Has the sun set for trend investing strategies?
After decades of persistent strong performance, trend investment strategies have struggled since the financial crisis. Has the sun set for these strategies, or do we now see a glimpse of a new dawn?
This is the second article in a three part mini-series on the topic of systematic trend investing. In part one we looked closer at what systematic trend investing is and why we do it. In the last part we will give an example of how you can design a systematic trend strategy, followed by a practical example.
Traders in the stock and commodity markets have tried to find ways to capture trend profits for at least 200 years using different strategies, and for many years these strategies delivered strong returns.
However, market conditions, post the credit crisis in 2008, have not been favorable to trend investing.
Read more about the history of trend investing in my last blogpost.
Trend investing is reactive in nature
Government rhetoric and intervention has made it difficult for trend detection signals to capture consistency in performance during the last decade. But there are no indications of macroeconomic conditions or market structures having changed, or that markets have become more efficient due to a change in investor behavior.
The report of my death was an exaggeration
We argue that continuant recovery of the global economy and a normalization of policy actions will give rise to more apparent trends again.
