SI401: Why Trend Following Wins in Chaos ft. Nick Baltas

— Quantitative investment strategy (QIS) space has grown to approximately $1 trillion in assets under management (or $3 trillion with leverage), with major banks like Goldman Sachs managing $175 billion and seeing 30% year-to-date revenue growth in QIS divisions.

— Commodity curve carry strategies experienced their largest drawdown in 40 years (approximately 10% for basic implementations) due to backwardation in oil markets driven by geopolitical tensions in the Middle East and natural gas shocks in January.

— Trend-following strategies delivered strong performance year-to-date, with the BTOP index up 11% and various CTA indices up 12%, driven by contributions across multiple asset classes including equities, bonds, commodities, and rates.

— QIS has evolved from seeking uncorrelated alpha to becoming a vehicle for expressing specific macro views in a systematic format, with client interest driven by macro dynamics rather than consistent demand.

— Execution quality and research matter significantly for systematic strategies—patient, thoughtful execution in illiquid markets can reduce slippage from 2–3% annually to near zero.

— Single-stock trend-following indices are rare or nonexistent as standalone products; factor momentum strategies represent an indirect way to capture trend exposure in equity markets.

— Diversification within systematic strategies matters: Clients who combined commodity curve carry with other premium sources (carry, reversion, trend diversification) weathered the March drawdown better than those concentrated solely on curve exposure. Consider broad portfolio implementations that capture multiple risk premia.

— Implementation details reduce real slippage: Patient, rule-based execution research can eliminate 2–3% annual slippage in alternative markets. Before committing capital to a strategy, understand the execution methodology and compare slippage costs across providers—this directly affects net returns.

— Drawdowns in well-understood risks are more tolerable: Client redemptions from commodity curve carry have been less severe than historical precedent suggests because the backwardation risk is transparent and documented. Knowing the primary risk factor helps distinguish normal loss realization from strategy failure.