investing

• Markets aren’t just about numbers anymore. They’ve become mirrors of our cultural confusion and generational disillusionment.
• Demetri Kofinas explores how the collapse of shared stories is showing up first in markets, but signals a deeper societal breakdown.
• When belief in institutions fades, we’re left with chaos, or the chance to write a new story that actually holds meaning.

In the spring of 2021, the well-known car rental company Hertz had just declared bankruptcy. Its financial statements were a disaster, and creditors were circling. Any rational investor would steer clear, yet, the stock soared. Individual traders piled in, posting rocket emojis on Reddit and sharing screenshots of their gains. The headlines wrote themselves: “Retail investors are back.” “Wall Street is dead.” “Markets are broken.”

To some observers, it was something else: a crack in the foundation, a sign that something deeper was unraveling. One name for this shift is financial nihilism, the idea that investors no longer care about fundamentals, or even pretend to. That moment didn’t fit any historical playbook. It marked uncharted psychological terrain.

But the argument is broader than investing. The breakdown we’re witnessing may reflect a collapse of collective meaning, a fading of the narratives we once used to make sense of the world. And markets are simply where it shows up first.

The Disconnect

For most of financial history, markets existed to allocate capital. Investors evaluated companies based on earnings, growth prospects, and the risk of loss. Prices, though never perfect, reflected some underlying reality.

Today, that connection feels frayed. Crypto tokens with no revenue or product trade at sky-high valuations. Meme stocks like GameStop or AMC spike and crash on waves of coordinated enthusiasm. Even traditional assets seem increasingly driven by sentiment and liquidity, rather than fundamentals. The shift represents more than speculation. It marks a psychological break. Many investors no longer view stocks as ownership in companies, but as gambling tokens. Markets, in this view, have started to resemble casinos, with equities functioning more like chips than slices of real businesses.

This financial nihilism reflects a worldview where assets are inherently meaningless, where prices are driven by belief alone. It’s not just that value and price are disconnected, it’s that people know they’re disconnected and don’t care. That kind of detachment doesn’t come from nowhere.

A Generation Disillusioned

Every generation inherits a system. Some challenge it, others embrace it. But Millennials and Gen Z might be something different: rejecting it entirely.

They grew up in the shadows of financial crisis and endless war, and they watched their parents lose homes while banks were bailed out. They graduated into recessions, loaded with debt, priced out of housing. They saw Congress bicker while the climate worsened and wealth consolidated. Many have never truly seen a functioning political system, only gridlock and cynicism. Trust in media, government, corporations, and finance has plummeted. Why believe in the old stories when none of them seemed to protect you? Is it any wonder they’re skeptical?

In that context, crypto was more of a protest than a get-rich-quick trade. So was the GameStop saga. A generation left behind by traditional systems used the tools of the market — Robinhood apps, Reddit threads, viral memes — to push back, pool their money, and make their own game. There’s something strangely optimistic about that because, if the system is seen as rigged, why not invent a new one? Why not believe in something else, even if it’s absurd?

But that optimism has a dark side. When you no longer believe in institutions, stories become weapons. When every story competes for attention, the loudest wins.

The Collapse of Common Stories

Humans are meaning-making machines. We rely on shared narratives to navigate the world: money, morality, and who we are. Those stories once lived in religion, in national identity, in political ideals. Over time, many of them faded or fractured, and globalization eroded local community ties. Institutions lost credibility and the internet flooded us with infinite narratives, none of which seemed more true than the others.

As media entrepreneur and founder of the Hidden Forces podcast Demetri Kofinas recently put it, “The myths we’ve told ourselves about ourselves have broken down.”

When shared stories collapse, disunity follows. That’s why the breakdown in markets mirrors the broader breakdown in society. There’s no consensus on what’s true, what’s valuable, or what future we’re building toward. Without shared narratives, collective action becomes nearly impossible. The systems that once helped us agree on reality, including institutions, media, community, no longer hold sway.

Markets are often called voting machines in the short run and weighing machines in the long run. But if nobody trusts the scales, if truth is negotiable, the whole mechanism starts to wobble.

A Crisis of Belief

The historian Neil Howe describes moments like these as Fourth Turnings: periods of crisis that shatter old orders and make way for something new. They come every 80 to 100 years, usually marked by war, economic upheaval, or cultural fracture.

Some thinkers see us in one now. Transformation, they argue, only occurs after a great trial. Crisis is the crucible of change. In the view of those who study societal cycles, the United States has been avoiding that reckoning for decades. Rather than face the hard questions about inequality, debt, and governance, we’ve deferred them. We've propped up the system with easy money and cheap stories, but eventually, reality asserts itself.

“The only way to address that nihilism is to develop new stories and new myths,” Kofinas says.

That’s not easy. It requires leadership, courage, and imagination. It also requires reckoning with uncomfortable truths.

Why It Matters

The breakdown of belief has practical consequences. If people treat markets like a joke, capital misallocates. If young investors expect bailouts and meme rallies, risk goes unpriced. If institutions lose legitimacy, volatility rises, not just in asset prices, but in society itself. And if nothing matters, anything goes. That’s the danger of nihilism. Not just that it’s wrong, but that it invites chaos and tempts people to burn things down.

But there’s another path. Even the collapse of belief creates space and a vacuum can be filled. New narratives can emerge out of crisis: more honest, resilient, and grounded in shared values. The question is whether we’ll rise to meet the moment or retreat further into fragmentation.

The Key Takeaway

Markets are more than just math, they’re stories. They reflect how we feel about the future, about each other, about ourselves. When belief falters, prices behave strangely, but the strangeness is a signal. It tells us something is broken, not just in finance, but in the foundations of trust.

Howard Marks once said, “You can't predict. You can prepare.” The same is true for this moment. We don’t know precisely what the next system will look like, but we can pay attention to the fractures and notice when prices no longer reflect purpose. We can ask: What stories still hold up? What do we want to believe in next?

This is based on an episode of Top Traders Unplugged, a bi-weekly podcast with the most interesting and experienced investors, economists, traders and thought leaders in the world. Sign up for our Newsletter or subscribe on your preferred podcast platform so that you don't miss out on future episodes.

• Harvard Economist Kenneth Rogoff warns that U.S. dollar dominance is quietly eroding, threatening the financial advantages America has long enjoyed.
• As global trust in U.S. institutions weakens, alternative currencies and digital options are slowly gaining ground despite their imperfections.
• The consequences of this shift may be gradual but could reshape the global financial order.

When empires decline, it rarely happens all at once. It’s not a cliff, but a slow, grinding erosion, like a river cutting its way through a mountain until, eventually, what looked eternal turns to dust. That’s how Kenneth Rogoff sees the future of the U.S. dollar.

The Harvard economist and former IMF chief economist isn't calling for a sudden collapse of dollar dominance. But he is clear-eyed about the forces chipping away at it, and the consequences the United States will eventually face. The world has changed, he argues, and America's financial power is beginning to show cracks.

The Peak Behind Us

For decades, the dollar has been the bedrock of global finance. Around 60% of central bank reserves are still held in dollars. About 80% of commodity trades are priced in dollars. And roughly 90% of currency trades touch the dollar at some point. Even if you’re trading Australian dollars for New Zealand dollars, chances are the transaction routes through the greenback.

Yet Rogoff believes the high-water mark for dollar dominance came around 2015. Since then, the underlying pillars have weakened. America's openness to trade has faded. Its immigration system, long a magnet for talent and capital, has tightened. Faith in the rule of law has frayed.

Political dysfunction, tariff wars, cracking down on immigration, and the weaponization of finance have all accelerated the process. “Trump's been an accelerant. It's just incredible, the damage he's doing,” said Rogoff, who’s careful not to blame only one side, noting that Democrats also have contributed to a perceived erosion of legal norms, the broader message is unmistakable: The world is losing faith in the stability of the U.S. system.

Still, dominance doesn't disappear overnight. The dollar enjoys enormous network effects. As Rogoff points out, it's costly to switch from an embedded system, even if it's flawed, to an unproven alternative. But with enough pain and uncertainty, people adapt. They always do.

The Alternatives Aren't Perfect

If not the dollar, then what?

Europe’s euro is a distant second. Rogoff praises the creation of the euro as a political achievement, but remains skeptical about its resilience. Europe’s uneven economies, aging demographics, and limited military reach constrain its ability to project the same global power that underpins the dollar.

China’s renminbi is rising, but slowly and with serious limitations. Capital controls remain tight, and trust in Chinese governance is thin. Still, incremental moves — such as settling more trade in RMB, particularly among BRICS nations — signal a bigger trend. China’s development of digital currency is part of the same strategy: building alternatives to the U.S.-dominated financial networks.

Interestingly, Rogoff is more bullish on the idea of regulated stablecoins than on central bank digital currencies. He believes private, well-regulated digital dollars or euros could eventually play a larger role than clunky, government-issued digital money. But even that future, he emphasizes, will take decades to materialize.

For now, there is no clean substitute. Instead, the erosion of dollar dominance likely means greater fragmentation: a less efficient, more regionalized global financial system.

Perks at Risk

Why does any of this matter to the average American? Because the benefits of dollar dominance are tangible, even if invisible most of the time. Chief among them: lower borrowing costs.

When global investors rush into dollars during crises, U.S. interest rates fall. This “exorbitant privilege” has allowed the U.S. to run larger deficits at cheaper costs than almost any other nation. It has been a critical advantage during recessions, wars, and pandemics. If the dollar loses its special status, that privilege erodes. Rogoff estimates U.S. borrowing costs could rise by half a percentage point to a full percentage point. In a country already running unsustainable deficits, that would be a painful shift, “adding insult to injury,” as Rogoff puts it.

Even more critical is the option value of borrowing in a crisis. In 2008 and 2020, the world demanded dollars precisely when the U.S. needed to borrow trillions of dollars. In the future, if demand for dollars weakens, the government may find itself needing to pay up—or worse, facing real limits on its fiscal flexibility just when it needs it most.

Financial repression, essentially forcing domestic institutions to hold government debt, may become more common. Taxes may have to rise. Choices that are put off will eventually have to be made.

“Borrowing is great. Owing a lot of money is not great,” Rogoff says bluntly.

He’s not forecasting imminent doom, but he’s sounding a warning against complacency. The assumption that the dollar will remain supreme, regardless of how much debt the U.S. accumulates or how chaotic its politics become, is a dangerous one.

Rogoff's message isn't just for policymakers or markets. It’s aimed squarely at the economic profession too, urging it to shake off decades of complacency and confront hard truths about debt, resilience, and the fragile foundations of global finance.

The river is still carving its way through the mountain. The erosion is slow, but it's happening.

This is based on an episode of Top Traders Unplugged, a bi-weekly podcast with the most interesting and experienced investors, economists, traders and thought leaders in the world. Sign up for our Newsletter or subscribe on your preferred podcast platform so that you don't miss out on future episodes.

• Trend following tends to lag early in crises but is built to adapt as new patterns emerge.
• Katy Kaminski describes it as a “second responder” strategy — slow to move early on, but powerful once new market regimes take shape.
• In markets where old correlations break down, resilience comes from patience and process, not prediction.

The most dependable investment strategies aren’t always the fastest to reward you. Sometimes, the very thing that makes them dependable — discipline, patience, reactivity — is also what makes them slow to shine when the world turns upside down.

Trend following is one such strategy. It’s built to follow, not forecast, often to wait, not jump. And that makes it particularly vulnerable in the first wave of a crisis, when market signals break down, safe havens fail, and nearly everything behaves differently than it’s “supposed” to.

In early April, investors got a glimpse of that chaos when stocks sold off sharply. Bonds, traditionally the first port in a storm, failed to rally. The dollar weakened. Portfolios built on the assumption that diversification means mixing stocks and bonds took hits from both sides. There was nowhere to hide. That kind of synchronized breakdown isn’t just painful; it’s destabilizing. It challenges core assumptions about how assets relate to one another, how markets behave under stress, and where protection can be found.

In that environment, systematic strategies struggled. Tuned to the old regime, trend-following models found themselves on the wrong side of new movements. That’s not an error in the models. It’s the models working as intended, just not on the timeline most investors prefer.

That’s where trend following comes under scrutiny. When markets seize up, people naturally ask: where’s the hedge? Where’s the crisis alpha? But crisis alpha isn’t a magic shield, it’s a process. One that doesn’t defend you at the moment of panic but begins its work in the aftermath, once the dust starts to settle and new patterns form.

Trend Following As a Second Responder

Katy Kaminski, Chief Research Strategist at AlphaSimplex, has studied this behavior for years. She coined the term “crisis alpha” back in 2009. And one of her central insights is that trend is not a first responder in market turmoil. It’s a second responder that adapts, slowly at first, then powerfully, once it finds footing. She calls this dynamic “second responder” behavior, which is a helpful metaphor. First responders show up immediately. Second responders show up when it’s safe enough to do their work, when patterns start to form, and noise gives way to structure.

The data supports it. Kaminski’s research shows that trend strategies often falter in short, sharp selloffs. But in extended crises — ones that stretch for months, not days — those same strategies begin to find their footing. They realign with new directions, and they often outperform.

This makes trend both misunderstood and underappreciated. When sharp selloffs hit, trend systems can underperform not because they’re broken, but because they were calibrated to the world before the shock. By the time the regime has changed, these systems are still catching up. That’s the paradox: the same trait that makes trend reliable over time — its commitment to process over instinct — is what makes it look ineffective in the moment, especially when investors are desperate for immediate protection.

But the most dangerous decisions often come from trying to engineer instant safety, relying on correlations that no longer hold, and overreacting to short-term volatility. What also hurts: Piling into assets that used to be uncorrelated, and now move in lockstep.

The Hardest Strength: Patience Through Regime Shifts

That transition isn’t easy to sit through, especially when correlations behave erratically, safe havens misfire, and you realize that most risk models are built on assumptions that don’t hold in a crisis. Take the classic belief that stocks and bonds are negatively correlated. It held for decades and built countless portfolios, but in 2022, and again in early 2025, it broke. And when that relationship collapses, even the most diversified portfolios can turn fragile.

Kaminski warns that relying on those correlations without adjusting for regime shifts can be dangerous. “If you pile into both [stocks and bonds] and you have a risk model that has a long-term estimate for correlation, guess what? You may be taking a lot more risks than you say,” she said.

Kaminski’s warning is subtle but sharp: when assumptions about risk and diversification don’t reflect reality, portfolios become vulnerable, specifically when built on models that assume yesterday’s relationships will hold tomorrow.

That insight matters not just for trend managers, but for anyone who wants resilience when the market breaks. Because this is what resilience looks like: not instant protection, but the ability to adapt. Not outsmarting the shock, but surviving long enough to benefit from the new order it creates.

Trend following doesn’t promise to shield you from the initial storm, but it promises to adapt once the weather changes. And right now, the weather looks uncertain: inflation pressures, policy pivots, currency shifts, and a growing sense that we’re possibly in the early stages of something bigger than a correction.

Staying Ready for What Comes Next

Maybe this isn’t the crisis, and maybe it’s just a tremor. But if it is the start of something more enduring, trend strategies may not lead the charge, but they’ll be ready when the direction becomes clear.

It’s tempting to search for a strategy that does everything, such as protecting immediately, participating fully, and reacting instantly. But those don’t exist. What exists is a mix of approaches, each with strengths and flaws.

Trend following’s strength isn’t speed. It’s discipline. It sticks to its process, even when that process lags behind the headlines, and that makes it one of the few strategies that doesn’t just endure regime shifts; it often thrives in them, just not right away. The hardest part is staying patient long enough for that to happen. Sometimes, the most dependable strategies are the ones that follow.

That delayed resilience is one of the most valuable traits an investor can have today. But it also asks something hard in return: patience. Not the kind of patience that hopes the market comes back. The kind that waits for the trend to catch up.

For trend followers, the job is the same: keep showing up, keep watching, and stay ready. As Kaminski put it: “We’re going to sift through sort of the wreckage of this and figure out what trends are going to work. That’s where the rest of this year could be quite interesting.”

This is based on an episode of Top Traders Unplugged, a bi-weekly podcast with the most interesting and experienced investors, economists, traders and thought leaders in the world. Sign up for our Newsletter or subscribe on your preferred podcast platform so that you don't miss out on future episodes.

• Behavioral economics offers practical “cheat codes” for handling life's biggest decisions.
• Successful negotiation hinges on understanding power dynamics and information asymmetry.
• Innovative solutions to the housing crisis involve zoning reform and land value taxes.

When we talk about economics, most of us tend to think about dry academic theories, complex financial models, and the daunting world of high finance. We might consider the stock market or interest rates, but we rarely connect these concepts to our daily lives. This perception often obscures the true power of economics: its ability to illuminate our everyday choices. As Daryl Fairweather, Chief Economist at Redfin, explains, “It was showing how this discipline, economics could be used to understand why people make the decisions that they do and why sometimes you get unexpected outcomes from well-intentioned interventions.”

Daryl’s path to becoming a leading economist wasn’t straightforward. She was initially pursuing a career in engineering, but a summer reading assignment from her father—“Freakonomics“—ignited a passion that would reshape her trajectory. Now, she analyzes the US housing market and serves on the Advisory Council of the Federal Reserve Bank of Dallas. In “Hate the Game: Economic Cheat Codes for Life, Love, and Work“, she demystifies the world of economics, offering practical “cheat codes” for handling life's biggest decisions.

From career choices and salary negotiations to understanding the housing market, Daryl shares tips on applying economic principles while decision-making. “If you empower yourself with economics,” she advises, “these big decisions will hopefully feel less scary and more doable.” This article distills some of her most insightful guidance, providing a roadmap for unlocking your economic potential.

Approaching your career with a winning strategy

Daryl recommends approaching career decisions with the strategic mindset of a seasoned chess player. This involves detaching from emotions and objectively assessing the probabilities of success in different fields, much like calculating the odds of a successful gambit. Daryl uses her career as a compelling example. Despite the underrepresentation of women and Black individuals in economics, especially within the hallowed halls of academia, she boldly pursued this field.

While acknowledging the inherent difficulties, she highlights the power of intrinsic motivation. “If you're okay with failing at it because there are other intrinsic motivators,” Daryl explains, “that means that failure really isn't all that bad.” This perspective reframes “failure” not as a definitive endpoint but as a valuable learning experience within a larger career journey.

Beyond assessing the odds, Daryl introduces the crucial concept of “optionality” in career planning. This forward-thinking approach goes beyond the immediate allure of a job title or salary, prompting individuals to consider each opportunity's potential future pathways. She explains, “Students ask me, ‘Should I take job A or job B? And I always say, ‘Well, think about what options a particular path closes down and what options it opens up.’”

Evaluating optionality isn't about avoiding risk; it's about strategically managing it. It allows for a more dynamic and adaptable approach to career progression, where each decision is viewed not in isolation but as part of a larger, evolving game plan. A job that might seem like a step down in the short term could unlock significant opportunities further down the line. Conversely, a seemingly prestigious role might limit future options, trapping you in a specific, potentially less fulfilling trajectory.

By prioritizing optionality, individuals empower themselves to make more informed choices that align with their long-term aspirations, even if they evolve. It's about playing the long game, strategically positioning yourself for a winning career, regardless of the immediate hand you're dealt.

Mastering the art of negotiation

A key element of Daryl's approach to negotiations centers around “anchoring” — a behavioral economics principle that highlights the significant influence of the first piece of information on subsequent judgments and decisions.

Daryl recounts her experience negotiating her salary at Redfin. Rather than answering the typical “What do you currently make?” question, which often anchors the negotiation at a lower point, she flipped the script. She boldly stated her desired minimum salary upfront, effectively setting a high anchor and shifting the power dynamic. “I said, ‘I’m gonna tell you what I want to make. What is the minimum for me to even take this interview? Like, if you're not gonna give me this number, then don't bother,'” she recalls. While potentially risky, this tactic can pay off significantly as it frames the negotiation around your desired outcome.

Daryl also emphasizes the importance of recognizing and leveraging “information asymmetry”—the knowledge imbalance between parties in a negotiation. She illustrates this concept with a captivating anecdote about Beyoncé and Destiny's Child. Feeling undervalued, two original members of the group issued an ultimatum: either Beyoncé’s father (and manager) steps down, or they leave. They miscalculated. They didn't realize that Beyoncé's father prioritized her solo success above all else. “Beyonce's dad really only cared about making Beyonce successful,” Daryl explains. The other members were replaceable; Beyoncé was not. The ultimatum backfired, highlighting a crucial lesson in negotiation: Understanding the other party’s motivations and priorities is essential for achieving a favorable outcome.

Daryl stresses the importance of observing how other employees are treated within an organization to gauge your value and replaceability. If others in similar roles are consistently treated better, it might indicate they are perceived as less replaceable. Conversely, being treated poorly could signal that you’re viewed as easily replaceable—crucial information when entering any negotiation. By understanding these subtle power dynamics, individuals can approach negotiations with valuable insights, increasing their chances of success. This awareness also empowers individuals to recognize when a situation is truly disadvantageous and to explore alternative options.

Cracking the housing code

Daryl’s expertise as Chief Economist at Redfin provides a sharp lens through which to examine the housing market. In “Hate the Game”, she doesn't hesitate to propose bold, even radical, solutions to the affordability crisis. Central to her argument is eliminating single-family zoning, a policy that artificially constricts housing supply, especially in desirable urban centers. Allowing diverse housing options like duplexes and multi-family units on land currently reserved for single-family homes would significantly increase housing density and, consequently, affordability. Daryl underscores the pressing need for more housing, citing Freddie Mac's stark assessment: “We have a housing deficit of about 4 million homes… So we need all the homes built that we can get.”

Daryl champions a fundamental shift in property taxation. She advocates for replacing traditional property taxes, which penalize development, with land value taxes. This innovative approach assesses taxes based solely on the value of the land, independent of any structures built on it. Such a system, she argues, encourages denser, more efficient land use and generates increased tax revenue without the market distortions of current property tax structures.

Daryl highlights California as a cautionary tale. The state’s current property tax system, which limits increases in assessed land value, creates a perverse incentive for homeowners to remain in their homes, even when downsizing or moving would be more practical. This contributes to stagnant housing supply and inflated prices. “California's taxes are especially bad because they limit how much the land value can be taxed,” she explains, linking this directly to the state's housing woes.

By addressing both supply-side constraints (through zoning reform) and demand-side distortions (through land value taxes), Daryl offers a comprehensive approach to tackling the housing crisis. Her insights challenge conventional wisdom and provide a fresh perspective on how to create a more equitable and accessible housing market. While potentially disruptive, her proposals offer a compelling vision for a future where housing is not a luxury but a fundamental right.

Level up your decision-making

By applying the principles of behavioral economics, you can approach career choices, negotiations, and even the housing market with greater clarity and confidence. From understanding the power of optionality to mastering the art of anchoring, these powerful concepts empower you to make smarter choices and unlock your full potential.

It's time to stop playing by the old rules and start rewriting the game in your favor.

This is based on an episode of Top Traders Unplugged, a bi-weekly podcast with the most interesting and experienced investors, economists, traders and thought leaders in the world. Sign up for our Newsletter or subscribe on your preferred podcast platform so that you don't miss out on future episodes.

• Portable alpha strategies are resurging with Commodity Trading Advisors (CTAs) emerging as ideal alpha engines following 2022's market turmoil.
• CTAs offer structural advantages as alpha sources through their cash efficiency, “anti-fragile” properties, and tendency to grow more defensive during market stress.
• The industry shift toward Total Portfolio Approach (TPA) has fueled interest in strategies that boost returns without disrupting existing allocations.

Institutional investors face a dilemma. Their liquid assets must work harder, yet they can't reduce equity exposure. The 2022 market turmoil exposed a harsh reality: When stocks and bonds fall, private market holdings offer no immediate relief.

“The experience of 2022 highlighted a particular desire in people's portfolios,” explains Razvan Remsing, Director of Investment Solutions at Aspect Capital. “They want to make their liquid part of their portfolio work harder.”

Razvan started his career during the Global Financial Crisis and is now in his 16th year at Aspect. He has watched portable alpha strategies rise, fall, and now return with a crucial difference: pairing the right alpha with the right beta creates resilience rather than fragility.

“CTAs are almost anti-fragile,” Razvan notes. “The more volatile, the more stressed the markets get, the general tendency for CTAs is to take cover or become more cash-rich.”

This self-correcting property contrasts with earlier portable alpha strategies. Many collapsed under stress during market crises.

Why portable alpha is back

The portable alpha concept—separating alpha and beta components to create more efficient portfolios – isn't new. However, according to Razvan, its resurgence was unexpected.

What happened in 2022? Many institutions had shifted heavily into private markets. When their liquid assets suffered losses, they faced a squeeze. Private market cash flows slowed while near-term bills still needed payment.

Investors now urgently seek more diversification without abandoning equities.

“It's not as if the 60/40 [traditional portfolio split between stocks and bonds] is dead. It's just that we know it's not enough to just have very diversified liquid alts there.”

Few want to reduce equity exposure during strong markets. Many allocators say simply: “I don't want to go underweight equities, but I want to diversify.” The tension reflects a real career risk for investment professionals who face criticism if they reduce equity exposure during a bull market that continues to rise.

Portable alpha offers an elegant solution that allows investors to maintain their strategic equity allocations while adding diversifying strategies that can perform during market disruptions, without the need to make wholesale changes to existing portfolio structures.

CTAs: The ideal alpha engine

Not all portable alpha implementations are created equal. The original versions from the early 2000s often used extreme leverage and weren't sufficiently resilient during tail events. Many shared common vulnerabilities that became painfully apparent during the 2008 crisis.

CTAs and trend-following strategies offer distinctive advantages:

“With $15 to $25 in a hundred, you can get access to a decent, well-diversified CTA strategy. With another $15 to $20, you could replicate a hundred dollars notional of equity exposure, and you still have plenty of cash left over for potentially significant adverse conditions,” explains Razvan.

This conservative structure creates a framework that can withstand severe market conditions while providing uncorrelated returns—contrasting sharply with previous portable alpha approaches that often collapsed under stress.

The behavioral edge

Beyond the technical advantages, there's a compelling behavioral case for packaging CTAs within portable alpha structures. Trend-following strategies inherently zig when other assets zag, creating performance patterns that can be psychologically challenging for investors.

“The biggest challenge to living with CTAs is the behavioral pressure,” Razvan observes. “It's uncorrelated and tends to zig and zag at different times to the most widely held asset class.”

CTAs differ significantly from traditional investments. CTAs have down months about half the time, while equities rise about two-thirds of the time. This creates a psychological challenge: when stock markets decline, institutional investors share this experience with peers—there's comfort in collective underperformance.

However, CTAs often decline at different times than the broader market which creates periods of standalone underperformance that feel more difficult to justify to stakeholders. This timing difference, though statistically beneficial for overall portfolio performance, creates behavioral pressure that makes CTAs harder to hold as standalone investments.

By pairing CTAs with equity beta in a portable alpha structure, these behavioral challenges are mitigated. “If you pair them together,” Razvan explains, “suddenly that positive pattern that you get with trend following—with more frequent but smaller negative months—they can get ‘hidden' behind this widely held asset class.”

Who's adopting these strategies?

Not every investor benefits from portable alpha with CTAs. Many allocators prohibit adding market exposure to their portfolios. However, Razvan sees strong interest from mid-sized institutions.

“There is a segment of allocators that maybe is midsize that don't have the scale or the ability to construct bespoke solutions or to notionally fund,” Razvan explains.

These investors typically use funds rather than separately managed accounts. They already have significant equity exposure in their portfolios. Portable alpha offers them access to CTA benefits without disrupting their core allocations.

These strategies are finding adoption in two main areas:

• Equity asset class teams: Razvan has seen interest from equity portfolio managers who are incentivized to outperform their benchmarks but find it challenging to beat active equity returns through traditional means. “I've had good conversations with equity asset class leads,” he notes. “It's been really hard to beat active equity,” making these overlay strategies an attractive way to enhance performance.
• Institutional completion portfolios: Some larger institutions have developed what Razvan describes as “completion portfolios” that exist outside traditional asset class buckets. “Some institutions have this pool of assets that sits on top of their asset class buckets,” he explains. These portfolios, often overseen by the CIO's office, provide another potential home for portable alpha strategies.

Connection to evolving portfolio management

The growing interest in portable alpha links to another investment shift. Many institutions are now moving toward a Total Portfolio Approach (TPA) rather than traditional strategic asset allocation (SAA).

Historically, many institutions have operated with siloed investment teams optimizing within individual asset classes. The Total Portfolio Approach looks at underlying risk factors and optimizes across the entire portfolio.

“It sounds like common sense, but actually it's very hard to achieve,” Razvan explains, noting the organizational challenges of shifting from specialist teams to a more generalist approach.

For institutions that want to move in this direction but remain structurally siloed, portable alpha offers a middle ground – a way to make individual asset classes work harder without completely reorganizing.

A shifting market environment

The portable alpha comeback coincides with major shifts in the global macro picture. We've moved from secular stagnation to pronounced volatility across economic indicators.

“The current environment is far more fragmented, far more divergent,” Razvan observes, pointing to recent policy shifts in Germany, questions about US exceptionalism, and changing dynamics in Asia. “These are all sources of potential big macro trends to emerge.”

Such divergence creates fertile ground for trend-following strategies, which thrive on capturing price movements across different asset classes as they respond to changing conditions. “We're not fitted. I have no prior sense of the fair value of any particular asset, and I have no geographical bias,” Razvan explains, highlighting the adaptive nature of CTAs.

As institutional investors continue navigating challenging market conditions—balancing growth objectives with liquidity needs, seeking diversification without sacrificing returns—portable alpha strategies with CTAs offer a compelling solution.

“I will not rest until every single portfolio at least has the ability to benefit from what we provide,” Razvan states, “which is a really interesting return stream that requires handholding. It's not the most natural allocation, but it's so good if you can get yourself some exposure to it.”

This is based on an episode of Top Traders Unplugged, a bi-weekly podcast with the most interesting and experienced investors, economists, traders and thought leaders in the world. Sign up for our Newsletter or subscribe on your preferred podcast platform so that you don't miss out on future episodes.

It was 4:30 a.m. on a summer morning in 1990. A young Mike Green stepped through the World Trade Center on his way to the crude oil trading pit. He was still in college at the University of Pennsylvania, working as a market maker on the New York Mercantile Exchange. It was the kind of job where you had to learn quickly.

There were no smartphones. No email. No Twitter breaking news. Just the rustle of a printed newspaper.

“The way I learned that Saddam Hussein invaded Kuwait,” Green recalls, “I happened to see the headline on the newspaper. And the thought that went through my mind was, I better run the option sheets extra wide.”

In his first few days on the job, Green was at the center of a geopolitical shock that would send oil prices soaring and ripple through global markets. It was a crash course in how real-world events collide with market systems and how important it is to react, even when you don’t have all the information.

That moment—intense, unexpected, and formative—helped shape the instincts Green would rely on throughout his career. He learned early that markets are complex systems where preparation matters more than prediction, and reflexes often outperform spreadsheets.

That experience of witnessing a global crisis from inside the financial system instilled in Green a respect for how fragile and reflexive markets can be. Today, he believes we’re approaching another inflection point. But this time, it’s not coming from a bombshell headline. It’s creeping in quietly through the plumbing of the market itself.

The Rise of Zero-DTE: Same-Day Options, Maximum Fragility

Green dives deep into one of the most consequential shifts in modern market structure: the rise of zero-days-to-expiration options, or Zero-DTEs. These instruments, once a niche tool for tactical traders, now dominate daily options activity, making up over 60% of the volume.

“By far the most successful product launch I’ve ever seen,” Green says.

Zero-DTEs are options that expire the same day they’re traded. What was once a quarterly game—where traders positioned around earnings reports or Fed meetings—has become a daily battleground. With same-day expiration comes higher leverage, shorter timeframes, and thinner margins for error. And it’s not just retail traders anymore. Institutions are playing this game too.

These options are no longer just reacting to price. They’re shaping it. Ultra-short-term flows are now influencing volatility, liquidity, and direction in real time. In other words, the market is increasingly driven by its structure, not by long-term fundamentals.

That structural shift brings new risks, notes Cem Karsan, the Founder and Senior Managing Partner of KAI Volatility Advisors.

“Once these things start to unwind, given the leverage, sometimes the door's not big enough,” Karsan says. “And all that matters is the positioning. That Mag 7, passive investing, I can't think of a bigger, more leveraged, one-sided positioning.”

Passive Investing, Crowded Trades, and the Illusion of Control

In reflexive systems, prices impact positioning, which feeds back into prices, creating a loop. That’s why markets tend to fall even when the economy appears stable. It’s not about fundamentals. It’s about flow. Green says it’s about who has to unwind what and whether there’s anyone left on the other side of the trade.

When everyone is positioned similarly, minor disturbances can trigger large, cascading moves. Liquidity vanishes, and the illusion of control evaporates. And that illusion, Green argues, is central to how most people think about investing today.

“We have to admit that we’re increasingly collectivist in nature,” he says. “And yet we all imagine that we are individually empowered in this framework.”

It’s a consequential contradiction. We talk about “my portfolio” and “my investment decisions,” but most investors are riding the same wave. The rise of passive investing means that millions of people are exposed to the same stocks in the same proportions, through the same ETFs, run by the same algorithms.

The collective nature of this system creates crowding that’s both invisible and potentially dangerous, especially with the Magnificent 7 and passive investing.

“It was a super popular concert, but now we’re all trapped inside the stadium,” Green says.

Everyone came for the show as Apple, Microsoft, Nvidia, Google, Meta, Amazon, and Tesla soared in valuation. But now that the performance is potentially over, the exits are clogged. There’s no liquidity on the other side. Green says if these names fall, there might not be anyone to take the other side of the trade.

From Crypto to AI: The Fight for Sovereignty in a Collective System

This isn’t just about stocks, it’s about a deeper desire for control in a world that feels increasingly unstable to some. That desire, Green says, is partly what fuels the appeal of things like crypto and AI.

“It’s actually interesting when I run the scenarios with ChatGPT,” he says. “It highlights crypto as an individualistic trait and the potential for concealing your wealth from the group.”

To Green, Bitcoin and other decentralized assets represent an effort to reclaim autonomy. He was an early believer in the idea. But even here, the dream of sovereignty collides with reality.

“Can we allow the old world to die before the new one is born?” he asks. “I’m not sure.”

Governments and institutions aren’t stepping aside. They’re pushing back. Green points to a recent proposal in Europe to confiscate $10 trillion in private wealth to fund military spending as a stark reminder: the rules can, and do, change, especially when systems are under stress.

It’s not just the rules that have changed. The very nature of trading has transformed. Green’s early days involved printing out sheets by hand, installing math coprocessors into Intel 8088s, and buying extra RAM from PC Richards. Today’s markets are hyper-digital, governed by algorithms, and operate at near-instant speed.

That speed makes things more efficient, but also more fragile. When reflexive flows dominate, reversals become sharper, windows to act become shorter, and the margin for error shrinks dramatically. “We all talk about national politics,” Green says. “We don’t talk about our local politics. We’ve moved into these realms where we’re increasingly collectivist in nature.”

That same shift, from the individual to the collective, from analog to digital, is mirrored in how markets behave. They’re no longer just complex systems. In some ways, they resemble simulations, reacting to identical signals and producing exaggerated, patterned responses. Green doesn’t say the word “simulation” outright. He doesn’t need to. The implication is clear: our markets are no longer just mirrors of the economy. They’ve become self-contained systems, looping, reflexive, and increasingly fragile.

And yet, the answer isn’t to retreat from them. It’s to understand them better.

This is based on the debut episode of You Got Options, a new podcast from Top Traders Unplugged. Sign up for our Newsletter or subscribe on your preferred podcast platform to avoid missing out on future episodes.

• Central bank independence evolved through political inaction, not careful design
• Current monetary policy shapes economies without democratic oversight
• Investors face new risks as calls for central bank accountability grow

Most investors believe central banks stand as neutral guardians of financial stability, independent from political pressures. But what if this independence actually threatens democracy itself? What if the very uncertainty many fear could be the key to a healthier financial system?

But this isn't just another academic debate. Dr. Leah Downey, a Junior Researcher at St. John's College, Cambridge and author of “Our Money: Monetary Policy as if Democracy Mattered”, challenges decades of conventional wisdom about central bank independence, argues that our current system creates dangerous blind spots for investors. “The future has to be uncertain because no one is in charge in a democratic system indefinitely,” she explains.

The implications are profound. While markets assume central banks will always act as anchors, the growing tension between democratic oversight and monetary policy could force investors to fundamentally rethink their approach to risk. As global markets face increasing volatility and political pressures mount, understanding this hidden power struggle becomes crucial for protecting your portfolio.

Read on for insights about the democratic deficit in monetary policy, why market stability might be more fragile than you think, and how investors can prepare for a future where central banks may not operate as they have for the past 50 years.

The myth of market stability

The 1951 Treasury-Fed Accord is often considered the foundation of central bank independence. Yet  Leah reveals a different story: “If you read that accord, it doesn't say central bank independence. It says almost nothing coherent. It was just a decision between these bodies to kind of lay off.”

This informal arrangement, rather than a carefully designed framework, set the stage for decades of central bank autonomy. The Federal Reserve gained unprecedented power not through legislative design but through a series of small decisions—or non-decisions—by elected officials.

The implications of this historical accident continue to shape modern markets. What began as a practical compromise has evolved into a system where unelected officials make decisions that profoundly impact the global economy.

The quiet power shift

“The Fed has now committed to itself doing a review every five years,” Leah says. “But the key missing element is the legislature—the one body that could tell the Fed to do something differently.”

The scope of this power extends far beyond traditional monetary policy. Through swap lines, the Federal Reserve acts as a global lender, supporting international financial markets with dollar loans. As Leah notes, “We're sending dollars all over the world. We're sustaining a global economy and a global financial economy through the Fed as a de facto lender of last resort to the dollarized world.”

These interventions, while stabilizing markets in the short term, raise fundamental questions about democratic oversight.

The stability paradox

Current central banking prioritizes preserving the status quo, intervening to prevent market disruptions and maintain economic stability. However, Leah argues for a different approach: “There's stability as preservation, which is the contemporary approach to central banking… Then there's stability as resilience, enabling change in predictable and manageable ways.”

This distinction becomes crucial when examining market behavior. When investors believe central banks will always intervene to prevent crises, they may take excessive risks, creating what economists call a moral hazard. The very promise of stability potentially breeds instability, as market participants assume they're protected from significant losses.

Leah compares this to democratic systems, where regular elections create manageable uncertainty. “We know there's a likelihood of change, but we believe that even as the rulers cycle through, the structure of our democracy is going to sustain,” she explains. This predictable unpredictability might actually create a more resilient financial system.

Beyond traditional oversight

The current system of central bank accountability falls short, Leah argues. While the Federal Reserve chair regularly testifies before Congress, these sessions focus on past actions rather than future direction. “The Humphrey Hawkins testimony is fundamentally about accountability,” she notes. “But I distinguish that in the book—the important difference between holding someone to account and steering their actions going forward.”

True democratic oversight would involve more than just reviewing past decisions. It would require regular engagement with fundamental questions about monetary policy, credit allocation, and the very structure of our financial system. This means examining not just interest rates and inflation targets, but the entire framework of central bank operations.

The Federal Reserve's growing role in global markets makes this oversight even more critical. From managing domestic monetary policy to providing international dollar liquidity, central bank decisions shape the world economy in ways that deserve democratic scrutiny.

Preparing for change

For investors, this potential shift toward greater democratic oversight presents both challenges and opportunities. “If there's rechartering of the Fed or credit policy, we'll have no idea what's coming,” Leah warns. “Investors and traders will have to take politics more seriously because it might have a more consequential impact on their world.”

This uncertainty doesn't necessarily mean instability. Instead, it might create a financial system better aligned with democratic values and more resistant to systemic risks. Regular legislative review could prevent the build-up of hidden vulnerabilities that often lead to financial crises.

The key lies in creating frameworks that balance expertise with accountability. “The project is not to reject expertise,” Leah emphasizes. “It's to employ expertise without succumbing to rule by experts.” This balance could create a more sustainable and equitable financial system.

Looking ahead

As markets evolve and global financial connections deepen, the relationship between democratic institutions and monetary policy becomes increasingly critical. Leah's insights suggest we need to rethink assumptions about central bank independence and market stability.

The future may bring more regular legislative oversight of central banks, changing how markets operate and how investors approach risk. Rather than relying on central bank intervention, market participants might need to develop strategies that account for democratic influence on monetary policy.

For those navigating these changes, understanding the political dimensions of central banking becomes as crucial as analyzing economic data. In this new economy, successful investing might require a deeper appreciation of democratic processes and their impact on financial markets.

This is based on an episode of Top Traders Unplugged, a bi-weekly podcast with the most interesting and experienced investors, economists, traders and thought leaders in the world. Sign up for our Newsletter or subscribe on your preferred podcast platform so that you don't miss out on future episodes.

The first few months of 2025 have felt more like a full year’s worth of drama crammed into a quarter. Geopolitical tensions are simmering. Inflation is still lurking. And the markets? Well, let’s just say they’ve been anything but predictable. At Top Traders Unplugged, we’ve had a front-row seat to it all, covering the chaos and digging into what it all means with some of the sharpest minds in the industry.

Through January, February, and March, we’ve tackled the big questions: Is the global economy entering a new phase of instability? Are we witnessing the early signs of a structural shift in markets? How do we prepare — not just financially, but mentally — for a world that’s becoming more uncertain by the day? We have kept these questions front and center.

In this quarterly wrap-up, we’re taking a step back to reflect on the key themes, the hard-hitting conversations, and the macro forces shaping markets today. If you’ve been tuning in, you already know it’s been a ride. If you’ve missed a few episodes, now’s your chance to catch up.

A Storm of Headlines and a Rising Tide of Uncertainty

There’s no polite way to say it: the news cycle lately has been exhausting. By March, it already felt like we’d lived through a year’s worth of headlines. You can see it in the volatility charts, hear it in central bank speeches, and feel it in the headlines. Everything feels unusually interconnected, and we are seeing feedback loops forming between geopolitics, markets, technology, and policy in real time.

Donald Trump’s return to the tariff playbook has reignited a full-blown conversation about protectionism and trade wars. His proposed across-the-board tariff — along with whispers of even harsher measures on Chinese goods — has investors, policy analysts, and corporate executives dusting off their 2018 game plans. Only this time, the global supply chain is even more fragile, and the political climate more charged.

Then there’s the market’s relationship with uncertainty. Not the abstract kind — the real, messy, nerve-wracking uncertainty that forces investors to rethink everything. With central banks signaling mixed messages, bond markets flashing warning signs, and volatility simmering just beneath the surface, confidence in traditional playbooks is starting to waver.

Tech remained a tale of two cities. On one side, AI and automation continued to attract massive investment and speculative fervor. On the other, regulators around the world stepped up their scrutiny, raising questions about what growth in this space will look like in a more tightly governed environment. Meanwhile, volatility products and structured options strategies saw increased interest as market participants looked for ways to trade and protect themselves in an increasingly reflexive and fragmented market landscape.

Of course, we have to speak about gold. After years of drifting in and out of the spotlight, it’s firmly back on the radar. With central banks continuing to hoard the metal and investors hedging against fiat uncertainty, gold prices are inching toward all-time highs. This is a broader signal about confidence, or the lack thereof, in monetary regimes around the world.

The macro picture also includes tensions brewing in Eastern Europe, new fault lines in the Middle East, and rising concerns about economic warfare. We're seeing currencies, capital flows, and even commodity trade become chess pieces in a broader geopolitical game. The implications for investors are enormous and still largely unpriced.

All of this has created a moment where narratives shift fast, and trust is becoming a scarce commodity. It’s exactly the kind of environment where thoughtful investing matters most.

A Heavy-Hitting Start to the Year

We launched 2025 with a bang, as is tradition, by bringing together two heavyweights of global macro thinking: Dave Dredge and Cem Karsan. Their episode, The Market Risk Nobody’s Watching, was both a crowd favorite and a sobering reality check.

The duo warned that investors relying on historical correlations and old playbooks could be blindsided if those relationships break down under stress. In an environment of rising interest rates, such structures could introduce a kind of latent fragility. The conversation even raised the possibility of a looming monetary regime shift reminiscent of the late 1990s, driven by today’s unique mix of geopolitical tension and domestic policy shifts.

Dave warned of the quiet, creeping risks that often go unnoticed until they explode. Cem, meanwhile, pointed to reflexivity in markets and how engineered narratives (especially from policy circles) can give investors a false sense of security. If you missed this one, go back and listen. It sets the tone not just for the quarter, but possibly for the year.

When Commodities Speak, Listen

In March, we had Adam Rozencwajg back on the show for an episode we called Doomsday Clock Ticks: Are We Close to a Monetary Shift? With a title like that, this episode had a sense of urgency – and it delivered. Before you panic, the “doomsday clock” analogy wasn’t about nuclear war, but it painted a vivid picture of how close we might be to a tipping point in markets.

As always, Adam brought deep insights into the raw materials driving the real economy. He laid out a compelling argument for why certain commodities are severely underpriced. And more provocatively, he suggested we could be on the cusp of a systemic shift in how value is stored and exchanged globally.

He made the case that we're on the brink of a monetary inflection point driven not just by inflation, but by resource scarcity, geopolitical fragmentation, and eroding confidence in fiat systems. Whether or not you buy his full thesis, the logic is hard to ignore. This was one of those episodes that leaves you staring at your portfolio a little differently.

Wealth Beyond Numbers

Not every highlight was about bracing for doom and gloom. This episode with author William Green was a heartfelt exploration of wealth in the broader sense. Amid the market mayhem of Q1, Green’s return to TTU was a timely reminder of the human side of investing.

He shared wisdom from his years interviewing legendary investors, underlining that true riches aren’t just measured in portfolio returns. The discussion ventured into the principles of living a fulfilling life: the freedom that financial security can grant, the importance of nurturing relationships and personal growth, and the value of staying grounded and humble no matter how successful you become.

He talked about autonomy, meaning, peace of mind — the parts of the portfolio that don’t show up in a quarterly statement but matter just as much. The broader appeal of Green’s message was essentially how to be “rich” not just in dollars, but in life experience and purpose.

Power Plays and the Politics of Money

If any episode lived up to the word “unfiltered,” it was this one. Cem Karsan returned to offer a frank analysis of how today’s political undercurrents are driving market outcomes. A major theme here was the idea of an “engineered” recession – could policymakers actually welcome a mild downturn to tame inflation or achieve other aims?

Cem weighed in on U.S. policy maneuvers, arguing that some economic pain might not be accidental but rather a calculated trade-off. The episode then zoomed out to international power plays: Europe’s ramp-up in defense spending, Turkey’s economic struggles and increasingly important geopolitical role, and more.

The big takeaway was that in 2025’s complex landscape, markets and politics are entwined like never before. This episode gave a candid rundown of global hot spots and the likely economic ripple effects, delivered in Karsan’s signature straight-talking style.

Economic Warfare: The New Battlefield

One of the most intellectually provocative episodes of the quarter came from former U.S. State Department advisor Edward Fishman. As someone deeply involved in crafting sanctions during the Obama administration, Edward brought a rare insider’s view into how economic weapons are now used in lieu of military ones.

Fishman, having authored a new book called “Chokepoints” on this very topic, explained how the U.S. leverages its dominance in global finance and tech to put pressure on countries like Russia, Iran, and China. Perhaps the most eye-opening insight was that these tactics are here to stay.

It was a timely discussion as Q1 saw plenty of examples of this “war by other means,” and it equipped the TTU community with a framework to interpret such news going forward.

Say Hello to “U Got Options” — Our New Series!

It wouldn’t be a proper Q1 wrap without a nod to the exciting launch of our new series: “U Got Options”, hosted by none other than Cem Karsan. The first episode featured Mike Green, and it hit the ground running.

Cem and Mike unpacked the growing dominance of options flows — especially 0DTEs — and how this new wave of reflexive trading is reshaping intraday price action. But more than that, they looked at what it means for the bigger picture: liquidity, market structure, and even democracy itself.

This isn’t your typical options podcast. It promises to dig deeper into derivatives, positioning, and the nuances of market mechanics in a way that few others can. If the first episode is anything to go by, U Got Options is going to be essential listening for anyone trying to understand where markets are going and why.

And So Much More…

Of course, there were other standout moments this quarter. Our discussions with Rob Carver, Graham Robertson, and Yoav Git on CTAs were equal parts educational and practical. Alan Dunne’s insights on ETFs and commodity distortion sparked a lot of debate. And the showdown between Andrew Beer and Tom Wrobel on CTAs vs. ETFs added some friendly fire to the mix.

Each episode brought something different to the table — fresh ideas, new angles, bold predictions — and we’re proud of the diversity of thought we’ve been able to showcase this quarter.

Looking Ahead

If the first three months of 2025 have taught us anything, it’s that certainty is a luxury no one can afford. We have also been reminded that markets don’t operate in a vacuum. They’re shaped by politics, by policy, by people, and increasingly, by forces that don’t follow neat economic models. That’s why at Top Traders Unplugged, we’re doubling down on what we do best: honest conversations, diverse perspectives, and a relentless focus on the truth, however uncomfortable it might be.

As the world gets noisier and more uncertain, we’re committed to cutting through that noise. You can always count on us to ask the hard questions and chase the real answers.

Stay with us!

This is based on episodes on Top Traders Unplugged, a bi-weekly podcast with the most interesting and experienced investors, economists, traders and thought leaders in the world. Sign up for our Newsletter or subscribe on your preferred podcast platform so that you don't miss out on future episodes.

• Implementation often matters more than the strategy in determining systematic trading success.
• Different asset classes require tailored approaches as fixed income, commodities, and currencies present unique trading challenges.
• The execution of trades represents a significant but overlooked source of alpha where patient trading can preserve more value than elaborate signal optimization.

Few debates in systematic trading are as persistent as whether to specialize in a single asset class or diversify across many. This question has profound implications for portfolio construction, risk management, and performance.

This debate has become increasingly relevant as systematic trading continues to evolve, with implementation decisions often distinguishing between mediocre and exceptional returns.

In this discussion, we explore the diverse perspectives of three veterans of quantitative finance:

• Graham Robertson: With over 14 years at AHL, Graham brings institutional expertise as a veteran quantitative researcher.
• Rob Carver: Former head of fixed income at AHL and author of several influential books on systematic trading.
• Yoav Git: Previously led fixed income at AHL before founding his own specialized fixed-income CTA (Commodity Trading Advisor).

Learn why successful systematic traders focus on what to trade and how to trade it. Understanding these nuances will be key to navigating the next evolution in systematic trading.

Specialization vs. diversification debate

The fundamental question for systematic traders isn't just what markets to trade, but whether their models should be specialized for each asset class or broadly applied across diverse markets. This implementation decision can significantly impact performance and risk management.

“Different asset classes actually are very different,” argues Yoav Git, making a case for specialization in systematic frameworks. He explains that while traders “can take the generalist view,” doing so means “leaving money on the table” as they won't “harvest the full alpha in a particular asset class.” In his view, it's important to put effort into each asset class to implement it correctly and capture that additional performance.

Rob Carver presents the case for universal models: “I've never really seen a strong, statistically significant effect in performance between different asset classes,” he explains. His research suggests well-designed algorithms can account for market differences without requiring asset-specific treatment.

In summary, these contrasting approaches represent two systematic trading philosophies: deep specialization in specific market dynamics versus robust models that work across many instruments. Specialized systematic strategies may excel in certain trending environments but risk underperformance when market conditions shift. Meanwhile, diversified systematic approaches typically provide more consistent performance across varying market regimes.

Graham Robertson adds a historical observation: during difficult periods for trend following, research focused on market expansion rather than model refinement. “Markets were clearly different. Researching new markets was genuine value add.” This diversification approach helped firms navigate challenging times when traditional trend-following strategies faced headwinds.

Understanding market drivers and liquidity

Digging deeper, what actually drives trends across different markets? This question reveals deeper insights into the specialization debate and helps explain why some markets trend better than others.

Yoav describes trend formation as a result of sustained imbalances in the market. When examining fixed income specifically, he focuses on the interest rate gradient between central banks that creates persistent flows driving trend formation. This gradient-driven flow pattern emerges clearly in currency markets: “In FX (Foreign Exchange), when you see Euro-USD, you see literally no trend. But when you see EM (Emerging Markets) currencies with strong carry, you see actually a very strong trend as well.”

Rob takes a different approach, focusing on objective liquidity measures: Volume and open interest. These metrics manifest distinctly across markets. For example, Korean stock indices showing high volume with low open interest, while interest rate futures display the opposite pattern. “In one place, you've got huge stock in a small flow. In the other case, you've got a massive flow in a small stock.”

Graham offers perhaps the most sobering assessment of market structure analysis: “Liquidity is a term that's often misused.” Market structure, industry players, and transaction costs affect trading dynamics in ways simple volume metrics fail to capture—a complexity that underscores the challenge of applying universal frameworks.

Long-term performance context

A fascinating historical perspective emerges when examining which asset classes have historically contributed the most to the returns of CTA-managed strategies.

“If you look at AHL and ask them what has been your biggest earner for the last 25 years, about 70-75% of the P&L has come from fixed income,” Yoav reveals. This striking concentration of returns challenges the idea that CTAs generate equal performance across all asset classes.

This performance pattern isn't merely coincidental. Yoav explains that fixed income's strong trending behavior stems from fundamental economic forces: “We've seen a secular trend. After the GFC (Global Financial Crisis), rates have really come all the way down.” Even after this long-term trend ended, fixed income continued to deliver consistent returns. “For the last 15 years, fixed income has been very consistent, not just in terms of consistency over time—so different periods in time, also different speeds.”

This historical context provides crucial information for allocators considering how to structure their systematic trading exposure across asset classes.

The allocation-to-CTAs challenge

Despite the maturity of systematic trend-following strategies, institutional adoption continues to face persistent headwinds. Why aren't CTAs better represented in institutional portfolios?

“We're neither fish nor fowl,” Yoav says, crystallizing the dilemma. CTAs don't fit neatly into traditional asset allocation frameworks, creating an identity crisis for allocators attempting to categorize these strategies.

When positioned as a crisis hedge, CTAs face a precision problem that other hedges don't. “If I'm looking for convexity to my underlying portfolio, then CTAs are a very crude, fuzzy way to get convexity,” Yoav explains. Unlike targeted hedges, CTAs don't reliably protect against specific market stresses. When they fail to deliver during crises, portfolio managers face difficult questions from investment committees who approved allocations based on promised protection that didn't materialize.

Performance metrics present another hurdle for CTAs seeking broader adoption. With Sharpe ratios hovering around 0.7 versus competitors' 1.5+, CTAs appear underwhelming in absolute return contexts. “Every other year, you have a very difficult conversation” with investment committees, Yoav notes from experience.

Graham shares a more optimistic perspective, observing that “larger investors tend to have an allocation to trend following thick and thin,” suggesting institutional size influences adoption patterns. Since many CTAs primarily follow trend-based strategies, their presence in portfolios is often tied to the broader perception of trend following itself. Yet even among sophisticated investors, CTAs remain a niche allocation, often misunderstood or overlooked in broader portfolio construction discussions.

Execution as a source of alpha

Perhaps the most overlooked implementation decision involves the execution of trades—an area many managers treat as purely operational rather than strategic, potentially leaving significant returns on the table.

“Most CTAs view execution as a production line costing five basis points of Sharpe,” Yoav observes. This operational view creates a contradiction in practice. “You will take a signal and sit on it for five days because you are buffering it, and then insist that the execution desk execute it within half a day,” Yoav explains, highlighting the inconsistency in approach.

The mathematics reveals the opportunity cost. Crossing spreads might cost 5-30 basis points of Sharpe, while delaying execution typically costs only 1-2 basis points in alpha decay—a tradeoff many managers fail to optimize.

“Give the execution desk more time to execute. Be patient, wait for the market to come to you,” Yoav suggests. “The trick is just avoiding crossing that spread.” This patient approach to execution can preserve more value than elaborate signal optimization in many cases.

Rob offers a perspective on where execution improvements matter most: “There's a lot more value in doing it with the weird kind of OTC bond than there is with the bubble [highly liquid futures],” he states, referring to the contrast between less liquid over-the-counter markets and highly liquid instruments. This insight aligns with Yoav's earlier point that execution costs can be much higher in less liquid markets, making the potential benefits of careful execution more significant in those environments.

The diagnostic question that reveals a firm's true approach to execution? “Do you pay performance fees to your execution desk?” The answer reveals whether a firm truly views execution as a potential alpha source or merely an operational cost center.

Adapting systems to market structure

Moving beyond the theoretical debate, the experts highlight concrete differences in how various market types must be handled in practice.

The structural fragmentation in fixed-income markets creates unique execution challenges. “In fixed income, liquidity is very fragmented,” Yoav explains. “You have multiple bonds for the same issuer, whereas, in equities, you have just one stock for a company.” This fundamental difference requires specialized broker relationships and execution systems capable of handling partial fills or substituting between similar instruments.

Risk management approaches also need customization based on return distribution characteristics. “If you think about a fixed income portfolio, it's got very strong left skew,” Yoav points out. This asymmetric risk profile, where extreme negative events occur more frequently than extreme positive ones, demands more conservative position sizing and tighter stop-loss mechanisms than markets with more balanced distributions.

Alternative markets present distinct properties. Yoav and his colleagues have conducted extensive research on cryptocurrencies, discovering unique trending characteristics. “Cryptocurrencies actually trend very well because there is no valuation,” Yoav notes. Without fundamental valuation anchors creating mean-reversion pressures, crypto markets can sustain momentum patterns that would quickly dissipate in traditional markets where value investors counteract extreme price movements.

These practical examples demonstrate that while the underlying principle of trend following may remain consistent, the operational implementation must adapt to each market's specific structure and characteristics. The most successful managers recognize these differences and build systems flexible enough to accommodate them.

Implementation matters

As systematic trading continues to evolve, implementation decisions increasingly drive performance differentiation. The debate between specialization and diversification represents just one dimension of the complex choices systematic trading firms face in building their algorithmic trading frameworks. Whether developing specialized models for specific asset classes or creating universal systems that work across markets, the details of execution, risk management, and portfolio construction often distinguish outperforming strategies from mediocre ones.

Yoav says, “CTA’s and trend following is amazing. It's one of the only strategies which has positive skew and it's not actually harvesting liquidity premium. So it should really be allocated to a lot more than it is.”

The challenge for the industry lies in making these sophisticated strategies more accessible and better understood by allocators.

These nuances may be key to better utilizing systematic strategies within their portfolios.

This is based on an episode of Top Traders Unplugged, a bi-weekly podcast with the most interesting and experienced investors, economists, traders and thought leaders in the world. Sign up to our Newsletter or Subscribe on your preferred podcast platform so that you don’t miss out on future episodes.