Man Group Research: Trend Following Provides Crisis Alpha

Man Group PLC has released research demonstrating that trend-following strategies, such as time-series momentum, can provide significant protection during market crises in both equity and bond markets.

The study, which spans the period from 1960 to 2015, challenges the common assumption that trend following is only effective during equity market downturns. The analysis shows that these strategies have consistently generated returns both before and after 1985, encompassing periods of bond bear and bull markets. It also notes that the strategy's returns are positively skewed, indicating larger gains with lower probability.

According to Man Group, trend following performs best in the worst equity and bond market environments. The research suggests that the strategy's performance is further enhanced when restricted from being long equities or bonds during crisis periods, although this may reduce average returns and weaken protection in other asset classes.

The study's findings contradict investor beliefs that trend following solely protects against equity market sell-offs. It also indicates that the strategy's success is not solely attributable to the 30-year bond market rally.