Quarterly Insights: Chasing Trends or Chasing Performance?

Quantica Capital

Research

13 Pages

Quantica Capital examines whether investors can improve trend following results by dynamically allocating capital across asset classes based on recent performance. The paper argues that performance chasing often reduces the benefits of diversification and can leave investors worse off than maintaining a consistent exposure to trend opportunities.

Key Takeaways

Commodity Dominance: From January 2020 through May 2026, a representative trend following strategy generated roughly 8.1% annualized returns, with commodities contributing most gains while equities detracted and fixed income played a limited role.
Weak Persistence Signal: Using data from 2000 through May 2026, trend profitability showed positive cross sectional persistence of about 0.05 at horizons below one year, but the relationship weakened and eventually reversed over longer periods.
Diversification Advantage: Analysis across 26 years found that sectors with the strongest recent trend profits also exhibited higher average pairwise correlations, reducing diversification benefits and limiting the effectiveness of tactical sector reallocation.
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