PORTFOLIO SPOTLIGHT stitutional version gained 16.31 % in 2020 , and returned 3.71 % in 2022 .
Trend Following
Before forming Standpoint in 2019 , Crittenden was a co-founder and portfolio manager at Longboard Asset Management . He and a small group of colleagues at Longboard left that company to form Standpoint and implement the strategy behind the Multi-Asset Fund .
This strategy was the brainchild of Crittenden and Shawn Serik , Standpoint ’ s chief technology officer and the fund ’ s co-portfolio manager . The two met during their undergraduate years at Wichita State University .
Their fund is a systematic , rules-based , trend-following strategy that collects data daily on the world ’ s 74 most liquid futures markets . The managers look at volume , open interest , prices and term structure . It all goes into a large database , and they crunch that data and apply a set of rules to find markets that are becoming strong ( which they buy ) and markets that are becoming weak ( which they hold short positions on ).
“ We ’ re going back to basics and getting the blocking and tackling correct on old-school , plain-vanilla , trend-oriented managed futures ,” Crittenden explains . “ That by far has been the best diversifier . It ’ s simply buying strong commodity markets and futures markets , and shorting weak markets , and then closing out those positions if they move against you and doing this according to a risk budget .”
This systematic approach means they ’ re not positioning the portfolio for , say , the Federal Reserve ’ s expected round of interest-rate cuts . “ We have a process in place that will force us to adapt to reality as reality unfolds ,” he says .
Taxes , Wirehouses , Etc .
Morningstar lists the Standpoint Multi- Asset Fund ’ s turnover rate at 8 %, but that reflects only the long-term holding period of the fund ’ s equity ETFs . Crittenden notes that no one has figured out a way to calculate turnover in futures contracts since they have set lifespans and old con- tracts must roll out into new ones three to five times a year .
People look at turnover for two reasons : tax consequences and transaction costs . Crittenden describes his fund as being “ reasonably tax efficient and with reasonable fees .”
The institutional share class sports a net expense ratio of 1.26 %; the investor share class ratio is 1.51 %. Regarding taxes , he says the strategy is designed to place the commodities in one pool of capital within a Cayman Islands subsidiary , while the other investments are in tax-efficient domestic vehicles .
“ I optimized the tax structure as best I could ,” he asserts . “ Some of our competitors have 10 % to 15 % distributions in up years , and we may have a 4 % distribution in an up year because we structured our fund to be as tax efficient as it can be .
“ Is that a tax hit ?” he asks rhetorically . “ Yes , relative to buy-and-hold equities
we won ’ t be as tax efficient . But we ’ re very competitive to other alts .”
Either way , the fund recently topped $ 1 billion in assets under management by catering to a customer base of mainly small to medium-sized , independent financial advisors .
“ That has been our sweet spot for a long time ,” Crittenden says . “ We don ’ t have any institutional money . We ’ re on only one wirehouse platform , which is Wells Fargo , and that ’ s just during the past couple of months .”
He adds that it ’ s difficult to get on a wirehouse platform unless you ’ re a brand name , have a five-year track record and have more than $ 1 billion in assets .
“ We ’ re at $ 1 billion and might be able to get to $ 2 billion doing what we do , but you don ’ t get to $ 5 billion to $ 10 billion without getting on the wirehouses ,” Crittenden says , adding that a couple of other wirehouse firms have recently reached out and begun their due diligence process on Standpoint .
Meanwhile , Crittenden says that most of the advisors who use his fund put it into the alternative sleeve of their client portfolios in tandem with other alternative funds . He says these alt sleeves typically make up anywhere from 10 % to 25 % of a portfolio ’ s total AUM . “ For most advisors , anything more than 25 % in alts in a client portfolio is asking for trouble [ from compliance ].”
He notes that a smaller group of advisors view the fund as kind of a hedgedequity program that they stick in their equity bucket .
Some proponents of managed futures argue that this asset class should constitute as much as half of an investor ’ s portfolio in
Crittenden says alt sleeves typically make up anywhere from 10 % to 25 % of a portfolio ’ s total AUM . “ For most advisors , anything more than 25 % in alts in a client portfolio is asking for trouble [ from compliance ].”
order to provide maximum diversification benefits . That seems crazy , but Crittenden says the math supports that claim .
“ I ’ ve looked at the data over the past 50 years , and equal risk contributions from managed futures and global equity has been the optimal Sharpe ratio and Sortino ratio portfolio during that period ,” he claims . “ And that ’ s what our fund does .
“ You don ’ t have to do that on your end , but you can put 10 % into a fund that is doing it ,” he adds .
Crittenden says Standpoint has been approached by other firms to develop various financial products for them based on the Multi-Asset Fund ’ s strategy . But for the time being he ’ s not taking the bait .
“ We tell them we ’ re not interested in doing that right now ,” he says .
ADVISOR PHOTOGRAPH COURTESY OF STANDPOINT ASSET MANAGEMENT OCTOBER 2024 | FINANCIAL ADVISOR MAGAZINE | 49