Jean-Philippe Bouchaud, Chairman of Capital Fund Management, passed along a new paper Tail Risk Premia vs. Pure Alpha.
Insch Capital Management SA gives some trend following food for thought:
The bell tolls. The death of trend following has been announced. The grave has been dug and the obituary has been published. Dust to dust…
The mourners are gathered by the graveside. Tear reddened eyes distinguish the truly saddened from the less saddened who smirk to themselves in their familiar “I told you so” way. (At last! A prediction come true!)
This is a painfully sad affair. Trend following is dead. Again.
Cheer up! Our suspicion is that trend following is not dead. Our suspicion is that no resurrection is required.
This suspicion is not based on a judgment, a fundamental view or (even worse) a prediction from a besuited soothsayer. It is based on the evidence of the numbers. The statistical evidence is of continued life, not the eternal darkness of death.
Mike, Can you send me the white paper that was referenced in the Vineer Bhansali podcast? I apologize if this is posted somewhere obvious and I missed it. Normally I’d probably have found it on my own, but having a 3 week old newborn is temporarily draining my productivity! It’d be much appreciated if you could point me in the direction of the research that was discussed. What a refreshing podcast to hear a more mainstream financial institution embrace real trend following.
Thanks. Go here for his white paper. And good luck with your new little one!
Do you know if this fund actually follows the 100% systematic “simple” trend-follower approach back tested in the article or is this just a bait and switch for a discretionary fund? Do you know the actual rules for the “simple” trend-follower approach back-tested in this paper?
Best bet is to reach out to them for all questions about their papers.
This is a great compilation of free trend following resources. Dig in!
We examine the effectiveness of applying a trend following methodology to global asset allocation between equities,bonds,commodities and real estate.The application of trend following offers a substantial improvement in risk-adjusted performance compared to traditional buy-and-hold portfolios. We also find it to be a superior method of asset allocation than risk parity. Momentum and trend following have often been used interchangeably although the former is a relative concept and the latter absolute. By combining the two we find that one can achieve the higher return levels associated with momentum portfolios but with much reduced volatility and drawdowns due to trend following. We observe that a flexible asset allocation strategy that allocates capital to the best performing instruments irrespective of asset class enhances this further.
I have long posted white papers from Michael Mauboussin. Here is his most recent piece “Untangling Skill and Luck How to Think About Outcomes–Past, Present, and Future” (PDF).
Mauboussin also happens to be in my film Broke.
Note: Shout to Pragcap.com for the find.