No. Although recent underperformance has led some investors to question whether trend-following is facing deeper structural issues, the strategy is inherently cyclical. Periods of unfavourable conditions are typically temporary, meaning drawdowns have often been followed by strong recoveries. Trend-following remains one of the few strategies with a proven track record of diversification and providing alpha in periods of market turmoil. Continuous innovation within the space further ensures the strategy’s robustness and adaptability to changing markets. Given these attributes, we continue to believe trend-following can be additive to portfolios.
The recent period ranks among the worst for trend-following. The SG Trend Index experienced its second largest drawdown since inception in 2000, declining 20.4% from May 2024 through May 2025. In contrast, the HFRI Equity Hedge Index and the MSCI ACWI returned 10.9% and 18.3%, respectively, over the same period. Global markets have been characterized by abrupt reversals, range-bound price action, and a lack of persistent trends—all of which have posed significant challenges for trend-following models. Notably, these unfavourable conditions have been pervasive across asset classes, undermining the strategy’s typical diversification benefits. The volatility surrounding the April 2025 “Liberation Day” tariff announcement—where sharp sell-offs were followed by rapid recoveries—exemplifies the kind of directionless market environment that frustrates trend-following strategies.
Trend-following strategies are designed to thrive in sustained, directional market moves—both upward and downward—across a range of asset classes. Although current conditions are challenging, they are not without precedent. Historical evidence demonstrates that trend-following recovers strongly post-drawdowns when new trends emerge. Since 2000, the SG Trend Index has experienced 16 drawdowns greater than 10%, occurring roughly every 18–24 months, with most subsequent 12-month periods delivering commensurate or significantly higher recoveries. Drawdowns are inherent and do not damage the case for trend-following.
The strategy has consistently generated long-term absolute returns that are uncorrelated with traditional asset classes, reinforcing their value as a valuable portfolio diversifier. In crisis periods such as 2008 and 2022, trend-followers delivered meaningful crisis alpha. 2022 was particularly notable, as the historical negative correlation between equities and bonds broke down, resulting in one of the worst years for 60/40 portfolios. Trend-following strategies, with the ability to short both asset classes, provided valuable diversification. The SG Trend Index returned 20.9% in 2008 and 27.4% in 2022, while the MSCI ACWI posted losses of 42.2% and 18.4%, respectively.
Trend-following strategies are not static. Leading managers are continually innovating and adapting to changing market conditions. Many have refined their models to better capture shorter-term trends, incorporate alternative data, and dynamically adjust risk exposures. Expansion into new markets—such as emerging markets, alternative commodities, and synthetic instruments—further enhances the potential for uncorrelated trends. Advances in technology and research have enabled more sophisticated signal processing and execution, helping to mitigate issues such as crowding and signal decay.
A strategic approach to trend-following investing is essential for long-term success. Position sizing should align with risk tolerance and be actively rebalanced—trimming after outsized performance and increasing during underperformance. Diversification across multiple trend managers is helpful, with a clear understanding of each manager’s strengths and weaknesses. Robust research, risk management, and a focus on positive skew are key components in the diligence process, as the long-term success of trend-following depends on capturing infrequent, outsized gains during major market moves. While drawdowns can be frustrating, history demonstrates that remaining invested positions portfolios to capture gains when trends emerge. Moreover, investors benefit from drawdown recoveries without incurring performance fees, which enhances net returns during the recovery phase.
Performance in trend-following strategies could improve with the emergence of clear, sustained market trends, which would translate into higher signal strength for models. Additionally, broader trend participation—characterized by greater dispersion across asset classes, sectors, and geographies—would provide a richer and more diverse opportunity set. Currently, signal strength in trend programs remains below average, but it can build quickly when price trends arise. As history demonstrates, the next wave of trends may be around the corner, and maintaining an allocation is the most effective way to capture these opportunities when they arise.
Yen Yen Ooi, Managing Director, Hedge Funds