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Trend-Following Investors Follow Trend-Following Hedge Funds Off Cliff

The drift is decidedly downward, except in AUM.
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By SimpleIcon ( [CC BY 3.0 ], via Wikimedia Commons

Undeniably a trend. By SimpleIcon ( [CC BY 3.0 ], via Wikimedia Commons

If trend-following hedge funds were a stock, trend-following hedge funds would observe their trajectory and sell. Investors, it seems, are somewhat less savvy.

Performance among the roughly $300 billion in hedge funds that largely use so-called trend-following strategies has been abysmal. An investor buying into these funds at the start of 2011, for instance, and holding through July this year would have lost 3.4% on average, according to HFR. Over the same period the S&P 500 is up 124%....

Assets have more than tripled over the past decade, according to HFR…. Despite the patchy performance, investors are keeping the faith alive in trend-following. Surging interest in computer-driven investing has helped, as has demand for funds uncorrelated to stock markets, and strong returns in 2008 and 2014.

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