Trend-following managers are having a banner year so far in 2022 amidst a year of turmoil for traditional portfolios. Trend following has provided valuable diversification1 to investors who stuck with the strategy against losses in traditional allocations; the SG Trend Index has returned 36% year-to-date through September 2022, while the Global 60/402 declined -20%.
Investors exploring an allocation to trend-following may be wondering if they are “late to the trade,” while also anchoring their expectations to the lean 2010s. Both the macroeconomic picture and empirical evidence, however, suggest that strong performance for trend-following may persist, making it a potentially valuable source of diversifying returns during a challenging time for the rest of investors’ portfolios.
In this article, we highlight trend-following’s track record of delivering strong long-term returns and strong performance in downturns for traditional assets—even after factoring in the 2010s. We examine the macroeconomic drivers that stymied trend-following during the 2010s, finding them exceptional versus history. We then assess the current economic outlook and identify several reasons that macroeconomic volatility—and correspondingly large market moves—are unlikely to subside in the near term, providing a favorable backdrop for trend-following performance. Finally, we note several enhancements to a trend- following approach that potentially make it easier for investors to stay invested.
This document has been provided to you solely for information purposes and does not constitute an offer or solicitation of an offer or any advice or recommendation to purchase any securities or other financial instruments and may not be construed as such. The factual information set forth herein has been obtained or derived from sources believed by the author and AQR Capital Management, LLC (“AQR”) to be reliable but it is not necessarily all-inclusive and is not guaranteed as to its accuracy and is not to be regarded as a representation or warranty, express or implied, as to the information’s accuracy or completeness, nor should the attached information serve as the basis of any investment decision. This document is intended exclusively for the use of the person to whom it has been delivered by AQR, and it is not to be reproduced or redistributed to any other person. The information set forth herein has been provided to you as secondary information and should not be the primary source for any investment or allocation decision. Past performance is not a guarantee of future performance.
This material is not research and should not be treated as research. This paper does not represent valuation judgments with respect to any financial instrument, issuer, security or sector that may be described or referenced herein and does not represent a formal or official view of AQR. The views expressed reflect the current views as of the date hereof and neither the author nor AQR undertakes to advise you of any changes in the views expressed herein.
The information contained herein is only as current as of the date indicated, and may be superseded by subsequent market events or for other reasons. Charts and graphs provided herein are for illustrative purposes only. The information in this presentation has been developed internally and/or obtained from sources believed to be reliable; however, neither AQR nor the author guarantees the accuracy, adequacy or completeness of such information. Nothing contained herein constitutes investment, legal, tax or other advice nor is it to be relied on in making an investment or other decision. There can be no assurance that an investment strategy will be successful. Historic market trends are not reliable indicators of actual future market behavior or future performance of any particular investment which may differ materially, and should not be relied upon as such.
The information in this paper may contain projections or other forward-looking statements regarding future events, targets, forecasts or expectations regarding the strategies described herein, and is only current as of the date indicated. There is no assurance that such events or targets will be achieved, and may be significantly different from that shown here. The information in this document, including statements concerning financial market trends, is based on current market conditions, which will fluctuate and may be superseded by subsequent market events or for other reasons.