The Return of the King: Trend Following Is Back – But Will It Last?

On April 2, 2025, one of the largest market shocks since 2020 hits financial markets. Out of left field, President Trump announces punitive tariffs left and right, and most financial assets begin bleeding. In the desperation, investors look for a safe haven. Ironically, trend following—long considered a source of crisis alpha—experiences one of its worst drawdowns in history.¹ Whoomp, whoomp. The outflows begin.

What follows could not have been more beautifully scripted. Gold rises, the dollar gets crushed, and silver goes on a historic rally as trends begin to take shape. By the end of the year, the sector finishes firmly in the green. Then 2026 comes along. January still posts strong returns, even though it ends with one of the sharpest metal trend reversals ever.² March brings one of the wildest moves in crude since it went negative in 2020, as oil nearly doubles from around $60 to $120 in the span of a week, only to crash back down to $90 overnight. This thing is finally moving while U.S. stocks are flat!

And so—like with most assets or strategies that post strong returns—investors may be eyeing this particular strategy and asking: Is it time to get in?

The answer, while not surprising, is definitely nuanced. In this post, I go over my conversation with Dr. Kathryn Kaminski, Chief Research Strategist and Portfolio Manager at AlphaSimplex, to explore whether investors should be allocating to trend following after this latest rally.

If you want to watch my conversation with Dr. Kaminski, make sure to check out the latest episode on our YouTube channel:

Let’s begin.

Trend is, surprisingly, mean reverting

Dr. Kaminski wrote a paper after the tariff turmoil investigating the behavior of trend following after drawdowns³. Her results demonstrate that trend programs tend to post strong returns after their worst drawdowns⁴. In her book Trend Following with Managed Futures⁵, Dr. Kaminski also finds negative autocorrelation in trend-following futures strategies. Periods of outperformance tend to be followed by periods of underperformance, and periods of underperformance tend to be followed by periods of outperformance.

From this, we can conclude that if investors are to tactically allocate to trend, it is best to do so during cycle bottoms, not during cycle highs.

It’s the shocks that serve as trend catalysts

You may have been dissuaded from investing in trend because “information just travels too fast.” It certainly does seem like trend had some of its best runs when information was scarce, computers were hard to come by, and speculators drew fancy lines on paper charts. Those days are long gone.

Personally, while I believe the premium has definitely compressed, trend following relies on a fundamental reality of human survival: adaptability. “Trend following is really about following the themes in the marketplace as they evolve using a data-driven approach,” Dr. Kaminski highlighted during our chat. Critically, evolution usually springs from a catalyst or shock in the ecosystem.

Unfortunately for trend, it is not a strategy that seeks to gain from shocks—so it’s a coin flip whether it will react positively or negatively to these events. Having said that, it’s important to keep in mind that, as Dr. Kaminski said, “it’s the change after that shock that slowly comes into the markets that creates new trends.” It was the April 2025 selloff that sparked the dollar trend and emboldened the metals trend. More recently, it was the Iran conflict that supported the energy trend.⁶ These shocks bridge markets from a state of stability to one of instability. Thankfully for us, trend tends to thrive during instability.

Trend is structurally different… And that’s GREAT!

“Trend following is one of the only strategies that’s very, very different. It does actually have low correlation over long time horizons with things like equities,” Dr. Kaminski said.

Trend likes instability, while equities like stability. Stocks experience frequent small gains and occasional big losses, while trend tends to experience frequent small losses and occasional big gains. These two assets are a match made in heaven. While trend won’t always save the day (especially during fast equity crashes⁷) some level of trend following in equity-heavy portfolios is likely to significantly improve portfolio outcomes.

Conclusion

So, is it time to buy? While bullish periods for trend tend to signal mean reversion in the future, it is nearly impossible to tell exactly when these inflection points will arrive. So yes, while from a tactical perspective trend does not look as appealing, from a strategic standpoint, it is my opinion that most investors would benefit from including trend in their portfolios. The diversification benefits are just that good. How one begins allocating is a matter of discretion—but the allocation question is, in my opinion, already resolved.

1. To be fair, the peak had come from one of the best years in its history. ↩︎
2. These adjectives may sound like hyperbole, but truly, these moves have truly been that extreme! ↩︎
3. Kaminski, Kathryn M., and Shihong Wen. Market Cycles and Managed Futures Drawdowns: An Empirical Analysis of Managed Futures Drawdown and Recovery Periods. AlphaSimplex Group, June 2025. ↩︎
4. Which also tend be much shallower than equity drawdowns. ↩︎
5. Alex Greyserman and Kathryn Kaminski, Trend Following with Managed Futures: The Search for Crisis Alpha (Hoboken, NJ: John Wiley & Sons, 2014). ↩︎
6. We still have to see how this one will play out! ↩︎
7. Tail hedging is much better at that job. ↩︎