three because 112, and three is when the trend is developing. So April of 2025, you know, it was violent, it was fast, it was scary to people, but it was two innings. You know, there’s just not enough time for medium and long-term trend models to actually flip and go short, so it wasn’t a structural bear market. It was a fast, vicious correction.



Jeff Malec  26:49



You probably actually only get it innings four through seven, right? Then it reverses in eight and nine. But we can we can argue that later. But bringing it back to your concept, like, hey, if it’s not broken, don’t fix it. Like where that’s kind of what I’m after. Like there’s these periods that happen. What’s that metric that you know it’s not broken, right? If that correlations go to you, do you have a a map? You have historical correlations. You know it’s within the bound. Like how how long would it have to be correlated to stocks for you to think it is broken?



Eric Crittenden  27:21



Well, it depends on what’s causing the correlation. If all the markets, you know, start to move together, there’s really nothing you can do about that. You know, it’s just you’re you don’t you don’t have as much diversification as you thought before. So your risk budget should probably come down, and you should temper your your expectations about how much diversification you can actually offer, right? If they just become randomly correlated, and the correlation goes to 90% for some period of time, you have to have to sign up for that and realize that that’s going to happen from time to time just due to random chance alone. So distinguishing between those two things would require data and time, and and just trying to understand. You know, there’s paradigm shifts. You know, sometimes soybeans are highly correlated with energy prices, ethan or corn. You know, ethanol prices, whatnot. But below a certain price level, they the correlation breaks down and goes back to zero. So stocks and bonds. You know, I mean, during my career, most people genuinely believe that stocks and bonds are negatively correlated. That’s not true. Over long periods of time, they tend to be positively correlated, especially when they’re both going down together, like in the 1970s. So it depends on what kind of interest rate, you know, inflation expectation regime you’re in. So I spent a lot of my life chasing correlations and co-integration and using copulas and stuff like that. There’s really just not a lot there. There’s a little bit there, but there’s not a lot. You know, it’s very difficult to predict when correlations are going to change and break down. So your best bet is to just put a bunch of markets together that have no reason to be long-term positively correlated or negatively correlated. Find that independence and then put it on your side, knowing that from time to time, that independence will appear to disappear, just because due to random chance alone, things that are uncorrelated will become correlated for short periods of time. And seems to me that it’s like the old commodity adage: “The cure for high prices is high prices. Right? People



Jeff Malec  29:17



will switch; they’ll do different things. You don’t use that if it’s too expensive, so seems the same thing’s true in correlation, probably behind the scenes, right? The cure for high correlation is high correlation, and it’s due to those price extremes, and people will move off the extremes.



Eric Crittenden  29:32



Yeah, I think that’s fair. Yeah, it’s part of it,



Jeff Malec  29:35



but I’m and not I’ll I’ll stop pressing after this. But if it was like three years of quarter after quarter, equities and trend both down, and I guess if they’re both up in this highly quarter, we don’t care. So if it’s both down, like there’s some point you’re going to wave the red flag or or or say, hey, we got to look at the model, relook at the model.



Eric Crittenden  29:54



Well, I think you just yeah, definitely something to look



Jeff Malec  29:57



yeah,



Eric Crittenden  29:58



and then just admit that. You know we are not the greatest diversifier on the planet anymore. Just like every other asset class, the nice thing about trend is it’s the one asset class that consistently comes back to being uncorrelated. You know, if you look at all the other things that are considered alts, you just objectively look at them. They tend to be highly correlated with equities when equities are going down. So trends kind of the last you know, trend and tail risk hedging are the are the two that tend to not be positively correlated in down market environments. So that’s where we go hunting.



Jeff Malec  30:28



Yeah, two very different reasons. One structural. One is, I mean, they’re both structural, but the trend is because you’re in soybeans, corn, oil, right? Like we’re in these markets that are affected by weather, cocoa, things that you’re not getting in the normal portfolio.



Eric Crittenden  30:46



Yeah, I mean, the day that silver, soybeans, the S and p5 100, and and I don’t know German bonds are all doing the exact same thing, then is the day I throw my hands up and say, well, there’s not much I can do. You know, the capital markets are where we go looking for risk premia, and if they’re all doing the exact same thing at the same time, you know, I have no power over that. So I’ll admit that we don’t have any diversification, but I don’t think that we’re going into that world. I don’t know why that would be the world we’d end up in.



Jeff Malec  31:26



So, wanted to talk to you a little bit about. We were doing some research on our side, kind of looking back at since you launched, since the that first podcast we were talking about. There’s something like 11,000, call it 10,000 funds that were active, mutual funds, at the same time. Question one: How many of those do you think have survived? Right, that are still here six years later. Yeah, I think you guys got that idea from me. I was doing the same thing using Morningstar Direct, and I think



Eric Crittenden  32:00



on the day we launched, which was 1231 2019, there were almost 11,000 mutual funds and ETFs active in the U.S. So 10,995, something like that. So that’s how many funds were active when we launched today. Of those funds, I think just about 7000 are still around, so the other you know three plus 1000 were either delisted, merged. I guess that’s it, and they were either you know shut down or they merged into another fund. So that survival rate is pretty consistent with what I’ve seen over the past 30 years. So a lot of funds just don’t make



Jeff Malec  32:40



it. It’s crazy. Um, which comes back to like, okay, are they? What did they do? Did they change at the first sign of trouble? Did they get away from what they were designed to do, or did they just not see critical mass? Who knows?



Eric Crittenden  32:53



Well, keep in mind these are mutual funds and ETFs, so a lot of them are tracking indexes. They’re like small cap funds. They’re trading, you know, like double long, you know, crude oil, you know, this, you know, there’s target date funds in there. I mean, that’s basically every mutual fund and ETF that existed that traded in America. So large cap growth, you know, mid cap value, so on and so forth. So a lot of them fail, I think, just due to lack of demand. You know, there’s it’s a lumpy world. You know, most of the assets are in the top, say, you know, 3% of funds. The bulk, maybe 5% of funds. The bulk of the assets. So the success rate in ETF or mutual fund land is pretty low from from a new launch to being alive 10 years later.



Jeff Malec  33:39



And do you see a lot of advisors use that as a as a metric. Like, hey, they’ve been around five years. I’ve got confidence they’re going to be around another five years. Yeah, I mean, the longer year round, the more comfortable people get with the fact that you’ve got a business that’s profitable, and evidently the marketplace has voted. Especially if you’re if you’re raising assets, the marketplace has voted. There must be some value there. That’s how the human mind works. Do you think they use length or assets? A lot of them just shortcut to assets, right? Which is a little weird. Like you could raise a billion dollars in the first year and be like, “Okay, they’ve made it. Let’s let’s invest. It’s both, you know. They want to see both. And so, speaking of those advisors, what when you first launched, what did you set out to do? You had talked with them. We talked a little bit about putting these two together and giving the the whole product. But what was the what was on the tin, so to speak, that you were trying to deliver back then?



Eric Crittenden  34:31



Yeah. So I wanted a product. I wanted this to be my last product, and I wanted this to be my last job. So the idea was launch something that is durable that gives us the best chance at surviving and thriving, regardless of what kind of market environments we get in the future. So, I’m a managed futures guy. Trend. I was long short equity before that. Did a little bit of arbitrage back when I was first out of college, but managed futures. And long short equity is really my area of expertise. So I decided I would build the best, most durable managed futures program that I could build. So I did that, and then you know, you know, the lifestyle managed futures. People love it when it’s hot, and they can’t stand it when it’s going sideways, and you know, they just abandon it. There’s an abandonment problem in the industry, you know, if you’re doing anything alternative or uncorrelated, the hardest it’s it’s it’s not the alpha that’s hard. It’s not the running a business. It’s it’s keeping people invested in it through a full market cycle so that they get the benefit. And what you know in the in the pure managed futures or alternative space, generally speaking, people buy you you know the fifth or sixth inning of a bear market, and then they abandon you. You know nine months later, 12 months later, when the S and P is bounced and and you’re going sideways. So I’ve watched people do that. I lived a little bit of that lifestyle for a while. Don’t ever want to do it again, and I didn’t want to invest personally that way either. So I thought, what would I put my own money into? What would I put my mom’s money into? And it occurred to me to just mix it all together, you know, build an all-weather style multi-asset, multi-strategy program, and put all the best ideas that we can come up with in there, and make sure it has capacity, and don’t charge crazy fees, and try to keep it tax-efficient. So that’s what we did. So I took my managed futures program and I shopped it through all the databases and said, you know, what asset class would best pair up with this in order to get rid of the abandonment problem? And there’s a few that worked, but the one that worked the best was simple buy and hold market cap weighted global equities, tax efficient, has made money for centuries, capacity is is off the charts, easy to manage. So we married those two things together, and then we have a laddered treasury bill portfolio for a fixed income for for cash. And you know, by my calculations, that was a great way to really minimize sequence risk, maximize holdability, so that you know you’ve got enough equity exposure in there that you don’t get completely left behind in runaway bull markets, and you’ve got enough trend in there that you can offset a lot of the losses in bear markets. The tough part is the transitions from bull to bear on the trend side, but it’s not that bad. So that’s that’s the bet I’m making that this experience will be smoother and more holdable for advisors. It’s a great way, I think, to get alts into the portfolio in a way that clients can actually hold them through a full market cycle and reap the benefits. So it checked a lot of boxes. It’s how I like to invest. It’s was in my wheelhouse. You know, we we or my team and I had the skills and experience to manage all of these things in house, not have to outsource it to other people in creating multiple layers of fees, and I thought there was a good product market fit for the marketplace. So, because what advisors have been telling me for 30 years that they want from a product, you know, they want something that’s competitive on the upside with equities, you know, and not not a return drag, but also does something useful to mitigate downside volatility in bear markets, and they want a reasonable fee and no crazy, outrageous, you know, taxes. And I thought, well, this is the best way for me to pursue that. So that’s what we did, and here we are in year seven.



Jeff Malec  38:14



But put put that into the actual metrics, right? So that’s kind of on a resume, those would be soft skills. I wanted it to be comfortable ride and this and that. So, what are the actual metrics that we could put against that database of 10,000 we’re talking about?



Eric Crittenden  38:32



Yeah. So, what advisors have told me is that you know my ideal diversifying investment, if I’m going to do something, they’re all already doing something, and it’s pretty close to 6040. Most advisors they have already got their stocks, they got their bonds, maybe they have a little bit of real estate, and you know a 5% sleep to alternatives. But they their their portfolio results look pretty much just like 6040 portfolio. So what they’ve told me pretty consistently for decades now is that you know I want it to be competitive with what I’m already doing. So don’t be a drag on performance. So I interpret that to mean outperform a 6040 portfolio,



Jeff Malec  39:10



right? Which in and of itself is weird. Like why not match it? They’re saying be competitive, so be like within a band. But I like it. You you said okay on yeah keep it simple, right? Yeah, yeah.



Eric Crittenden  39:22



I call it the three questions, right? And then they’ll give you the three answers, right? So it’s simple: beat or meet a 6040 portfolio criteria one. So how many funds did that? So if we go back to the 11,000 funds that were live when we launched, I think less than half were able to actually beat a 6040 portfolio. In fact, I have I wrote those numbers down.



Jeff Malec  39:46



Yeah. Well, well, the which we already talked about, only 7000 still survive. So out of those,



Eric Crittenden  39:55



yeah, it looks like I have the numbers here in front of me. Right around 3000 funds. Performed a 6040 portfolio over the last six and a half years, so it’s basically a little less than 1/3 were able to meet criteria one, which is be to 6040 portfolio. So out of all the mutual funds and ETFs in America, about 30% were able to do that. Okay, that’s first thing.



Jeff Malec  40:16



Yeah, all right, we’ll go through the three, then we’ll circle back. Sorry, go ahead.



Eric Crittenden  40:20



What is it telling me? It’s telling me a lot of those funds were either you know fixed income, you know low vol type things, just weren’t able to keep up the 6040.



Jeff Malec  40:28



Yeah.



Eric Crittenden  40:28



Okay. The second criteria they tell me is that they want they don’t want the fund to increase their volatility. You know, they’re always looking to mitigate volatility and not increase it for the most part. So the second criteria is that you know you have to outperform 6040, but you have to do so with less you know downside volatility. So this is where it gets interesting. If you apply that, you’re down to about 50 funds. So only 50 funds



Jeff Malec  40:56



from the 3000



Eric Crittenden  40:57



outperformed a 6040 portfolio, but did it with lower volatility, so that’s



Jeff Malec  41:02



and that’s that’s a harder bar than like a higher sharp, right? Because in theory, I could have a higher sharp than the 6040 by just having super low vol and a super low return. Yeah, right. It’s a higher bar. You’re saying I don’t know if there’s a metric what that’s called, but the absolute the actual level of return needs to be higher, and the actual level of volatility needs to be lower.



Eric Crittenden  41:26



Right. Yeah. Because, and I’m not saying this is the right way to do this. I’m just saying this is what advisors have consistently told me for three decades: is they want higher returns in what they’re already doing and lower volatility in what they’re already doing. If you apply those two criteria, less than 50 funds have actually delivered that over the last six and a half years.



Jeff Malec  41:45



But to that point, most asset managers are saying, “Go fly a kite. Yeah, everyone wants better returns and lower risk, but it’s a pipe dream. So, right, interesting to me, you said, “Okay, let’s build it instead of saying like, ‘No, go go fish.



Eric Crittenden  42:01



Yeah. Well, it’s surprising, you know. Everyone that I tell this statistic to is shocked because that’s less than one half of 1% of all funds have done what every fund out there is claiming to try to do, and what every advisor says they they want.



Jeff Malec  42:15



Want right?



Eric Crittenden  42:16



Yeah. So it’s a short, very short list.



Jeff Malec  42:19



Item three.



Eric Crittenden  42:21



Oh, item three is they don’t want any more meaningful beta to equities, you know. And again, I’m not saying this is the right way to look at it, but this is what they tell me. So higher returns, lower volatility, and have a low beta to equities. So I just implemented a filter and said, all right, beta’s less than 0.5. So 11 funds have met those three criteria over the last six and a half years: higher returns, lower vol, with a beta below point five.



Jeff Malec  42:48



So it’s not the correlation; it’s the beta, but essentially similar.



Eric Crittenden  42:52



Yeah, I mean, correlation just measures their tendency to to zig and zag in the same direction. Beta is more of like how much impact did it have? You know, it’s essentially volatility adjusted to the benchmark. So some people worry more about correlation, but most people are like, you know, just give me a reasonable beta. And a beta point five is still meaningfully positive, right? If I put this at point three, you might get down to four funds. So think about what this means. You started with 11,000 funds; less than a third of them actually outperform 6040, right? If you wanted lower volume



Jeff Malec  43:26



of them even survive, but yeah, yeah,



Eric Crittenden  43:27



yeah, the 70% survived. If you wanted a lower vol too, you’re down to less than 50 funds out of 11,000, and if you want a beta below point five, you’re down to 11 funds. That’s pretty interesting to me. That what advisors say they want. There’s the industry does not seem to be delivering, and I think I added up the assets. There’s $21 billion in those 11 funds, which is point zero 5% of total assets in all funds. So that’s five one hundredths of 1%



Jeff Malec  43:58



Weird. Which is a securities are bought, not sold. Problem.



Eric Crittenden  44:05



Sold, not bought. Flip that way around.



Jeff Malec  44:06



Yeah, flip that. Securities are sold, not bought. Right. If you’d think in an efficient market, the investor knows everything, runs these statistics. Those would have the lion’s share of the of the assets.



Eric Crittenden  44:16



Now, to be thorough, I think I’ve said twice. I’m not saying this is the right way



Jeff Malec  44:22



to do this. The right way, real quick. Standpoint is one of the 11, and even when you put what’s what standpoints, what’s we call it Blendex. What’s the actual beta of it in that time period?



Eric Crittenden  44:36



In that time period, to a 6040 portfolio, the beta is 04. To the S and P, the beta is point three, and that’s about what we were expecting.



Jeff Malec  44:47



Yeah, yeah, which is crazy in and of itself because it you would think it should be point five, right? Like it’s got 50% beta in it.



Eric Crittenden  44:56



That’s true, but the trend side has negative beta to yeah yeah global. Equities, which is why it helps so much.



Jeff Malec  45:03



But that’s the whole point of diversification. I’m adding 50% beta and getting a lower beta as the total.



Eric Crittenden  45:12



Yeah, it’s interesting. One



Jeff Malec  45:13



of those 11 is the is the punchline. It is



Eric Crittenden  45:16



right in the middle of the pack. Not the best, not the worst.