When looking for a strategy to perform best at the extreme ends of market returns, investors often turn to guaranteed but expensive put and call options to provide convex returns. The multi-asset nature of trend-following helps provide much-needed diversification to a tail hedging strategy – not least in an environment where…
With more than $300 billion in assets under management, trend-following is one of the largest alternative investment strategies and has become a common allocation in many individual and institutional investment portfolios. Here, we outline some of the basic characteristics of trend-following and how it can impact a broader…
Sudden market shocks often bring into question trend-following's 'crisis alpha' credentials: its convexity profile or skewness. Aren't trend-following strategies supposed to protect on the downside? The answer lies in the period over which we want protection.
Trend-following strategies perform as well as equities in the long term, yet get there with lower risk, smaller drawdowns, and do best when equities are at their worst. What’s not to like about that?
At Man AHL, they empathise with what is probably Maverick’s most famous quote in 1986’s “Top Gun”. Following trends quickly and being responsive to emergent (or dissipating) changes in market directions, is a design goal for all of our trend-following strategies. As they explain in this note, faster trend systems have…
Trend-following indices have posted their best year-to-end-May returns since 2000, against a backdrop of poor performance from traditional asset classes such as equities and bonds. This should not come as a surprise: after all, we are seeing the presence of strong trends in futures markets which are sensitive to macro-…
Does higher volatility mean higher potential returns for a trend-following strategy? Analyzing trend-following CTAs, we explore their relationship with market volatility and its impact on returns across diverse asset classes. Our findings highlight the efficacy of trend-following strategies in various volatility regimes.
To unleash the full power and potential of trend- following, investors need the freedom to go short as well as long, use leverage, and trade a wider range of asset classes and markets. Analysis shows that leverage and a wider investment universe can enhance risk-adjusted returns over a full market cycle, while shorting may…
This article analyses the 50 worst one-day shocks and the following days in stocks, bonds, and commodities. It also looks at how the Multi-Asset Trend-Following strategy performed during the same periods. Further, the second part of this article focuses on critical geopolitical events (the starts of major wars, international…
Kathryn M. Kaminski, Ph.D., Chief Research Strategist, and Yingshan Zhao, Junior Research Scientist, consider a quantitative method for measuring the amount of turbulence an investor may experience with trend following.
Dynamic risk mitigation strategies seek to provide a capital-efficient way to generate both higher risk-adjusted returns and reduced drawdowns without the cost normally associated with left tail protection. Nearly a decade after it came to prominence, managed volatility continues to be a viable solution for many and performs…
In their two papers, Goulding, Harvey, and Mazzoleni showed that observed market corrections and rebounds carry predictive information about subsequent returns and showed how that information could be utilized to enhance the performance of trend-following strategies by dynamically blending slow and fast momentum strategies…
In this latest research report, starting from empirical observations from the last two years, we show a strong historical relationship between trend-following performance and the type of risk factors that are the source of trend opportunities. This leads us to conclude, that the value of investment universe diversification…
Trend following CTAs have been able to capitalise on bull and bear markets across asset classes in recent years, encouraging investors to view them once again as an all-weather allocation in a climate where considerable uncertainties can upend forecasting-based approaches. In this paper we explore whether it is time to…
For investors that use trend-following strategies, Avramov, Kaplanski, and Subrhmanyam provided new evidence supporting momentum strategies and showed that the distance between short- and longer-term momentum signals provides additional explanatory power in the cross-section of equity returns.
When volatility spikes and markets move in unexpected directions, a good trend-following strategy has the speed and flexibility to adapt and roll with the punches – in other words, it can keep calm and carry on.
Long-only trend following in equities was more effective than long-short trend following in the US. Same for European and Asian stock markets. Perhaps explained by the negative skewness of stock markets.