Key Takeaways
- • Trend following strategies have regained prominence as a systematic approach to capturing profits across multiple asset classes—equities, commodities, currencies, and bonds—in an environment marked by increased volatility and shifting macroeconomic regimes.
- • Traditional portfolio diversification has weakened as bonds have become a less reliable hedge, increasing volatility in benchmark portfolios and creating demand for alternative return sources; trend following offers rules-based, adaptive exposure that functions independently of market direction.
- • Trend following enables both long and short positioning across a broad investment universe, allowing strategies to dynamically adjust to market shifts while mitigating concentration risk in single asset classes, sectors, or regions.
- • Schroders has operated trend following strategies for over a decade, positioning the firm to leverage these approaches as a strategic allocation tool for long-term institutional investors seeking enhanced portfolio performance and diversification benefits.
Summary
Trend following has emerged as a strategically relevant investment approach in 2024 as institutional investors contend with heightened market volatility and a reconfiguring macroeconomic landscape. According to Schroders' analysis, trend following is a systematic investment strategy designed to capture profits by riding sustained price trends across a diverse set of asset classes. The strategy's renewed prominence reflects structural shifts in traditional portfolio construction, particularly the declining effectiveness of bonds as a diversification tool—a development that has elevated volatility in conventional equity-bond allocations and underscored the need for non-correlated return sources.
At its core, trend following operates as a rules-based, adaptive methodology that generates returns by identifying and trading sustained price movements regardless of market direction. Unlike traditional approaches that concentrate exposure in equities and bonds, trend following constructs a broad investment universe spanning equities, commodities, currencies, and fixed income. This architecture delivers meaningful return diversification. For instance, a trend following allocation to commodities provides exposure to the return profile and inflation sensitivity inherent in commodity markets while avoiding the drawbacks of benchmark-driven allocations—a distinction that proves valuable for institutional portfolios seeking genuine diversification beyond the equity-bond nexus.
The diversification benefits extend beyond asset class exposure. By operating with capacity to take both long and short positions, trend following strategies can dynamically adapt to changing market regimes independent of directional bias. This flexibility acts as a behavioral and structural stabilizer during periods of market stress, when traditional diversifiers often converge. Schroders' decade-plus experience running trend strategies positions the firm to address what it identifies as a critical institutional need: generating consistent returns while mitigating concentration risk across single asset classes, sectors, or regions. In an increasingly complex investing environment where macroeconomic regimes shift and volatility persists, trend following functions as a strategic allocation tool capable of enhancing long-term portfolio performance through mechanisms fundamentally distinct from traditional beta exposure.
At its core, trend following operates as a rules-based, adaptive methodology that generates returns by identifying and trading sustained price movements regardless of market direction. Unlike traditional approaches that concentrate exposure in equities and bonds, trend following constructs a broad investment universe spanning equities, commodities, currencies, and fixed income. This architecture delivers meaningful return diversification. For instance, a trend following allocation to commodities provides exposure to the return profile and inflation sensitivity inherent in commodity markets while avoiding the drawbacks of benchmark-driven allocations—a distinction that proves valuable for institutional portfolios seeking genuine diversification beyond the equity-bond nexus.
The diversification benefits extend beyond asset class exposure. By operating with capacity to take both long and short positions, trend following strategies can dynamically adapt to changing market regimes independent of directional bias. This flexibility acts as a behavioral and structural stabilizer during periods of market stress, when traditional diversifiers often converge. Schroders' decade-plus experience running trend strategies positions the firm to address what it identifies as a critical institutional need: generating consistent returns while mitigating concentration risk across single asset classes, sectors, or regions. In an increasingly complex investing environment where macroeconomic regimes shift and volatility persists, trend following functions as a strategic allocation tool capable of enhancing long-term portfolio performance through mechanisms fundamentally distinct from traditional beta exposure.
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