The Carry and Value Pendulum

PIMCO

Graham Rennison

Research

6 Pages

PIMCO examines whether combining carry and trend following across 20 markets and four asset classes can improve returns and diversification. The paper finds trend signals work better when aligned with positive carry, with results remaining effective across different rate regimes from 1960 through 2014.

Key Takeaways

Carry Trend Alignment: Strategies using both positive carry and positive trend signals outperformed across 20 major markets spanning equities, rates, commodities, and currencies from 1960 to 2014.
Rate Regime Durability: The combined approach remained effective during both falling and rising rate environments, including the sharply different periods before and after 1982.
Risk Adjusted Improvement: Trend following delivered materially stronger risk adjusted returns when carry confirmed the signal, improving portfolio outcomes across four separate asset classes.
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