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Vineer Bhansali, Matt Dorsten, Graham A. Rennison
Trend-following, the primary approach used in managed futures strategies, seeks positive returns by capturing momentum across major asset classes. While trend-following has generally delivered strong returns over multiple decades, its history of diversifying equity-dominated portfolios, especially in left-tail market events, has been its most prized quality. It is one of the few strategies to have excelled in the dotcom bust and financial crisis. In recent years, though, trend-following strategies have been less successful, partly, we believe, due to massive central bank interventions that have served to increase market correlations, suppress volatility and curtail left-tail events.
Trending backThe likely tapering of the Fed’s asset-purchase program this year may mark the beginning of the end of a monetary policy regime that has weakened trend-following strategies. We expect correlations among asset classes will decrease while market volatility, returns and diversification potential will increase. In short, the trends are positive.
No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. Pacific Investment Management Company LLC, 650 Newport Center Drive, Newport Beach, CA 92660, 800-387-4626. ©2014, PIMCO.
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