Protecting the Downside of Trend When It's Not Your Friend

The Journal of Portfolio Management (2019), https://doi.org/10.3905/jpm.2019.1.087

Posted: 23 Jul 2019

See all articles by Kun Yang

Kun Yang

PanAgora Asset Management

Edward E. Qian

PanAgora Asset Management

Bryan Belton

PanAgora Asset Management

Date Written: July 16, 2019

Abstract

Simple trend-following strategies have been documented as cost-effective, transparent alternatives to the hedge-fund style Managed Futures strategies. While largely capturing the returns of the Managed Futures industry, those simple strategies may periodically suffer significant losses due to over-simplified trend signals and under-diversified portfolio construction. In this article, the authors show that trend-following strategies with moderate sophistication and better diversification can significantly reduce the downside risk of simple trend-following strategies without sacrificing much upside potential. The authors therefore recommend investors who seek the benefits of cost-effective trend-following strategies to consider adding reasonable complexity to the strategies.

Keywords: trend-following, Managed Futures, CTA, hedge funds, portfolio construction, risk management

JEL Classification: G02, G11, G12, G13, G14, G23

Suggested Citation

Yang, Kun and Qian, Edward E. and Belton, Bryan, Protecting the Downside of Trend When It's Not Your Friend (July 16, 2019). The Journal of Portfolio Management (2019), https://doi.org/10.3905/jpm.2019.1.087. Available at SSRN: https://ssrn.com/abstract=3421108

Kun Yang (Contact Author)

PanAgora Asset Management ( email )

1 International Place
24th Floor
boston, MA 02110
United States

Edward E. Qian

PanAgora Asset Management ( email )

470 Atlantic Avenue, 8th Floor
Boston, MA 02210
United States
617-439-6327 (Phone)

Bryan Belton

PanAgora Asset Management

1 International Place
24th Floor
Boston, MA 02110
United States

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