[Portfolio management has been in a perpetual state of evolution and innovation through the efforts of investment managers that challenge traditional investment thinking, portfolio construction concepts and deploy them in novel ways. As an example, the recently launched Blueprint Chesapeake Multi-Asset Trend Fund (TFPN) was purposefully designed and structured by redefining some established concepts on diversification, trend following and even behavioral finance. Some clear signs that this ETF and its investment strategy pushes established boundaries are in the years of effort needed to build this vehicle and in unwaveringly having to disprove many industry players that kept saying that this ETF could not be constructed—you are trading too many markets, too many esoteric positions, you can’t combine equities and futures, it just can’t be done!
The range and depth of this ETF is truly ambitious through massive global diversification with long/short flexibility in trading 500+ securities and financial instruments across four macro asset classes—currencies, commodities, fixed income and equities—including liquid alternatives, managed futures and cryptocurrencies as further diversifiers. This vast scope of markets and investments is usually seen in a limited partnership, separate accounts or hedge funds, not an ETF.
Another interesting element as to the innovation process behind the creation of this ETF is the clear need for strategic partnering to make this happen. Innovation is rarely a lone wolf in a secret laboratory making things. It takes the combination of different firms, specialists, perspectives and strengths that can combine into motivated collaborators. In this case, it took two different investment advisory firms, Blueprint Fund Management and Chesapeake Capital Corporation, who had an affinity for trend following and a shared vision for the need for a more accessible, liquid and expansive version of this investment approach—a next-generation liquid alt ETF.
We reached out to Jon Robinson, CEO of Blueprint and Jerry Parker, CEO of Chesapeake to ask them questions about the creation of their ETF and the thinking and experiences behind their innovative journey. This is a great case study on how advisors can work together to become disruptors and create innovative investment and business solutions together.]
Bill Hortz: You both have a strong kinship around managing money by sharing a “near fanatical” trend following and risk management investment approach. What is it about trend following that you both strongly believe in?
Jerry Parker: I was fortunate to be given a set of keys to what I believe are the golden rules of investing very early on in my career when I was part of Richard Dennis’ 1983 Turtle Trading experiment. I took what he said to me very seriously.
To me, trend following is a set of broad rules that make it possible for you to stay alive no matter what the market throws at you. I have been at this for 40 years now. Enough time to see wild swings in market conditions, sentiment about all sorts of asset classes, and investor preferences. Trend following has been the consistent truth that, when repeated over and over and over, has allowed me to constantly adapt.
Jon Robinson: Exactly. The power of trend following boils down to adaptability for me as well. With trend following, there is no secret sauce. The rules we follow to make allocation decisions in Blueprint portfolios are not esoteric or complicated, in my view. They only become challenging when a financial advisor or investor must apply those rules in circumstances when every bone in their body is second-guessing the decision. The rules are relatively easy, but unwaveringly following them can be a difficult mental and emotional exercise.
I think a big reason the rules are hard to follow is because human nature seems to distrust simplicity. Trend following’s simplicity often causes other asset managers to add something to their decision-making system. They offer trend following PLUS something. The plus something is usually added with the goal of making the process appear more complex or to smooth rough edges that may be difficult for human nature to “stomach” during volatile times. The Blueprint Chesapeake Multi-Asset Trend ETF is different because it adds nothing. The ticker, TFPN, says it all: Trend Following Plus Nothing.
Hortz: What were your motivations in building this ETF? What industry investment problems or drawbacks were you trying to solve?
Robinson: As a firm focused on disrupting the ordinary relationship between asset manager and financial advisor, we hear firsthand from our advisor partners about the challenges they face, and we seek to address their pain points with strategies and service that makes it easier for them to operate their practices.
As it relates to liquid alt and traditional alternative strategies, financial advisors have long pointed out their concerns about portfolio drag during bull markets, highly correlated return streams, tax inefficiency, lack of liquidity, or cost and accessibility. Given the time and expense associated with launching a new fund, we would not have embarked on this project with Jerry and Chesapeake if we did not think we had a strategy that could address those valid concerns.