The Algorithmic Advantage 027 - Corey Hoffstein - Return Stacking, ETFs & Trend Replication
Sep 25, 2024
Corey Hoffstein, co-founder and chief investment officer at Newfound Research, shares his extensive expertise in quantitative trading and trend following. He discusses the significance of optimizing business and trading decisions and the importance of understanding market dynamics. The conversation dives into innovative investment strategies, revealing how return stacking can enhance capital efficiency. Hoffstein also explains the delicate balance between improving returns and client comfort, alongside the challenges of navigating market complexities with ETFs.
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Capital Efficiency via Return Stacking
- Return stacking uses underlying beta assets as collateral for managed futures programs.
- This approach boosts capital efficiency by converting a trend following program from T-bills plus overlay to S&P plus overlay.
Optimal Managed Futures Allocation
- Aim for 10-20% allocation to managed futures to balance impact with client comfort.
- More than 20% adds noticeable volatility, which can scare clients unfamiliar with alternative strategies.
Tax Efficiency Drives Instrument Choice
- Using ETFs for underlying equity exposure preserves tax efficiency compared to using only futures.
- Futures require quarterly rolling and generate ordinary income, hurting long-term tax deferral benefits.