Wealth Advisor Magazine September 2024 Edition - 20

MARKET MIND
Hull Tactical:
Big Science
Petra Bakosova will go down in history as one of the great
quants. She'd pit her enhanced equity strategy against the
random walk any day of the week.
H
ull Tactical Asset Allocation
LLC was founded in 2013 to
focus on quantitative asset
management utilizing both
advanced algorithms as well
as macro and technical indicators to
anticipate future market returns. The
strategies are stress tested with more
than 20 years of historical data. Petra
Bakosova is CEO.
THE WEALTH ADVISOR: What makes
what you do at Hull so special?
PETRA BAKOSOVA: Our fund is called
the Hull Tactical US ETF, and our ticker
symbol is HTUS. What makes our fund
special? I think we figured out a way
to add a very creative quantitative
strategy that enhances the returns of
the S&P 500 without exceeding the
volatility of the S&P 500, and thus provides
a very interesting core replacement
to our clients.
Enhanced returns and comparable
volatility? That's an exciting alternative
to passive indexed exposure . . .
if it works.
A lot of times, when you talk to hedge
fund managers, you get the impression
that they have some secret sauce and
some information that nobody else has,
and we do not claim any of that. We
do not possess anything resembling
a secret sauce. We do not have any
nonpublic information that nobody else
knows about. We are just very good at
20 | SEPT/OCT 2024
compiling and combining quantitative
information available to the public in
pursuit of what we call " micro alphas. "
I would go and use a cooking analogy.
If you're trying to make a really
good dish, you can try to find a secret
ingredient. Or what most talented chefs
do is just take well-known ingredients
and combine them in a way that is
smart and appealing and that includes
not letting one ingredient just take over
the entire dish.
That's where we add value. We
look for indicators that have a good
intuition for why they should work
from an economic standpoint, and
then we look for papers that have been
published in the best journals and have
been peer reviewed and have been
shown to hold up in different time periods.
And then we build those findings
into our models.
What were those models telling you
early this summer?
I was looking at our predictions like I
do basically every day, and if you were
just looking at the predictions from
the models, you would think they're all
kind of in agreement. We'd been getting
a lot of bearish signals from both the
long end of our spectrum as well as our
one-day model. The really bearish signal
on the six-month model came from
our valuation indicators. We're looking
at things like price-to-earnings ratio or
book-to-market ratios. And according
to this indicator, the market is still
overvalued at these levels.
On the other hand, we were seeing
a bullish signal from our inflation
indicators, and I think that makes a lot
of sense. People are paying really close
attention to inflation to see how that
may affect the Fed's decision about
what to do with interest rates and how
that might affect the stock market as
a whole. And on the other hand, at the
end of the spectrum, when we look at
the one-day model, we were also seeing
a bearish signal, but it's driven by
a very different set of indicators.
So it sounds like a stall while waiting
for the Fed to make up its mind. If
that was the scenario, you might
go short in the short term and stay
bullish farther out?
Out of the 30 indicators we collect, very
rarely if ever you will find a situation
where all of them agree. You get a
really complex picture, and that's not
necessarily a bad thing. That's where
the value of the models comes in. The
models are able to look at the scenario
when they have 20 different predictors
and say, okay, historically, when we've
seen readings like this, the market
moves this way, and we're able to
produce predictions from these models
based on conflicting information from
the indicators.
The way our models work, they
make forecasts for different time horiTHEWEALTHADVISOR.COM
http://www.THEWEALTHADVISOR.COM
Wealth Advisor Magazine September 2024 Edition

Table of Contents for the Digital Edition of Wealth Advisor Magazine September 2024 Edition
