Tapping into the Best Minds in Quantitative Finance: Insights from Blair Hull

We recently had the opportunity to speak with Blair Hull, Founder and Managing Partner at Hull Tactical Asset Allocation, LLC, about his firm’s patent-pending quantitative trading model, and how the new HTUS allows investors to tap into some of the best minds in quantitative finance.

ETF Database (ETFdb): What’s your firm’s background?

Blair Hull (BH): In many ways, Hull Tactical Asset Allocation is a natural outgrowth of my trading experience over the last four decades.

Hull Trading Company, which I founded in 1985, was primarily an equity options market maker. The firm deployed mathematical models to analyze short-term options and equity pricing discrepancies while hedging against overall risk exposure.

Following its sale to Goldman Sachs in 1999, I founded Hull Investments, LLC — a family office which later grew to serve as parent company for both Ketchum Trading, LLC, a proprietary trading firm that makes markets and trades futures, options, cash equities, and exchange traded funds; and later Hull Tactical Asset Allocation, LLC.

Today, HTAA serves as an advisor to the HTUS ETF (HTUS), and utilizes advanced modeling and macro and technical indicators to anticipate future market returns. The strategies are stress tested with over 20 years of historical data and evolved from tactical allocation models developed and traded by Hull Investments, LLC.

ETFdb: What motivated you to enter the ETF arena as an issuer?

BH: Like a great many investors, I was disappointed in my portfolio’s performance during the 2008 downturn. We began internally testing exposure strategies to see if we could avoid similar downturns in the future, and arrived at a scientifically derived model that tested successfully in my own accounts. Not surprisingly, my friends were also interested in similar investing methods for their portfolios. Rather than issuing a limited product available only to those of great wealth, I decided that putting this proprietary model to work as an ETF product would make hedge fund-type management and trading tactics both available and accessible for all types and levels of investors looking to reduce overall volatility while increasing portfolio diversification.

10% of Hull Investments uses this strategy. Because the S&P 500 is so liquid and has enormous capacity, we decided to introduce a broadly accessible, easily traded product to allow more investors to access our strategy.

ETFdb: Tell us about Hull’s quantitative methodology, and how your approach is unique – particularly in the ETF industry.

BH: At Hull Trading and now at Ketchum, we take a very scientific, disciplined approach. As we have always stayed close to the academic world in developing proprietary strategies, we continued to attend conferences that also had papers presented on indicators that would predict market equity returns with a longer horizon. In late 2012, Hull Investments developed the original version of the predictive model that now is more exhaustively described in a paper that can be found on our website.

ETFdb: How have you incorporated your quantitative trading model into your ETF offering?

BH: HTUS ETF is built upon solid academic research and data from many of the best minds in quantitative finance. Our trading model constantly monitors and analyzes both current and historical data, while at the same time being combined with disciplined, discretionary management controls. This patent-pending approach helps us deliver specialized expertise across strategic asset classes and exposure to sophisticated trading styles for our clients and for the ETF marketplace.

We also provide a Daily Report that shows the equity risk premium and variables in the model as they change. The model is also refit every 20 days.

ETFdb: How is the Hull Tactical US ETF different from other long-short or smart beta products out there? Why do you think investors will be attracted to this fund?

BH: HTUS is an actively managed ETF that can take positions in S&P 500 ETFs and futures that can result in exposures from +2x S&P 500 to -1x S&P 500 and anywhere in between. There are many advisors that use passive index ETFs to gain the exposures they want for their clients that are derived from some type of model or active management technique. We are also using passive ETF index exposure but our selection process is built into our ETF. We are very transparent in our methodology and feel that if we can provide a higher return for our investors with lower volatility, the product will speak for itself.

ETFdb: What are some major ETF industry trends you expect will dominate the space in the foreseeable future?

BH: Certainly the Currency Hedged ETF trend will continue to grow as investors look for pure investment exposure to various country indices without the currency risk. Currency risk should be for those who are specifically looking for that type of exposure and can be obtained through existing currency ETFs.

Another trend we see continuing is the growth of alternative investments like smart beta and active management. Currently there are over 1,700 U.S.-listed ETFs with $3 trillion in assets. While much of those assets are in standard index rules-based methodology like market capitalization, we are seeing the continued growth of smart beta, or alternative indexing, as well as active management in the ETF space. Just recently, Goldman Sachs announced that they see ETF assets doubling to $6 trillion by 2020. As the demand for ETFs grows, the need for alternative investment exposures will continue to grow. The emergence of white label ETF platforms like ETC allows a more diverse list of issuers with new products. This is one reason we feel now is the right time to be bringing our transparent actively managed ETF to market.

ETFdb: Based on your quantitative models, what are some of the most noteworthy trends that you expect to persist on the global stage? Are there any trends that you expect to reverse?

BH: Our quantitative model looks out at a 6-month horizon and our expectations for trend directionality are fully transparent. We publish a daily report online at www.hullinvest.com each evening with clear indicators of our model’s bearish or bullish sentiments across a range of academically reviewed variables.

As we state in our paper at SSRN (Social Science Research Network), in the past market timing was considered irresponsible while in the future we believe it will be irresponsible not to engage in informed market timing via predictive modeling.

The Hull Tactical US ETF (HTUS) is a compelling option for those investors looking to easily tap into a one-of-a-kind quantitative model that aims to deliver higher returns with lower volatility.

For more ETF analysis, make sure to sign up for our free ETF newsletter.

Disclosure: No positions at time of writing.