Trend systems lead as bond sell-off stalls traditional asset
Simone Haslinger
The latest ECCM State of Trend report presents a broader view of the market. It shows that though traditional assets were roughly flat in Q3, due to a September sell-off on rising bond yields and oil prices gave back earlier gains, trend following strategies benefited from diversified exposures, outperforming traditional asset classes.
Interestingly Grains and Oilseeds performed strongly through the quarter, led by Oats, Rice and Soybean Meal. Selected Food and Fibre markets also rallied, such as Sugar and Rubber.
Simone Haslinger, CEO of East Coast Capital Management (ECCM), says “Trend following has shown low correlation with ASX200 Total Return and Australian 60/40 indices over nearly 7 years. This provides diversification benefits that are complementary to traditional portfolios.”
This report covers the performance and role systematic trend funds have played over the past quarter, comparing them to Australian equities and a traditional 60/40 portfolio.
“Over the analysis period, the inclusion of trend following alongside a traditional portfolio of stocks or stocks and bonds markedly increased risk-adjusted returns, expanding the efficient frontier,” Haslinger says.Over the past 12 months, the report finds trend systems returned 20% to 21%, well ahead of the 1% to 3% from traditional assets.
The report also models what happens when you add the ECCM Systematic Trend Fund to a traditional portfolio, using hypothetical portfolios based on actual fund and index returns since January 2020, rebalanced monthly.
Blended with an Australian 60/40 portfolio: A 50/50 mix of a 60/40 portfolio and the Fund (after fees) returned 9.5% a year, against 5.2% for 60/40 alone. Maximum drawdown was -9.1%, against -16.2%.
Swapped in for part of an equity portfolio: Replacing 40% of equities with the Fund lifted returns to 10.8% a year from 8.0%, and cut volatility to 11.8% from 15.0%.
ECCM’s systematic trend following strategy trades over 90 international futures markets, spanning equity indices, short term interest rates, long term government bonds, currencies and commodities and is expected to show a low correlation with traditional investments, enabling investors to diversify a traditional portfolio of stocks, property and bonds.
