Quantica Capital examines how diversified trend following CTAs have made money across different yield curve regimes over nearly fifty years. The authors compare trend following with a generic risk parity portfolio, splitting history by rising and falling rates and by high or low carry. Results show that challenging bond environments often coincide with richer opportunities in equities, currencies, and commodities, keeping overall trend following returns surprisingly resilient.
A half-century of trend-following: How CTAs make money in different yield curve regimes
Quantica Capital
Research
11 Pages
Key Takeaways
Regime aware returns: Trend following has historically produced positive results in most yield curve regimes, with rising rate high carry the main exception.
Diversified opportunity set: When bond futures offer fewer trends, equity, currency, and commodity markets typically provide offsetting opportunities for CTAs.
Contrast with risk parity: Long only risk parity appears more dependent on falling yields, while adaptive trend systems cope better with changing regimes.
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