The year 2022 saw more real wealth destruction than 2008, the year of the Global Financial Crisis, as measured by a traditional stock/bond portfolio. As a result, many investors have recently begun to reconsider the role of risk-mitigating portfolios within their broader asset allocations, which are typically dominated by equity risk.
We believe trend following deserves a prominent place in any serious risk-mitigation portfolio given 1) its ability to deliver positive long-run returns and perform well in both growth- and inflation-driven bear markets and 2) its unmatched performance during the prolonged drawdowns that are most likely to impair investors’ ability to achieve long-term goals. 1 1 Close Please refer to Exhibit 4 in the paper for empirical support. The most effective trend-following programs diversify across signals, combining both short-/long-term price and economic trend signals, and across asset classes, including harder-to-access alternative markets. 2 2 Close Please refer to Exhibits 5, 6, and 7 in the paper for empirical support.
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We thank Jordan Brooks, Pete Hecht, Shreya Kakarla, Nick McQuinn, Yao Hua Ooi, Erik Stamelos for their work on this paper. We also thank Dan Heffernan, Antti Ilmanen, Thomas Maloney, Dan Villalon for helpful comments.