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A Century of Evidence on Trend Following
Hat tip to Mebane Faber for highlighting this insightful study from AQR Capital Management regarding the long-term profitability of an active management strategy known as "trend-following". Trend-following is an investment strategy that is primarily focused on capturing the momentum of a particular market direction--regardless of the valuation of the particular market in question. Trend-following assumes that once a market direction is established, it is likely that trend will remain in place long enough to derive a profit prior to a trend reversal. Trend-following is most typically a long-short strategy, meaning that to properly follow and profit from trends, one must "go long" those markets that are rising and "go short" those markets that are falling. As this study shows, spread across a diverse and non-correlated enough set of markets, trend-following can provide extremely competitive risk-adjusted returns in most markets.
 
Trend-following is one of the absolute return strategies that JRW implements on behalf of our clients for the purpose of providing another layer of diversification and in the search for higher, risk-adjusted returns in what is becomingly a zero return type of world.

Time Series Momentum Performance Chart
Above: The performance of the "Time Series Momentum Strategy" over the full sample since 1903 as well as for each decade over this time period. Results are net of simulated transaction costs and consider returns both before and after fees.
 
[Please access the full article here: A Century of Evidence on Trend Following]
Written By: Joshua Ungerecht
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60/40 Model, Long, Recommended Reading, Short, Trend Following