Jerry Parker on What Distinguishes TFPN From CTAs & Managed Futures

August 16, 2023

Jerry Parker on The Trade Busters podcast

Jerry Parker, legendary Turtle Trader and Portfolio Manager of the Blueprint Chesapeake Multi-Asset Trend ETF (ticker: TFPN), appeared on The Trade Busters podcast with David Sun. The pair discussed the new TFPN ETF that is sub-advised by Parker’s Chesapeake Capital Corporation and Blueprint Fund Management, how the ETF differs from commodity trading advisors (CTAs) and managed futures investments, and Parker’s belief that TFPN uses a purer form of trend following.

Below are some excerpts from the full interview.

Seeking the Little Fish (Outlier Holdings) in a Big Pond (As Many As 500 Securities, Futures & Forward Contracts)

skip to 23:23 in the audio below

Parker: “My idea was to create a fund and a CTF that gave, that put trend following in just an unbelievable situation to be successful. And so, let’s just go crazy and trade 300 markets. And I’m sure a lot of people are thinking, ‘Well after 20 or 40, probably the incremental benefit is not going to be so great.’ And I think that’s true traditionally, but not for trend following that hunts outliers.”

Value of Individual Equities vs. Indexes

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Parker: “We think people are going to be able to see what trend following can really do if you get away from these indexes that are just a group of stocks. Some of these stocks in an index you may want to be long, some short, some flat. So I think intellectually, mathematically, the indexes just don’t work. I’m long S&P but I’m probably would want to be short some of the stocks in the S&P. The average, the index/average, by definition is not going to have this outlier trade that some of the stocks will have. It’s going to be drug down somewhat by some of the other stocks. So, I can’t think of one legitimate reason – you have no massive diversification. It would be much better to break open the S&P 500 and trade all 500.”

Contrasting Pure Trend Following & Managed Futures

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Sun: “You’ve kind of talked about the fact that you like to stick to a pure trend following approach. So, how do you distinguish pure trend following from, for instance managed futures?”

Parker: “Only in a sense that managed futures is 99.9% vol management, correlation management, no stocks, trading indexes. And so my – I used to fight against that term. Like, hey, let’s quit calling it managed futures. It’s a goofy term, for one thing. Let’s just concentrate on what we all do, which is trend following. But then over time, it was, trend following was watered down with the managed futures. The larger managers, the invasion from Europe touting all this stuff about how they were going to show us all how to make it better and improve upon it. And it was quite the opposite, in my opinion. So that’s, now I celebrate this difference between managed futures. Because now I want people to know what managed futures means. It means somewhat trend following. Not really letting profits run fully, but more of management of the open trades and trying to smooth things out with a heavy handed approach of what they call money management, risk management, volatility management, correlation management. And certainly they will also put in there some non-trend things, once again more smoothing, mean reversion, carry trade, pattern recognition, short-term trading, who knows. God knows what else in order to smooth it out and make it more palatable when they sell that to the clients and the institutions.”

A Unique Take on Return Stacking

skip to 48:25 in the audio below

Sun: “My podcast is kind of geared toward options trading. And the way options work you can margin against any cash, stocks, whatever in your portfolio – and the idea of being able to return stack our own strategies on top of the return streams from products like yours. That does lead me to one kind of question from my own curiosity. Because, when you talk about return stacking inevitably it’s leverage that comes up, right?”

skip to 50:37 in the audio below

Parker: “The leverage thing can give you kind of a false – the notional amount can kind of give you a false reading because some of the markets don’t lend themselves to that sort of measurement. I really like that term, return stacking, you know. I like it, and you’re giving me this opportunity. I didn’t know I was going to have this today because I wanted to talk about this. And so I think what we do at Chesapeake in this fund is we return stack every market. We’re return stacking cattle on top of hogs on top of the Swiss Franc. So, it’s like each individual market is a stack. So, we’ve got 300 stacks. No one’s going to out stack us. So we’re just, we don’t trade in, we don’t represent, none of our portfolio’s represented by an index or an ETF or bonds. No, we have like 35 different interest rate markets, or 40 interest rate markets. And we’re stacking them individually. We’re taking this incredibly precise care for all 300 of these markets and to stack them when they should be stacked, which is they’re in an uptrend or they’re in a downtrend. And not using them when they shouldn’t be. So, we’re taking this amazing, precision care.”

Potential Capacity of TFPN

skip to 57:22 in the audio below

Parker: “Commodities are going to limit the size of those markets, the position limits in those markets. I think the games you can play to increase your position limits, let’s say with over the counter swap lookalikes for futures. I’ve done that before.

But look, there’s only so much you can trade in corn and soybeans, right? And those are wonderful markets. So, I don’t think I would ever want to be in a situation where I could have to say to myself, ‘My clients are not getting nearly the commodity exposure, and in the way that I want to have them exposed to it because I am so greedy that I have to trade $5 billion.’

So, I think around maybe that $1 billion level.

But it all revolves around the commodity markets and getting that exposure. And that’s why so many of my stocks, I’m very comfortable that a lot of the 150 equities that we trade, they’re very commodity based. Primarily, like I said earlier, in commodities that I don’t have exposure to: asphalt, concrete.

You wouldn’t believe the amount of time and energy we’ve spent building this portfolio.

We have a gold miner for instance. And sometimes gold itself will have a bigger trend than the gold miner. And sometimes the gold miner might have a bigger trend. So you’re getting some diversification there.”

About Blueprint Fund Management

Blueprint Fund Management designs, distributes, and manages systematic, process-driven, and transparent investment strategies for financial advisors and institutions. The firm aims to make trend following strategies highly accessible to advisors by offering and sub-advising investing strategies that are available as a mutual fund or ETF. Across the strategy offering, the firm applies a rules-based approach to both asset class and time diversification, instilling discipline and removing human bias during emotionally charged market environments.

About Chesapeake Capital Corporation

Chesapeake Capital Corporation is an innovative provider of systematic alternative investment solutions, including a limited partnership, separately managed accounts, and mutual funds. The firm was founded in 1988 by legendary Turtle Trader Jerry Parker, who continues to serve as the Chairman and CEO. The firm’s consistent, single-minded approach to managing client capital is trend following, and its client base includes private and institutional investors worldwide.

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