There is a category of investment strategy that does not care what a company earns, what a central bank signals, or what a pundit predicts. It only cares about one thing: which direction prices are moving. Trend following — systematic, rules-based, fundamentals-agnostic — has been quietly compounding for decades. And when markets fall apart, it tends to shine.
In their December 2025 whitepaper, Meketa's Ryan Lobdell and Lauren Giordano offer a rigorous dissection of trend following strategies — what they are, why they work, how they're built, and what role they play in a diversified portfolio. The picture that emerges is of a strategy that is misunderstood as often as it is underutilized.
The Core Idea: Follow the Price, Not the Story
Trend following is structurally simple. Buy what's going up. Sell what's going down. Bet that momentum persists. What makes it powerful is the systematic discipline behind it — no overrides, no opinions, no anchoring to fundamental value.
Lobdell and Giordano define it plainly: trend following strategies "capitalize on persistent price movements by systematically buying assets rising in value and selling those declining, without relying on market fundamentals or subjective judgment."
The strategies trade primarily through futures and forwards across equities, fixed income, commodities, and currencies — the most liquid markets in the world. Some managers layer in alternative exposures: VIX contracts, Bitcoin futures, credit default swaps. The universe is wide, and so is the dispersion of approaches within it.
Why Markets Trend: Three Structural Reasons
Markets don't trend by accident. Lobdell and Giordano identify three structural engines. Behaviorally, information is slow to get priced in — herding, feedback loops, and confirmation bias extend and amplify moves beyond what fundamentals justify. Economically, hedging activity by corporate actors — airlines buying oil futures, utilities locking in energy costs — creates sustained directional flows. Institutionally, embedded stop-losses and delta hedging mechanisms force price-amplifying trades at scale.
The authors suggest thinking of these not as competing explanations but as a mosaic: "Market trends likely develop because of many of these explanations and do so in different weights, at different times, and through different security types."
Crisis Alpha: The Strategy's Defining Feature
The most compelling case for trend following is what Lobdell and Giordano call "crisis alpha" — the tendency to generate positive returns precisely when equities are in freefall. The data is unambiguous. The SG Trend Index posted strong gains during the dot-com collapse, the Global Financial Crisis, the COVID shock, and the 2022–2023 rate hike cycle.
Since January 2000, the SG Trend Index has delivered a 4.9% annualized return — above the Bloomberg US Aggregate Bonds' 4.0% and below the MSCI ACWI's 6.2% — with an average correlation of -0.10 to global equities. The strategy's "smile-shaped" convexity profile means it tends to perform best in both extreme down and extreme up equity environments.
The authors are direct about the tradeoff: "Trend following has generated positive returns during the historical market downturns of the past 25 years, though it has lagged traditional equities during the upturns." For advisors constructing portfolios, that asymmetry is precisely the point.
Strategy Design: Where Dispersion Hides
The whitepaper's most operationally valuable section details how identical core logic — buy winners, sell losers — produces dramatically different outcomes across managers. Six design variables drive the divergence.
Signal speed matters enormously. Fast systems (short lookbacks) pivot quickly and generate stronger crisis alpha but suffer more whipsaw losses. Slow systems (multi-month windows) capture sustained trends but are slower to react. Most managers in the SG Trend Index operate in the medium-to-long term range of three to six months.
Markets traded, signal types, position modifiers, risk allocation approach, and volatility targets each add another layer of differentiation. The authors note that most managers target 12–15% annualized volatility — but a manager running at 20% vol versus one at 10% could produce double the return or double the loss, even with identical underlying signals.
The implication: "Understanding these differences is crucial to making informed decisions about manager selection and performance comparisons."
The Case for Multiple Managers
One of the whitepaper's more counterintuitive findings is that the best-versus-worst spread among SG Trend Index constituents averages 26% per year, exceeding 30% in nine of the past 25 calendar years. Directional alignment is high — managers tend to rise and fall together — but the magnitude of individual outcomes varies sharply.
The solution Lobdell and Giordano advocate: allocate across three to five trend managers. Multi-manager portfolios meaningfully improve Sharpe ratios and reduce drawdown risk without diluting the strategy's impact, because trend following is capital-efficient — you don't need a full dollar of capital to gain a dollar of exposure. Importantly, "using multiple managers also does not eliminate the positive skew or 'crisis alpha' that trend following offers. In fact, it can enhance reliability."
Portfolio Role: Second Responder, Not Just Diversifier
Meketa places trend following within its Risk Mitigating Strategies (RMS) framework as a "second responder" — the second line of portfolio defense, designed to capitalize on protracted bear markets while also participating in extended bull runs. First responders (long Treasuries, long vol, tail risk) absorb the initial shock. Trend following sustains the defense through prolonged dislocations.
Historically, adding trend to a 60/40 portfolio shifted the efficient frontier upward and to the left — better returns per unit of risk. The authors frame the conclusion clearly: "even a relatively small allocation to trend strategies can shift the risk/return profile of a stock/bond portfolio for the better."
Key Takeaways for Advisors
1. Trend following is not a return enhancer — it's a portfolio stabilizer. Its value lies in what it does when everything else is struggling.
2. Manager selection is not incidental. With 26%+ average annual dispersion among top CTAs, picking the wrong manager — or relying on a single one — is a meaningful risk.
3. Multi-manager allocations improve reliability without sacrificing impact. Capital efficiency allows volatility calibration across the combined allocation.
4. Crisis alpha is the signal, not the noise. The periods of underperformance in calm markets are the expected cost of owning something that pays off in chaos.
5. Fees matter most when trend is working hardest. Higher fees erode the exact returns that justify the allocation.
Footnote:
1 Source: "Trend Following Strategies," Ryan Lobdell, CFA, CAIA, and Lauren Giordano, Meketa Investment Group, December 2025.
