As part of our ongoing series, we are pleased to introduce the Chadwick Investment Group in this issue’s CTA Spotlight. Justin Vandergrift is President of Chadwick Investment Group Inc., which is located in Charlotte, NC.
The Commodity Trading Advisor offers one trading program, the Chadwick Investment Group Global Trend Following Program.
RJO: Thank you Justin for taking part in our CTA Spotlight series. Please tell us a little about yourself.
Justin Vandergrift: I graduated from the University of North Carolina at Charlotte in 1996 with a degree in History and Political Science. My interest in the markets began around the age of 10. I was fortunate to have a great uncle teach me how to read stock charts and Value Line reports. Summer visits were spent listening about earnings per share and other fundamental data. My father supplemented this education by introducing me to futures trading.
After college I went to work at John Hill’s Futures Truth Company. Futures Truth is a firm who independently evaluates trading systems. This is where I found my passion for trading systems. A trading system is a program that follows a set of pre-determined rules that dictate decisions. Systems trading removes emotions from trading. Human emotions can be detrimental to trading success. Most people cannot make efficient decisions under stress. When unexpected events happen, it is best to know in advance how you will react. This is the benefit of a trading system. I recognized that most successful money managers, those with longevity, were using a system.
I began a futures brokerage firm in 1997 and then Chadwick Investment Group Inc. in 2003. The goal of the brokerage firm was eventual transition into a money management company. After spending around a decade of working hands on with clients we transitioned into a Commodity Trading Advisor. Currently Chadwick is a Commodity Trading Advisor and a Commodity Pool Operator. I was also one of a handful of traders featured in “The Little Book of Trading” by Michael Covel in 2011.
RJO: Could you give us a brief description of your trading program?
Justin Vandergrift: After more than five years of extensive computer testing, our program began trading in June 2007. It is based on a systematic trend following method; we look for long term market movement and will take trades on the long and short side of the market. The duration of our winning trades is 6-8 weeks with losers being 2-4 weeks. Occasionally trades will last 6 months or more.
RJO: What makes your approach different from other CTAs?
Justin Vandergrift: Our goal is the growth of client assets through compounded performance. We focus on absolute returns. Recently, there has been an industry trend toward measuring ratios and away from absolute performance. In the end, success should be measured by how much money you make for your investors not the efficiency of some measuring statistic.
Within our peer group (other trend followers) you will find our market selection criteria are what differentiate us. We do not add a market into our portfolio simply for the sake of diversification. We do not trade all markets and do so for a reason. Our market selection is based on computer tested statistical parameters from 20 years of data, not simply chart analysis. Market selection is based on statistical market performance. Specific criteria are applied to market selections which then are scrutinized by our money management system for peak risk-return parameters.
RJO: What is your minimum capital requirement for your program?
Justin Vandergrift: The minimum investment is $250,000 with notional funding accepted.
RJO: One what markets does your program focus?
Justin Vandergrift: We trade a range of global markets ranging from currencies, financials, global financials, grains, soft commodities and stock indexes.
RJO: Have you ever changed your trading model? If so, when and why?
Justin Vandergrift: The current trading landscape is constantly evolving. New opportunities are created through new markets and the effects of one macro change can be felt through market complexes never before imagined. A decade ago farmers would not consider the effects of the Dollar Index on their ability to earn a profit. Today however, all things are related. Advisors who do not modify and adapt could have shortened careers. Our Global Trend Following Program has utilized our statistical trend following analysis since its inception with minor changes to improve its efficiency. Our trading parameters are retested annually and the best results are then applied so that we adjust to include current market conditions.
We have a commitment to continual research and we are constantly looking for new markets and new money management techniques. The core of the trading program is a quantitative trend following program in nature and no change or modification will be made to change that basic premise. Most of these changes revolve around money management, risk allocation and market selection, if they can be justified on a performance basis.
RJO: In your professional opinion, what is the single most important reason an investor should consider adding managed futures to their portfolio?
Justin Vandergrift: There is relativity to money that most investors do not understand. Your gains and losses should be compared to those around you to determine their significance. Making 20% in a year might seem like a substantial return. However if everyone else made 40% that year then your investments underperformed. Your return, even at 20% per year, made you poorer than your peer group. The same logic applies to periods of losses. If you lose 10% in a year while everyone else lost 15% that year then you out performed your peer group. You lost less than those around you. This is the benefit of managed futures to investor portfolios. Finding the right managed futures portfolio, ones that profit while your other investments are down, will blend out your returns.
RJO: Would you say your trading program is better suited to be a stand alone or part of a multi-CTA portfolio?
Justin Vandergrift: We trade a large basket of markets that most programs don’t. For this reason our program gives exposure typically un-matched from other CTA programs. We are well suited to be a stand alone program because we are diversified in comparison to other CTA programs. We trade over 40 markets both domestic and international. Our focus on minimizing loss parameters while maintaining high return is paramount to our system. Tomorrow’s opportunities are wasted if you do not have the capital to trade them. We track very well in comparison with our peers, yet use a different algorithm.
RJO: In regards to selecting a CTA or composing a portfolio of multiple CTAs, what piece of advice would you offer to a client?
Justin Vandergrift: : I would tell them to review advisors during extremes. Most of the time investors look at the end result of a portfolio blend – how much money the blend made and what the blend’s drawdown was over the sampled period. Correlation data between advisors is useful, but for multi-advisor blends it is problematic as correlation data measures two inputs against each other. The addition of the third creates a problem. The method I suggest it to review advisor performance during their extremes.
For instance, if there is a negative extreme, is the loss at the lowest ebb of the program too great for the client to tolerate? Many CTA's will create their program for certain levels of loss during a drawdown and as a client, this must agree with your level of risk tolerance. If the peak drawdown does not agree with the client's risk tolerance, he will be unhappy with the program performance. The pain of loss is generally more severe than the pleasure of a profit and thus losses cause greater anxiety for the client.
RJO: We’d like to thank you Justin for sharing your thoughts and providing some insight into the Chadwick Investment Group’s trading program. We appreciate your participation in this issue’s CTA Spotlight.
As always, we encourage everyone to check out the website: http://www.rjofutures.com/managed-futures/
In upcoming issues, we will spotlight each CTA to feature their particular area of expertise and the concepts behind their trading program(s). Anyone interested in more information regarding Managed Futures may feel free to contact me at CPeck@rjofutures.com or (312) 373-5338.