I just finished reading this report from an experienced voice based in the US and I must say it is an excellent piece of work. Clear, data-driven, and refreshingly candid about both the strengths and limits of trend following. It also does a great job of explaining why their approach is different from the crowd without the usual salesy chest-thumping.
Trend following, as the report rightly points out, is one of the oldest and most widely used strategies in systematic trading. Even today, it remains the backbone of many CTAs with trend-followers often closely tracking the performance of the broader CTA indices. While effective in certain environments, trend following is far from an all-weather solution.
According to a 2013 study by the CME Group, it works best when both volatility and cross-asset correlations are either high or low with the most fertile ground being periods of low volatility and high correlation where trends can persist for long stretches.
Here is a summary which has been modified minus the colorful charts:
Unlike trend followers who react to long-term informational drifts, our strategy is proactive, built to capitalize on short-duration market patterns driven by human behavioral biases. These recurring inefficiencies create two-tail protection and the potential for positive returns in both rising and falling markets.
While many CTAs have a hidden short-volatility bias, benefiting from stable trends but often forced to reduce exposure during volatile periods, we do the opposite. Our model is long realized volatility by design, expanding its opportunity set when markets are under stress.
Our strategy has a starkly different performance profile, especially in times of crisis. During the 25 worst S&P 500 drawdowns, our Macro Diversified model generated a cumulative return of +228%, far outpacing the +25% return of the SG CTA Index.
Data shows that CTAs tend to perform better in market run-ups (+48%) than in drawdowns (+25%). Our strategy shows the opposite, delivering most of its alpha during turbulent periods, making it a more dependable defensive asset for portfolio construction.