Trend-following strategies returned double-digit returns in the first half of 2022, offering valuable diversification to any balanced equity/bond portfolio during a truly challenging period for most investors.

In our new report, we quantify the potential portfolio diversification benefits of trend-following in the longer-term context while catering to the diversity of investor portfolios through extensive simulation studies. We show that these diversification benefits are mostly insensitive to the following three key factors:

• the existing risk allocation of the investor's portfolio
• timing of the investment in trend-following
• investor’s expectations about future trend-following performance

As a result, our findings suggest that a sizable allocation to trend-following is sensible for most investors and market scenarios.