Our nation’s Independence Day is just around the corner, and since most of you will get to enjoy a 4-day weekend, we wanted our newsletter front and center to kick off the week. Since it’s a shortened week, our newsletter is too, looking at some third party research by Welton Investment Corp., who tackle the timely topic of how classic trend following models perform across different market sectors during periods of rising interest rates.
Here’s the problem with researching how managed futures have done during rising interest rate environments. There really haven’t been any to note since the 1970s, and most managed futures indices weren’t around back then. So, you could look at how a single manager did back then, or create a typical trend following model to get a general feel for how trend following performed, and by proxy – managed futures.
This is exactly the tack Welton took in their research, looking at the performance of six different trend following models (think moving average cross overs and other momentum type strategies) on 50 different markets across four asset classes (commodities, equities, fixed income, and currencies), with risk allocated evenly across the four asset classes.
While the news is generally good for trend following, with their hypothetical trend following model well ahead of traditional asset classes in the six (6) various rising interest rate environments they identify – the devil, as they say, is in the details.