Trend following’s bumper returns mask fading convexity

Research suggests strategy is no longer a reliable hedge against stock market crashes

Trend followers are enjoying their best returns ever, but the good times could be masking the strategy’s fading qualities as a tail-risk hedge, according to new research.

An index of leading trend-following strategies run by Societe Generale was up more than 26% year-to-date at the time of writing. And yet a study by $3.4 billion boutique quant firm Versor Investments suggests the strategy has lost its trademark positive convexity to equities over time – a finding that calls into question