Key Takeaways
- • Market structure evolution has fundamentally altered short-term trend following performance, with changes in liquidity dynamics and the rise of high-frequency trading reducing the efficacy of traditional momentum strategies in shorter timeframes.
- • Tick size reductions and proliferation of smaller futures contracts have democratized retail access to markets, creating structural shifts that impact how trend-following algorithms identify and execute on price momentum.
- • First-half 2026 performance data for CTAs and trend followers shows mixed results, reflecting the ongoing challenges posed by regime change and shifting market microstructure dynamics.
- • Federal Reserve communication strategy has entered a new era, with implications for how systematic investors must adapt their frameworks to navigate evolving monetary policy signals and regime transitions.
- • Commodity markets remain a critical opportunity for trend followers despite headwinds, driven by geopolitical tensions in the Middle East and AI-driven demand dynamics that create persistent trends.
Summary
Alan Dunne's discussion with Niels Kaastrup-Larsen examines whether structural changes in financial markets have permanently reshaped the viability of trend-following strategies, particularly in shorter-term timeframes. The conversation centers on a new research paper from DUNN Capital addressing market microstructure—the mechanics of how markets function—and the implications of these shifts for systematic investors.
The primary structural headwinds identified include the decline in traditional liquidity provision and the dominance of high-frequency trading. Contrary to conventional wisdom, Dunne argues that faster execution no longer necessarily translates to superior returns. The proliferation of smaller futures contracts and reduction in tick sizes has democratized retail participation in markets, fundamentally altering price discovery mechanisms. These changes have compressed the alpha-generating window for short-term trend followers who historically profited from identifiable momentum patterns.
First-half 2026 performance for commodity trend strategies deserves particular attention. While CTAs and trend followers faced headwinds from evolving market structure, commodity markets themselves presented opportunities driven by Middle East geopolitical tensions and the structural demand narrative from artificial intelligence infrastructure buildout. These dynamics underscore Dunne's thesis that regime change—rather than eliminating trend following—continues to create both risks and opportunities for systematic investors capable of adapting their frameworks.
The discussion also addresses the Federal Reserve's evolving communication strategy under Kevin Warsh, marking a departure from previous messaging approaches. This shift has material implications for how trend followers must calibrate their exposure to macro regimes and interest rate sensitivity. The central theme throughout is adaptation: markets have changed, but the fundamental case for trend-following strategies remains intact for investors willing to evolve their execution and timeframe expectations alongside structural market evolution.
The primary structural headwinds identified include the decline in traditional liquidity provision and the dominance of high-frequency trading. Contrary to conventional wisdom, Dunne argues that faster execution no longer necessarily translates to superior returns. The proliferation of smaller futures contracts and reduction in tick sizes has democratized retail participation in markets, fundamentally altering price discovery mechanisms. These changes have compressed the alpha-generating window for short-term trend followers who historically profited from identifiable momentum patterns.
First-half 2026 performance for commodity trend strategies deserves particular attention. While CTAs and trend followers faced headwinds from evolving market structure, commodity markets themselves presented opportunities driven by Middle East geopolitical tensions and the structural demand narrative from artificial intelligence infrastructure buildout. These dynamics underscore Dunne's thesis that regime change—rather than eliminating trend following—continues to create both risks and opportunities for systematic investors capable of adapting their frameworks.
The discussion also addresses the Federal Reserve's evolving communication strategy under Kevin Warsh, marking a departure from previous messaging approaches. This shift has material implications for how trend followers must calibrate their exposure to macro regimes and interest rate sensitivity. The central theme throughout is adaptation: markets have changed, but the fundamental case for trend-following strategies remains intact for investors willing to evolve their execution and timeframe expectations alongside structural market evolution.
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