Our Perspective.
Whilst the US equity market continues to make new highs, other markets around the world look like they might be running out of steam. What’s more, US equities are up almost 40%, as measured by the S&P 500, since it bottomed out in October 2022. Since then, the biggest headwind in our portfolios has been our basket of trend following managed futures strategies.
This month we ask ourselves, why allocate to them at all?
The answer is quite simple: diversification.
Important to note however, not just diversification for the sake of diversification. We are big believers that unthoughtful diversification only destroys returns. What we want to diversify away is risk. Specifically, drawdown risk.
The below graphs show the four largest drawdowns of the MSCI AC World Index over the last 30 years. We also plot the returns of the SG Trend Index, a basket of the largest trend following managed futures strategies globally. The benefits are quite clear.
Add to this our ability to re-allocate capital at points when dislocation gets too extreme, and one not only diversifies away risk, but one could add significant alpha along the way. We are well aware that we will not ‘time the market’, but that is not our objective. Our objective is to deliver market beating returns in a simple way, whilst focusing on preserving purchasing power and avoid significant drawdowns.
That is in short, the beauty of trend following managed futures. Also, with the US regional banking system in a state and corporate profits set to disappoint, an allocation to trend following strategies is worth considering in our view. We discussed some of the intricacies on trend following with Richard Liddle, CEO of Bowmoor Capital, during our latest podcast. Worth a listen!
To view our graphs and data tables, please download the full article below.
Disclaimer:
We try to ensure that the information provided is correct, but we do not give any express or implied warranty as to its accuracy. We do not accept any liability for errors or omissions. The content of this brochure is for guidance purposes only and does not constitute financial or professional advice.
This document has been prepared and issued by Shard Capital (Jersey) Limited (“Shard Capital”). Shard Capital is a limited company (reference no. 130205) with its registered office at 3rd Floor, 5 Anley Street, St Helier, Jersey JE2 3QE. Shard Capital is authorised and regulated by the Jersey Financial Services Commission for Investment Business under the Financial Services (Jersey) Law 1998.
*Source:
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IMPORTANT INFORMATION
Shard Capital (Jersey) Limited is an associated company of Shard Capital Partners LLP, a limited liability partnership, registered in England with registration number OC360394. Shard Capital Partners LLP Registered office: 36-38 Cornhill, London, EC3V 3NG. Shard Capital Partners LLP is authorised and regulated by the Financial Conduct Authority in the United Kingdom, reference number 538762.
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