Does Trend-Following’s Recent Struggle Signal That the Strategy Is Structurally Broken?
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.
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