The following was prepared by a third party unaffiliated with Millburn. Please see the important disclosures appearing here and below. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. THE POTENTIAL FOR PROFIT IS ACCOMPANIED BY THE RISK OF LOSS.
The views and opinions expressed herein are those of the author and do not necessarily reflect the views of Millburn Ridgefield Corporation, its affiliates or its employees.
This document has been provided to you solely for information purposes and does not constitute an offer or solicitation of an offer or any advice or recommendation to purchase any securities or other financial instruments and may not be construed as such. There can be no assurance that an investment strategy will be successful. Historic market trends are not reliable indicators of actual future market behavior or future performance of any particular investment which may differ materially and should not be relied upon as such.
Without changing the substance of the article, certain elements have been redacted to comply with regulatory restrictions.
For Qualified Eligible Person Investors Only
Hedgeweek Hugh Leask, Editor
July 16, 2021, 9:13 AM EDT
Over the course of its remarkable history, global quantitative investment manager Millburn Ridgefield Corporation has evolved through several iterations – from starting out as one of the early pioneers of traditional trend-following in the 1970s to becoming a major innovator and practitioner of machine learning quantitative investment approaches during the past decade. Now, with the launch of a new strategy, Millburn aims to build on its success by including exposure to global, Chinese and thematic commodity markets.
The firm, which this year celebrates its 50th year in business, is a systematic manager, running some USD 6.6 billion in assets – including those managed by a joint venture in China – with 57 employees, nearly 40 percent of which are involved with technology-focused research and development. While the firm cut its teeth in futures trading, today it has developed a capability in futures, forwards, and securities.
“It’s been interesting to see the firm evolve in the way it has,” Barry Goodman, co-CEO and executive director of trading, tells Hedgeweek.
“Whereas in the 90s and early 2000s, you would have seen us focusing on longer-term price momentum and being relatively slow in our trading frequency, the current approach is very nimble.”
Goodman – who has been with the firm for nearly 40 years – explains how the systems are designed to evolve, making fine-tuned adjustments throughout the day in real-time as the data flows in.
“We may still find ourselves in a long or short position for a period of time, but as new data flows into the suite of models, like a spike in short-term momentum or a flattening of volatility, or maybe the release of some new inventory numbers, or even increasing proximity to the next Fed meeting, the models have the ability to interpret this and change that signal fairly rapidly.
“But whether the signal changes or not, and to what extent, is now context-dependent, rather than based on simple rules or hypotheses as it may have been in the past.”
Today, Millburn applies this approach in the management of a broad range of primarily long/short strategies, with its models designed to be particularly agile in a diverse selection of markets and regions in various timeframes.
“One of our key cornerstones is diversification. We’re not global macro traders, we’re data-driven in our approach – so we always try to provide very diversified access with the view that as many of these markets are going to move and be volatile, we can trade on that volatility,” Goodman adds.
Reflecting on the firm’s more recent evolution, he says that as investors grew increasingly comfortable with complex algorithms and machine learning-based strategies, Millburn Ridgefield was quick to capitalize on this shift in sentiment.
While there was always a certain class of investor who believed in quant, and were willing to sacrifice a degree of transparency in exchange for the level of alpha that they believed quants could generate, the increased importance and perceived value of data within the alternative investments sphere during the past decade has accelerated this change.
“We believe that there’s an increasing recognition amongst even traditional investors that data is key,” he continues. “It’s become accepted that data can provide an edge, even on the discretionary side, with more people now focused on the data that they’re using and evaluating.”
Against that backdrop, he describes the firm’s systematic trading strategies as what he believes to be a “common sense approach” to making use of data and computing power.
“For us, even though we rely on a highly technical and very sophisticated machine learning approach to finding patterns in historical data, we try to limit the problem for the machine, providing it with a lot of data, but making sure the data has, in our view, at least some economic rationale and a reasonable chance of influencing price moves. So for us it is really the combination of our experience with the power of the machine,” Goodman observes.
“We let the machine do the difficult work of finding those complex patterns that humans simply could not find. But we set up the framework with the goal of enabling us to explain to investors what was driving the signal at any particular time. We try and make sure people understand our process, and get comfortable with the process.”
Building on this theme, he continues: “Based on history, we may sometimes look like a trend-follower, meaning we’ll be following trends and riding those trends out. But at other times, we appear more like a short-term trader, taking what looks like mean-reverting positions or holding positions for perhaps just a few days, or even a few hours.”
It’s an approach that has ultimately reaped rewards for the firm’s flagship diversified offerings but also for its sector-specific strategies.
The diversified offerings comprise two identical quant strategies – the Diversified Program, whose track record stretches back to 1977, and the Multi-Markets Program. Each one trades around 100 liquid futures and forward markets globally, spanning equities, fixed income, currencies, and commodities. Together, the Diversified and Multi-Markets strategies manage approximately USD 4.5 billion in assets, the bulk of Millburn Ridgefield’s AUM.
The firm has also established a formidable presence in more specialist sector- and region-focused systematic strategies.
The first of these is the Millburn Commodity Program, trading a range of commodities futures. This strategy has been closed to new capital since 2018 as a result of strong demand. Meanwhile, the China Futures Program, which Millburn developed with a local on-shore partner through a joint venture, provides access to a range of unique markets to local Chinese investors.
In June, the firm unveiled its long/short Resource Opportunities strategy. Like the Commodity Program, its capacity is limited – the Resource Opportunities strategy is thought to have an initial limit of between USD 350-500 million, although with continued research the hope is this will grow.
“Providing access to truly global commodity futures markets is exciting, but the strategy also seeks to build thematic trades across disruptive global sectors and markets such as wind, solar, water, rare earth metals, lithium and more,” Goodman says, describing it as a “next generation commodity strategy.”
As the COVID-19 pandemic has upended global economies over the past 18 months, and the fallout from various central bank responses still carries potentially far-reaching responses, Goodman maintains that any potential movements towards increased volatility can be a positive for Millburn Ridgefield’s strategies.
“There are many things going on – decarbonization trends in commodities; supply chain disruptions, which create supply/demand imbalances; how the actions of central banks can affect inflation – all of which we believe can be supportive of the way we trade,” he says.
“We’re fully long/short in the majority of our approaches. We have no bias to whether we want to have a long view or a short view in a market, and we believe we are in a position to take advantage of that and help investors navigate this volatility.
“Our strategy is not static. The models that we build and the data that we use are always evolving. The models that we built eight years ago and the ways they interpreted markets and data might have a very different view of the world in 2021. Certain drivers of the markets may be much more important now than they were back then – and other drivers may take a back seat now. That’s why we continually update and refresh the models.”
***
IMPORTANT DISCLOSURE AND RISK INFORMATION
This article was prepared by an independent third party, based in part on information provided by Milburn Ridgefield Corporation and its affiliated entities. No compensation was paid to the author or publisher of the article or any other person in exchange for publication of the article; however, Millburn has paid for the rights to reprint the published article. Millburn Ridgefield Corporation is the successor to an asset management organization that first began its operations in 1971. The term Millburn is used herein to refer to the activities of Millburn Ridgefield Corporation, its predecessors and its affiliated entities, except as indicated otherwise by the context.
This article reprint is not an invitation to invest in any investment strategy managed by Millburn but rather describes its approach to investing generally. The purpose of distributing this article is to provide further insight into Millburn s investment approach. This article is based on information available as of the date indicated. Any markets, models, leverage, portfolio weights and other data described herein change over time, but are accurate as of the date indicated herein. This presentation is not an invitation to invest in any investment strategy managed by Millburn and must be supplemented by certain disclosure when considering an investment, including important information concerning risk factors, conflicts of interest and other material aspects of an investment, which must be read carefully before any decision whether to invest is made. Investors may lose all or a substantial amount of their investments.
The information contained herein is only current as of the date indicated, and may be superseded by subsequent market events or for other reasons. Neither Millburn nor the author guarantees the accuracy, adequacy or completeness of such information. Neither Millburn nor the author assumes any duty to, nor undertakes to update forward looking statements. Nothing contained herein constitutes investment, legal, tax or other advice nor is it to be relied on in making an investment or other decision
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE. THE POTENTIAL FOR PROFIT IS ACCOMPANIED BY THE RISK OF LOSS.
Commodity interest accounts are illiquid, speculative, employ significant leverage, and involve a high degree of risk. Commodity interest accounts involve high fees. There can be no assurance that an investment strategy will achieve its objectives.
NOTES TO PERFORMANCE
Estimated performance results are subject to final verification. Because it is difficult to attribute each actual position held by an account to a particular sub-strategy employed by that account, performance attribution by sub-strategy and net risk exposure are estimated based on internal calculations employing the sub-strategy and market weights utilized by the strategy. Accordingly, estimates may not precisely represent the positions held or results achieved by the strategy in actual trading.
Millburn Commodity Program (“MILCOM”) returns are net of all fees, expenses and transaction costs (2% per annum management fee; actual transaction costs; 0.25% per annum ordinary operating and administrative expenses; 20% annual profit share, subject to a high water mark), and reflect the reinvestment of profits.