Why You Need Trend Systems in Your Portfolio

Societe Generale

Dobromir Tzotchev

Research

34 Pages

Societe Generale explores how multi asset trend following strategies can strengthen portfolios during expensive equity and bond markets. The paper highlights how trend systems historically improved diversification, reduced drawdowns, and performed well during recessions while also acknowledging their vulnerability to abrupt market reversals and rebounds.

Key Takeaways

Diversification Benefits Improve: Adding a 20% trend following overlay increased portfolio Sharpe ratios from 0.59 to 0.86 while cutting drawdowns from 28.8% to 20.5%.
Crisis Protection Matters: During NBER recessions, the S&P 500 averaged negative 13% returns while the trend following strategy gained 15%, creating a 28% performance spread.
Multi Asset Strength: The cross asset strategy generated 11.2% annualized returns with 9.4% volatility and a 1.18 Sharpe ratio from 1990 through 2016.
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