The Next Evolution of Trend Following ft. Nick Baltas | Systematic Investor | Ep.410

Summary

Niels Kaastrup-Larsen and Nick Baltas discuss the growing role of AI in systematic investing, review recent CTA performance, and explore expanding market universes for trend followers. They examine defensive portfolio construction, portable alpha, and new research on thematic investing and narrative momentum, questioning whether signals beyond price can enhance traditional trend following.

• AI models evolve rapidly, but supervision and human expertise remain crucial for deployment in finance.
• CTAs had a weak June but are improving in July, with rates shorts and commodities driving gains.
• An expanding market universe paper shows exotic commodities can add value, while macro-related less liquid markets do not.
• Defensive portfolios use trend following as second-responder hedges, with portable alpha overlays becoming popular again.
• Thematic investing acts as a tagging operation that can influence risk models and create momentum effects.
• Narrative momentum research suggests stocks with high exposure to rising themes outperform, complementing price-based signals.
• Backtesting thematic strategies faces challenges, but using a core set of evergreen topics may help capture new themes.
• The conversation highlights the potential of combining traditional trend following with thematic and narrative data.