Longboard's Long/Short and Managed Futures Strategies

Episode Summary

Eric Crittenden of Longboard Asset Management talks about the two unique strategies that they are employing: their long/short equity strategy and their managed futures program including the kind of market conditions in which they work best.

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Longboard's Long/Short and Managed Futures Strategies

Hello and welcome to Strategic Investor Radio on OCTalkRadio.net where we bring you investment strategies you are not hearing elsewhere. Very pleased today to be talking with Eric Crittenden with Longboard Asset Management. Eric is on the phone with us from Phoenix, Arizona, their headquarters. Eric, welcome to Strategic Investor Radio.

Thank you, Charley. It's good to be here.

Eric, you're the chief investment officer there at Longboard. You guys have two mutual funds. Give us a brief history of Longboard, will you?

Sure. Longboard was started back in 2011. Our CEO, Cole Wilcox and myself, we left the hedge fund industry because we saw that there was a big unmet need in the marketplace for uncorrelated alternative returns in the retail financial advisor industry. We started Longboard Asset Management and rolled out some mutual funds that were wrapped around strategies that we've been running in the hedge fund universe for a long time. Again, our goal is to compound, have a reasonable rate of return in a way that's not related to stocks and bonds.

Explain that a little bit, in a way that's not related to stocks and bonds.

Two strategies are run. One is our long/short equity strategy. It's primarily a ruled based trend following approach applied to all the stocks in the Russell 3000. It's long and short, meaning that we're essentially vetting on the performance of the strong stocks relative to weak stocks. This performance itself is spread between those two groups, it's generally uncorrelated with the beta of the stock market itself. In that sense, this program can deliver returns that don't necessarily track those of the stock market or a 60-40 portfolio.

Let me stop you for a minute. It's a long/short strategy but it's built on trend following. Most long/short strategies that I have followed have been fundamentally based. Yours are not fundamentally based?

That is correct.

You're following a trend, and typically the key to trend following is what time period you select. Do you like three weeks, three months, a year and a half? What kind of time focus do you use in your trend following analysis?

We focus exclusively on ultra long term trends. Regardless of which program we're talking about, our average hold time on a winning position is in excess of sixteen months. We're talking about very long duration trends.

Do you do stocks only or do you also do sectors and indexes?

In the long/short equity program, we only do stocks. Every stock is in the Russell 3000. We trend follow on those stocks and then we go short by shorting index futures.

Let's go over that again here. I'm a bit confused. You go long stocks but you go short indexes?

That's correct. Shorting indexes is very efficient, cost effective and scalable. Shorting individual stocks has a whole host of problems and issues associated with it. Essentially, what we want to do is be long a subset of the Russell 3000, whatever the strongest stocks. Then we want to hedge out most of the market correlation beta by taking short positions in liquid, easy to trade index futures.

You do that through sectors primarily?

No, we trade the three big index futures. You've got the S&P 500 large cap, S&P 400 mid cap and the Russell 2000 small cap.