Machine Learning Meets Finance: How FALGOM’s Strategies Adapt to Market Shifts

In this exclusive LinkedIn interview, we are fortunate to speak with FALGOM AG’s CIO & Founder, Michael Mueller , a finance veteran with over 35 years of experience, and Quantitative Researcher Arik Wenger , an ETH Zurich graduate and rising talent. Today, they take us behind the scenes of FALGOM’s innovative, fully automated strategies: ARP US Equities and ARP Commodities. These recently launched AI-powered strategies provide institutional investors with resilient, data-driven solutions to navigate today’s volatile market dynamics.

Michael, Arik – thank you both for taking the time today. FALGOM recently launched ARP US Equities and ARP Commodities. For readers new to these strategies, could you give us an overview of their key features and benefits?

Michael Müller: "Of course. ARP US Equities and ARP Commodities are designed to provide institutional investors with robust and systematic exposure, fully automated to adapt to changing market conditions. ARP US Equities focuses on the US equity market, dynamically adjusting exposure to market cycles and sector rotations. It leverages machine learning to identify shifts in the market, capturing opportunities while mitigating downside risks. Conversely, ARP Commodities offers diversified exposure across commodity futures – metals, energy, grains, and soft commodities. With its adaptive approach, the strategy balances volatility while capturing long-term trends through strict risk management."

Arik Wenger: "Both strategies emphasize stability and adaptability. ARP US Equities targets consistent performance across various market conditions, while ARP Commodities provides a systematic approach to commodities, which are inherently volatile. By combining machine learning with proprietary market phase indicators, both strategies are well-suited for long-term portfolio diversification."

What inspired these strategies, and how do they address challenges faced by institutional investors?

Michael Müller: "Our vision is to create resilient, adaptive strategies for today’s unpredictable markets. Institutional investors face increasing volatility and uncertainty across asset classes. ARP US Equities dynamically responds to trends and sector rotations, offering systematic exposure to the US market. ARP Commodities captures long-term trends while managing risks across diverse commodity classes. What sets these strategies apart is their fully automated, data-driven nature. They adapt independently to market shifts without requiring manual intervention, ensuring precision and reliability in volatile environments."

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Arik, I understand machine learning is at the core of FALGOM’s approach. Could you elaborate on how it’s applied in these strategies?

Arik Wenger: "Absolutely. The cornerstone of our approach is regime detection, which identifies distinct market phases to adjust strategies accordingly. In ARP US Equities, machine learning monitors regime changes and adjusts exposure accordingly. In ARP Commodities, it analyzes patterns across various commodity classes, adapting to price shifts effectively. We utilize techniques like Hidden Markov Models (HMMs) for regime detection and k-means clustering to pre-sort data for more efficient and stable initialization. This multi-layered approach ensures our strategies capture opportunities while mitigating risks?– all without manual oversight."

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Michael, how does regime detection enhance resilience during market turbulence?

Michael Müller: "Certainly. Regime detection serves as a framework for adapting to shifts in the market, ensuring the strategies remain aligned with their design principles and investor goals. We don’t rely on a single model. On the contrary: By training multiple models and employing ensemble methods, we enhance robustness. This is especially important in volatile markets, where abrupt changes require rapid, systematic adjustments to protect portfolios. Our strategies remain aligned with investor goals, even in challenging conditions."

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"Machine learning isn’t just a tool; it’s the backbone of how ARP US Equities and ARP Commodities respond to market shifts."

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You also mentioned anomaly detection as part of your AI framework. Could you explain its role?

Arik Wenger: "Anomaly detection adds an additional layer of security. It’s especially valuable in ARP Commodities, where we may encounter extreme events, such as the negative oil prices we saw recently. Our anomaly detection algorithm identifies outlier conditions using a rolling z-score and creates a no-trading regime that reduces our exposure to zero. When extreme conditions are detected, the strategy halts trading in that zone, allowing us to avoid unnecessary risk. This overlay provides an extra buffer, ensuring both ARP strategies remain resilient, even when markets experience sudden shocks."

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Both strategies sound incredibly robust and well-designed for today’s challenges. What do you believe sets FALGOM’s approach apart from other asset managers?

Michael Müller: "Our strength lies in blending decades of market expertise with advanced AI technology. My 35 years of experience as a quantitative analyst and proprietary trader provide the practical foundation for strategy design. Arik brings a fresh, research-driven perspective, ensuring we stay at the forefront of innovation. What truly differentiates us is our commitment to full automation. Our strategies adapt independently, requiring no manual adjustments. This guarantees that they remain robust and reliable across a wide range of market conditions, giving institutional investors the confidence they need."

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"The only thing that is constant in the markets is change."

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Finally, what advice would you give to institutional investors interested in exploring these strategies?

Michael Müller: "The only thing that is constant in the markets is change. To navigate this, you need to adapt your strategies to the dynamic environment. At FALGOM, we believe a strategy is never truly finished – it’s an ongoing process of constant improvement and optimization. This commitment to evolution ensures our strategies remain robust and effective in a variety of market conditions. For those interested in learning more, we’re always open to discussing how our adaptive, AI-driven approaches can enhance a portfolio. Our team is available to provide further insights and walk through the underlying methodologies."

Further information on ARP US Equities and ARP Commodities can be found on FALGOM’s dedicated investor platform: https://products.falgom.com/