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Lukasz Tomicki Matthias Knab, Opalesque for New Managers: Most long/short managers who beat the market this year will tell you which stocks they picked. Lukasz Tomicki will barely discuss his. Ask the founder of Austin-based LRT Capital Management what makes him different and he moves the conversation away from company analysis almost immediately, to the point of calling the thing most of his peers sell as their edge "table stakes."
The numbers make the argument worth hearing out. LRT Global Opportunities has compounded at 23.64% net since inception in January 2022, against 10.82% for SPY, and is up 29.26% through August 2026. It has done that with roughly 0.3 beta to the S&P 500 and a worst drawdown of 15.33%, against 24.80% for the index. Volatility is 23.84%, considerably higher than the market's, but downside volatility is 9.80%, roughly in line with it. The Sortino ratio is 2.41.
The portfolio is 77 long positions and six index shorts. Strategy assets are $177m. We spoke in September.
Matthias Knab: I'm looking at your tear sheet, and it looks really good. Not all the funds I talk to are outperforming this year. How do you outperform? What do you do?
Lukasz Tomicki: I have proprietary alpha signals that I've developed over time, and I think that's the biggest change from the previous investment strategy. And we're just very well diversified. I have a proprietary risk model. I teach at the university, in Texas. Based on that, we're selecting stocks that I think perform well over the long term, and because of the risk system we're also minimising drawdowns. You can't outperform at all times, but this year has been very good.
Matthias Knab: How many positions do you have?
Lukasz Tomicki: We have 77 positions right now, and we have six index shorts.
Matthias Knab: Were you able to make money on the short side?
Lukasz Tomicki: No. The shorts are strictly there to reduce risk. But I think what's also important is that we change out the short indexes towards the end of the year to realise the tax losses on those. So even though on a gross basis we're at roughly 47% for the year, taxable gains are substantially lower than reported gains due to proactive tax loss harvesting, which I think is extremely important.
Matthias Knab: The first thing to read on your materials is a qualitative screen for moat, growth and capital allocation. Explain to me, what exactly are you looking for?
Lukasz Tomicki: We're looking for the first three things that are obvious, and everyone does that, everyone talks about it. Good capital allocation, growth, and competitive advantage. Those are three things, but those are table stakes. That's the investable universe. The real alpha is in the portfolio construction.
Portfolio construction combines two things. Number one is risk minimisation, so limits on exposures, and exposures to the actual factors that drive stocks, not some stupid things like sector concentrations. Actual exposures, proprietary models that I've built, define that. Number two is tilting the portfolio towards things that are actually sources of alpha, which are based on proprietary research.
Matthias Knab: When you talk to investors, what is the thing that excites them when they look at you and allocate to you? The returns?
Lukasz Tomicki: Correct, they look at returns, and the fact that there's very little correlation to the market. Our exposure to the market is close to zero. Our exposure on a beta basis is like 7%. And the fund is less volatile than the market, actually, in most times. Downside deviation is roughly one third of our upside deviation. So we have a lot of volatility, but it's all upside volatility, or 80% is upside volatility. And that's what matters.
Compounding without market exposure is the most important thing. How do we do that? It's very simple, you just short market indexes. And I have a proprietary system where we look at all the factors that we have. It doesn't mean we don't have risk, but 80-plus percent of our risk in terms of volatility is stock-specific, not systematic. So the stock market goes up and down, or the AI trade does this or the other, and it's not a meaningful impact on us. In terms of sector exposures, technology is a large exposure for us, and large exposure means 1.2% of total risk. So sector exposures are essentially non-existent, to the extent that they matter.
Matthias Knab: That was going to be my next question. Are you investing across all sectors?
Lukasz Tomicki: The investable universe is not balanced across all sectors, because the things I told you I'm looking for, moat, growth, capital allocation, are not found equally throughout the economy. Basic materials, commodity shipping, commodity chemicals, those are not places you're going to find competitive advantages. So those are essentially non-existent in the investable universe. But you still have 80-plus percent of potential sectors in the world to invest in.
We do have some exposure to AI, but I would say that's somewhere around 10-15% of the portfolio. We also have plenty of exposure to healthcare, and arguably healthcare is probably where we're deviating the most from the market index today. It's a very strong exposure of the fund, and within the market-weighted indexes it's a tiny, tiny exposure.
Matthias Knab: Investors love to ask managers, "What makes you unique?"
Lukasz Tomicki: The most unique thing is that within proprietary research on factors, and building my own factor models, I have found something where my finding is the opposite of 90-plus percent of the literature. And that's a very strong alpha signal.
There are probably 300 papers on this topic. Everyone defines certain things slightly differently. But this gives me confidence, or say optimism, because it's a fairly well-researched area and most people come to the opposite conclusion than I have. That suggests there are going to be fewer people naturally looking in this space.
My prevailing view of this topic was the same as the established literature, until I actually did my own analysis, my own facts, my own numbers, my own models. And through a roundabout way I came to the conclusion that this particular thing is a very strong alpha predictor, as opposed to what the research says. The portfolio is clearly tilted in that direction. I'm sorry if I'm being a little opaque about what it is, but that's the process.
Matthias Knab: That's the secret sauce.
What the risk report shows
Tomicki's claims about where his risk sits are unusually checkable, because he runs the decomposition himself and was willing to show it.
On the book as it stood at the time of our conversation, total risk was 23.2% annualized volatility. Of that, 77.6% was idiosyncratic and 22.4% systematic, which supports his "80-plus percent" framing with a little rounding in his favour. Inside the systematic half, style factors accounted for 86.6% and sector factors for 13.4%. Sector risk in total came to 2.99% of portfolio variance across eleven sectors, with technology the largest. His 1.2% figure for technology is therefore in the right neighbourhood, and the broader point stands: sector positioning is close to irrelevant to this portfolio's risk.
The style side is where the exposure actually lives. Fifteen style factors carried 19.37% of total variance, and the largest by some distance was SmallSize. Growth, LowVolatility and Liquidity follow. Two factors, DividendFactor and HistoricValue, reduce portfolio variance rather than add to it.
The single largest risk source in the book is not a stock. It is IJR, the iShares Core S&P Small-Cap ETF, at 10% of variance, and IWM sits in the top five as well. Both are hedges. A manager who says the shorts exist only to reduce risk is, on his own numbers, carrying two of his five biggest risk contributions in those same shorts, which is a more interesting fact about the construction than anything in the long book. Net exposure on that snapshot was 7%, against 586% gross.
The since-inception number is excellent, but it is carried by 2022 and 2023, when the fund returned 20.76% and 37.65% while equities fell and then recovered. The three-year return is 11.09% against 19.42% for SPY. This is a strategy that should be expected to lag a strong directional market, and it has. That is the design working, not failing, but it needs to be said plainly to anyone buying the headline number.
The fund runs at 23.84% volatility against 15.85% for the index. Tomicki's answer is that the distribution is asymmetric, that downside deviation is a third of upside, and the Sortino ratio of 2.41 supports him. On risk, the tear sheet states that risk is managed to limit permanent capital loss rather than to manufacture a low-volatility appearance. That is a promise about losses, not about the ride, and allocators should be clear which one they are buying.
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