Inflationary Regimes and Asset Class Performance - Part 2: Convexity of Trend Following

15 May 2022

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In the first paper of this series we proposed a ‘macro-economically agnostic’, systematic technique of identifying inflationary regimes and measured the performance of key asset class benchmarks and alternatives within those regimes. We showed that systematic macro strategies, but especially trend following strategies outperformed most asset classes during periods of high and accelerating inflation. These results are consistent with what is being observed in markets today.


We now extend the study in the first paper by constructing generic trend following strategies on various asset classes and examine and compare the performance of these within our defined inflationary regimes. Using a longer historical backtest period, we observe results that are consistent with those of the first paper, and conclude that trend following is a reliable hedge against high levels of inflation, but especially against inflationary shocks, demonstrating a favourably convex profile conditioned on inflation.

 

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