Given the performance of CTAs and trend-following strategies during periods when many assets are in crisis, I further examined where trend-following approaches find crisis alpha. A closer look at trend following performance by asset class (across equities, bonds, commodities and currencies) and by direction (net long or net short) supports the claim that trend following captures multiasset crisis alpha by actively trading a wide range of markets.
Secondly, the ability to take both long and short positions, at different speeds, allows trend-following strategies to adapt to difficult market environments with the potential to be better positioned to capture crisis alpha. In particular, short positions have tended to perform better during periods where many assets are in crisis.
In summary, actively trading a very diverse set of markets and being able to go both long and short allows a trend-following strategy the potential to capture crisis alpha wherever and whenever it might occur. For the global investor seeking risk mitigation, it is not surprising that trend-following strategies may provide a complementary profile.
Kathryn Kaminski is director, investment strategies, Campbell & Co., Baltimore. This content represents the views of the author. It was submitted and edited under P&I guidelines, but is not a product of P&I's editorial team.