Newfound Research explores whether macro and momentum signals can improve factor rotation, testing adaptive multi-factor allocation strategies against a simple equal-weight approach. While results look strong on paper, especially for macro signals, the paper raises a key concern that much of the outperformance may be driven by hindsight bias rather than repeatable edge.
Macro Timing with Trend Following
Newfound Research
Research
12 Pages
Key Takeaways
Macro Signal Outperformance: Macro-based rotation meaningfully outperformed equal-weight portfolios historically, but results appear unusually strong, suggesting potential overfitting and hindsight bias in backtests.
Momentum Weak Evidence: Momentum-based rotation showed limited benefit in U.S. data, with weaker results versus global studies and minimal excess return after accounting for real-world costs.
Costs Erase Edge: After incorporating fees, taxes, and trading frictions, excess returns shrink materially, implying that theoretical gains may fall below 1–2% annually in practice.
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