BREXIT...Just Another Day in the Office
We hear it so often...things have changed, you can't use history as a guide for the future....
Well, the month of June would appear to have reminded many investors of WHY for one investment strategy in particular, history is a good guide and should be considered when investing for the future.
I am, of course, referring to Trend Following, which once again came to the rescue of many investors at a time when the headlines across the world were pretty frantic and as usual did not help investors to calm down and make rational investment decisions.
Luckily for these systematic, non-emotional investment firms, Friday June 24th, was just another day in the office.
OK, let's face it, there was a certain raised level of excitement as the systems calmly reacted to the "surprise" outcome of the UK referendum, but my guess is that most of the time was spend diligently adjusting positions and exposure to the elevated level of volatility by simple reduction of positions sizes across the portfolio.
I should say, that I am in this case referring to medium to long term trend followers as shorter term strategies, may have found it harder to deal with the changes in market direction in the days leading up to the vote...but even for them, I think most will come out ahead.
OK...now back to the Trend Barometer which on a closing basis ended the month of June above the Break-Even point of 45.
Firstly, let’s look at where the trend Barometer finished the month;
After the very low levels of the Trend Barometer in early May, it began the month of June by continuing its recovery as uncertainty over the outcome of the UK vote built up and a general theme of Risk-Off started to emerge.
The next chart below shows a snapshot of a 44-market portfolio with markets listed in “groups” of market sectors;
Strong Up-Trends were recorded in the Bond and Interest Rate markets across the board. In Currencies, the Yen really stood out as the preferred choice of investors seeking shelter together with Gold and Silver. Other Commodities, such as Sugar, Cocoa, SoyBeans and SoyBeanMeal also exhibited strong Up-Trends, whilst Wheat had the strongest Trend reading at month end...but was in a Down-Trend.
In the chart below, I have grouped the markets into 10 sectors. 2 out of 10 Sectors finished the month in a trending state (Bonds and Interest Rates).
However the trends in these sectors would appear to have been strong enough for trend followers to deliver overall great performance
The last chart shows the evolution in the Trend Barometer since January 2015.
The month of June was not all plain sailing for the Trend Barometer as it dipped below the break-even point just before the BREXIT vote, but
what June really reminded us all about, is the importance of diversification.
Diversification across investment strategies and the inclusion of Trend Following in your multi asset portfolio...and even within Trend Following, the importance of diversification of different time frames.
If you haven't included trend following strategies in your portfolio yet, act now before the next time you are going to wish you had!
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS
I hope you found the information useful as part of your own evaluation of the trend following part of your investment portfolio. I will continue to do my best to keep you up-to-date with regards to the environment for diversified trend following strategies and would love to discuss any of this information with you. Just reach out to me.