Why Trend Following Seems the Obvious Choice in Uncertain Times

Most advisors have experienced first-hand the frustration of seeing parts of a portfolio designed to provide ballast not always hold up as markets turn volatile. A historic case in point: the 2022 sell-off, when stocks and bonds declined in tandem. Even during the more recent shock of the war in the Middle East, stocks initially slumped and yields shot up. Trend following has historically displayed a diversifying edge in times of market stress (for both equity and bond crises), solidifying its role as an alpha component which is not only diversifying but also may provide portfolio insurance properties.

If and how you choose to integrate some sort of managed futures strategy like trend is up to you, of course (we have a vested interest, running trend-following strategies for over three decades). A common concern is opportunity cost. Why would I give up my equity exposure? But the choice of trend or equity doesn’t have to be mutually exclusive. They can be tied together. What if you could carry over some capital to alpha without sacrificing beta? Trend following is an obvious choice to us for this kind of ‘portable alpha’. To understand why, let’s first unpack a bit more on trend itself.

Equity and trend make good friends

Trend following is simple at its core. It entails buying assets that are rising and sells assets that are falling in price, across a host of liquid markets spanning equities, bonds, currencies and commodities. Positions are typically held for weeks to months, adjusting systematically as price trends evolve. If it's that straightforward, why does it work? Three reasons. First, human behaviour tends to be predictable. Investors consistently underreact to new information and overreact to fear, creating trends that persist longer than efficient-market theory (the idea that asset prices already reflect all available information, so you can’t ‘beat’ the market) would suggest. Second, economic cycles can potentially play out over years, driving sustained directional moves in things like interest rates, currencies and commodities. Third, decisions lag newsflow. Information doesn't get priced instantaneously; it gets digested, debated and acted upon gradually.

Here’s what the data show (Figure 1). Going back to 2000, comparing US equities (S&P 500) and trend following over 12-month periods, we found trend following is additive most of the time (almost 95%) to US equities. In 46% of 12-month periods, both trend and equities are positive while in 50% of 12-month periods, one component helps offset negative returns from the other. Only 4% of 12-month periods result in both components delivering a negative return. Finally, in about a quarter of the observations, when US equities are negative, trend following generated a positive return 82% of the time. This isn't a coincidence; we see it as structural. Trend following exhibits convexity: its returns grow more positive the more asset prices move significantly in either direction. During the dot-com crash, the Global Financial Crisis and the 2022 inflationary episode, trend following delivered competitive positive returns while traditional assets suffered. This ‘crisis-alpha’ property is a key attribute which we think separates it from other alternatives that tend to underperform in the left tail of equity markets.

Figure 1: Trend-following as a complement to equities

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Past performance is not indicative of future results. Trend following represented by the SG Trend Index and equities represented by the S&P 500 Index. Date range: 1 January 2000 – 30 September 2025. Source: Man Group, Societe Generale, Bloomberg.

The case for trend in portable alpha

Most portfolios are anchored to a core market exposure, typically equities. That's the beta. Portable alpha asks: can you add a return stream on top of that exposure — one that doesn't depend on the same market forces — without giving up the core? In practice, this is what that looks like: 1) you replicate your equity beta synthetically using cash-efficient instruments such as futures contracts, which frees up capital; then 2) you invest the freed up spare capital in a strategy that aims to generate returns uncorrelated with the beta. That's the (portable) alpha you pick up alongside your beta ride. The end result is two fully funded return streams, beta and alpha. See Figure 2 below.

Figure 2: How portable alpha works

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Source: Man Group database. Schematic illustration.

The critical requirement is that the alpha source genuinely diversifies, not just on average, but during the tail events (rare and extreme outcomes which sit in the ‘tails’ of probability distribution) when the beta is under the most pressure. It also needs to be liquid enough to meet margin calls if markets move sharply. Trend following meets all the criteria. Its correlation to equities and bonds has been consistently low over more than two decades – and positive absolute returns since 2000 are robust (approximately 7% annualised¹). Its compelling returns have historically arrived during the worst periods for traditional assets, as Figure 3 shows. And because it trades deep and liquid futures markets, there are no gating or liquidity concerns even during stress.

Figure 3: Trend following has offered a buffer in some of the most severe equity drawdowns

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Past performance is not indicative of future results. Trend following represented by the SG Trend Index, US bonds represented by Barclays US Aggregate Bond Index – Bloomberg and equities represented by the S&P 500 Index. Date range: 1 January 2000 – 30 September 2025. Source: Man Group, MSCI, Bloomberg.

In short, we believe trend following makes a compelling case as an alpha source given its ability to pay, potentially similar to insurance, when that market stress comes knocking. In our view, trend-following deserves a place in a modern portfolio and portable alpha makes that decision significantly more straightforward for allocators as it unlocks the ability to own a diversifier without sacrificing equity market upside.

What could this mean for your portfolio

Three takeaways for advisors to consider:

1. Think of trend as portfolio insurance that can potentially pay you back. Unlike put options, trend following aims to generate positive returns over time. The protection comes as a built-in byproduct, not at the expense of long-term performance.
2. Size it for impact. A token allocation won't change your risk profile. Treating trend more like a portfolio building block is more likely to boost the diversification benefits at the portfolio level.
3. Commit through the cycle and stay strategic. Trend following will have difficult stretches. The value isn't in any single year's return. It's in how the strategy behaves during the years that damage traditional portfolios most. Let the trend play out and remember there are strategic ways to integrate it through approaches like portable alpha.

AI was used to support data analysis and processing as well as some early drafting in the production of this article.

Author: Adi Mackic, Senior Client Portfolio Manager

1. https://www.man.com/insights/trend-following-what-not-to-like