A Playbook for Uncertain Times

Almost everything is down for investors this year. A rare bright spot? A backwater called trend following

- By Michael P. Regan

It’s easy to spot the trend followers at back-to-school time: Just look for the kids wearing the coolest sneakers. It’s easy to spot them in the markets these days, too. Look for fund managers with returns that are so hot they make most other types of investors look as if they’re sporting a pair of worn-out Keds.

It’s been a banner year for financial trend followers: It’s a style of investing dedicated to what the markets are actually doing, rather than what some expert thinks they should do. The benchmark gauge, Societe Generale SA’s SG Trend Index, is up 27% so far in 2022, poised for its best year in data since the start of this century.

That type of performance is hard to stomach for investors who focus on fundamentals. Traditionalists like to preach the virtues of deep-dive research or buying and holding a diversified portfolio. This is not that; these strategies trade frequently in an attempt to catch highs and lows.

Yet there’s no mistaking that trend following is working— spectacularly—when almost nothing else is. Stocks and fixed income markets are mired in simultaneous bear markets, wreaking havoc on traditional strategies including what’s known as 60/40, a balanced portfolio that invests 60% in stocks and 40% in Treasuries or other safe bonds. And the economic outlook hasn’t gotten any friendlier to that strategy, given the red-hot global inflation and central banks hellbent on taming it.