🎙️ Systematic Strategies

A groundbreaking children's hospital in Zurich is transforming the landscape of pediatric care. The three-story facility is designed to resemble a miniature town. Its layout features medical specialty wings that act as "neighborhoods," all connected by a central "main street" lined with green courtyards. Each patient room is crafted to look like a cozy cottage, complete with a pitched roof.

“People in hospitals are often in life-threatening situations,” the architects explained in a statement. “That is an exceptional challenge not only for patients but also for relatives, carers, and physicians. Ironically, hospitals all over the world and even in Switzerland are often the ugliest places.”

It’s more proof that a little creativity — and thinking outside the box — can transform the ugly and mundane into something beautiful.

Today, we'll chat with executives at DUNN Capital, one of the oldest managed futures firms in the industry. Its trading programs are quantitative, statistical, and 100% systematic.

All this, and more, in just 5 minutes to read.

— Matthew

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"Embrace uncertainty. Some of the most beautiful chapters in our lives won’t have a title until much later.”

— Bob Goff

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Trivia

Systematic Strategies: The DUNN Capital Story

In the cutthroat world of finance, particularly hedge funds, DUNN Capital stands out as a guiding light of the investor-first approach. At DUNN, it’s not talk and buzzwords — the firm is focused on a simple yet powerful ethos, the golden rule of business: treat others as you would want to be treated. 

"We always want to treat the investor as if we were the investor," says Martin Bergin, president and owner of DUNN Capital, a global leader in systematic trend following based out of Stuart, Florida. 

Founder Bill Dunn instilled that mantra. At DUNN, it isn't just a catchy slogan—it's the bedrock of their entire operation. Notably, DUNN doesn’t charge management fees because they believe they should only get paid based on what they deliver for their investors, not simply because they’re looking after client money. 

“We don’t want to be merely an asset gatherer,” Bergin says. “We want to be a producer of compounded growth for people. For us, it’s about hiring quality people, then working together as a team in the same direction to support our clients.”

DUNN first came on our radar via Niels Kaastrup-Larsen, a long-time friend of The Investor’s Podcast Network and host of the Top Traders Unplugged podcast.

In this conversation, we discuss DUNN Capital’s process, research-driven approach, and staying power: DUNN has been serving investors since 1974 and now manages over $1.4 billion in assets. The firm’s strategy focuses on disciplined reactions to market trends rather than emotional forecasts of the future. The approach has allowed DUNN Capital to thrive through a wide range of market conditions, including during the 2008 financial crisis and, more recently, when inflation returned in 2022, when its strategy outperformed traditional investments.

This interview with DUNN Capital’s Martin Bergin (president and owner) and James Dailey (CEO) has been edited lightly for brevity and clarity.*

What sets DUNN Capital apart from other managed futures firms?

Without getting into the nitty-gritty of what we do, our core belief is being systematic. Our portfolio management is 100% systematic, quantitative, data-driven. We’re fully diversified. 

From the start, I (Marty) was fascinated by our systematic nature, which protects the investor from him or herself. It removes the cognitive biases we’re all subject to and removes emotion, which isn’t usually helpful in trading and investing. Our bread and butter is trend following. We're one of the few managers who has remained pure in trend following over the years, and we’re transparent about that. 

What kinds of investors do you have?

About 60% of our investor base is made up of high-net-worth individuals and family offices. We have investors across the U.S. as well as Europe and some in Asia, too. We have various funds and access points to accommodate different types of investors. 

How do you talk to investors who are more comfortable with the buy-and-hold great companies approach?

Trend following, in general, is a good stand-alone investment. But, it really shines as a complement to traditional investments because it’s not correlated. Over time there’s virtually zero correlation with stocks, bonds, and real estate — all of the traditional assets most high-net-worth individuals and family offices already have. We talk to them about the value of diversification and having non-correlated strategies in their portfolios. 

We tend to be negatively correlated during the really bad equity periods because those periods tend to be extended and create broad trends that we can capture. For example, we did really well during the tech bust in the early 2000s, the Global Financial Crisis in 2008, and more recently the 2022 inflation period. On the flip side, oftentimes, when we’ve had difficult periods, equities have done quite well, so the combination makes a lot of sense. 

We see this as a great complementary blending of strategies. It comes down to how much investors want to blend their equities investments with our trend following.

Tell us a bit more about the trend following. 

Our whole philosophy is to educate people about the value of trend following. We believe trend following is one of the only true diversifying asset classes. When I say diversifying, I mean zero correlation to anything else. A famous saying in finance: ‘The only free lunch is diversification.” 

When something bad happens in the world, or a financial crisis occurs, many assets become very correlated, and usually they all go negative. Only one asset class consistently does the opposite: managed futures trend following. The problem is when things are really good for the stock market, trend following tends to lag behind, so you have to be disciplined enough to stick with it. 

It can be hard for people to get over that emotional effect of seeing trend following lag month after month or seeing it flat for two years. When we enter a bad economic period or a year like 2022, stocks go down, bonds go down, but managed futures makes money. It was basically the only asset class that did well in 2022. 

What does communication between you and investors look like?

Usually my main communication is when they open an account, they must talk to me (Marty). I have a direct heart-to-heart where we discuss expectations and what could happen. We answer questions like: What could go badly? How do we manage risk? How does the system work? If they’re comfortable after that conversation, they can invest — if we feel they understand the risks. 

We trade at a high volatility with above-average risk levels on purpose because we’re so non-correlated with the rest of a typical portfolio. By adding that extra volatility in a non-correlated fashion, it actually lowers the overall risk of their portfolio. To us, it’s simple math. James and his team do an incredible job providing materials to educate investors about trend following and in that respect we are very transparent. 

That qualification call with each new investor is a process in which we explain how past performance isn’t necessarily indicative of future results. Still, it’s a systematic process with a 50-year track record. We want investors to understand that there are some tougher years in addition to the really good, juicy periods. We also pride ourselves on being very accessible to every investor. 

Most of our investors stick with us for years, if not decades, because we manage their expectations and send detailed performance updates, which help people decide whether to add or withdraw money. We also do a monthly podcast, restricted to accredited investors, in lieu of an investor letter. 

Do you see more investor interest during good markets like this or when stocks turn lower?

We always see the most interest right after a big run, probably the worst time for people to get involved. But it’s good for them to become educated. Bill would say the best time to invest is at the bottom of a drawdown. But you never know when that will come. The second best time to invest is today. 

You can’t time the market. I recommend that investors put in an amount they’re comfortable with, monitor it, and add more over time. 

Over how many years do you work with clients?

Some accounts from 50 years ago are still in existence with us. Many closed accounts are only closed because someone passed away. But many investors call and say things like, “Thanks to you, we paid off our mortgage, sent our kids to college, and traveled the world. None of which would have happened if we didn't open that account decades ago.” 

People can withdraw from our fund monthly. There’s no lock-up. But we recommend people have a good five-year horizon with us. We see our clients as true partners because we also have our own skin in the game. We truly believe in this investment. Many people who work here have the vast majority of their net worth in the same thing as our investors. 

How can investors learn more or connect with you?

Check out the website. You must attest to being an accredited investor to access our performance history. Then we can have a conversation. 

Download Your Copy of the DUNN eBook and take a deeper look into DUNN Capital’s remarkable journey.

*This interview is sponsored content.

See you next time!

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