Why Is Trend Following Not A More Popular Investing Strategy?

Why is trend-following, given that it is possibly the most potent alternative sleeve rules-based trading system that is uncorrelated to both stocks and bonds, not a more popular investing strategy?

It is not often that I’ll write a spontaneous article but given the recent tweet by Meb Faber (@MebFaber) my brain started churning last night looking for an immediate answer.

Here is Meb’s tweet:

And my response:

So why isn’t trend-following a strategy that is pursued more by investors looking to build more efficient, diversified and all-weather portfolios?

I can think of a few reasons.

About the Author & Disclosure

Picture Perfect Portfolios is the quantitative research arm of Samuel Jeffery, co-founder of the Samuel & Audrey Media Network. With over 15 years of global business experience and two World Travel Awards (Europe’s Leading Marketing Campaign 2017 & 2018), Samuel brings a unique global macro perspective to asset allocation.

Note: This content is strictly for educational purposes and reflects personal opinions, not professional financial advice. All strategies discussed involve risk; please consult a qualified advisor before investing.

Why Is Trend-Following Not A Popular Investing Strategy?

Most Investors Have Never Heard Of It (Trend Following)

Let’s start with the most basic assumption that most investors have never heard of managed futures / trend-following investing strategies.

When I first started learning about investing and taking it more seriously the first books, articles and podcasts I stumbled upon were trumpeting industry standard 60/40 milquetoast market-cap weighted stock and aggregate bond arrangements.

Play it safe. Own them all. Low cost indexing. One and done.

Had I not been more curious about learning more about investing that’s the portfolio I’d own today.

I’d be the average investor owning the average portfolio.

60/40.

Home country bias. (Given that I’m Canadian likely 5-6 times the amount of Canadian stocks that make up its global contribution in the market)

Market beta.

Large cap centric.

Had I not been captivated by investing and deeply suspicious that this ‘just be average’ prescription seemed terribly off-kilter, I’d own what in Canada is all of the rage: One click all-in-one fund

So down the rabbit-hole I went.

At this point I discovered equity optimization strategies.

Factors.

Value.

Momentum.

Minimum Volatility.

For the longest time I thought just moving away from market-cap weighted equities to superior ‘anything else’ factor strategies was the best game in town.

Just handcuff a globally diversified factor optimized equity strategy with large-cap, mid-cap and small-cap exposure to an aggregate bond index.

Now I’ve got the best portfolio possible.

I still hadn’t considered an alternative sleeve in my portfolio.

At this point I had kind of heard some minor rumblings about trend-following and managed futures, so I decided to take a quick look at some funds.

Yikes.

Totally flat.

They hadn’t been performing well at all. This whole ‘trend’ thing sounds like a really bad idea.

So I swept the thought of this strategy under the rug for a while.

At this point, I’m aware the strategy exists but not much beyond that.

Given my own investing DIY investing journey, I’d posit that most investors have never even heard of managed futures / trend-following, and if they have, they likely have a surface level understanding of it.

Believer of Managed Futures & Trend-Following

It’s only when I started playing around with Portfolio Visualizer and back-testing results from the 1970s and 2000s to see what did well versus what didn’t, that I really started paying attention to alternative assets like Gold and Commodities.

I started to develop this weird little obsession of trying to figure out what could do well during turbulent economic times for the stock market.

Ah interesting, gold really helps here.

Commodities save the day there.

Let’s try a 50 year back-test with a bit less stocks and bonds and a sliver of gold.

Oh wow. Better Sharpe and Sortino ratios.

But wait?

I don’t own any of that in my own portfolio.

Why isn’t my portfolio better prepared for these types of equity drawdown scenarios?

Little did I know at the time but I was forging down a path towards learning more about all-weather and risk-parity.

I suddenly became very interested in alternative investments.

I was both ravenous and parched to learn more.

And that is when I fell down the trend-following rabbit hole.

Doublethink: Trend-Following vs Long Equities

A rules based system of trading that adapts to current market conditions.

Something that doesn’t contest reality.

The ability to go long and short.

A “yes” and “no” approach.

Go long what is doing well and enjoy the ride.

Go short what is currently crumbling and enjoy that ride too.

A chameleon of sorts that changes its colour, pattern and stripes based on its environment.

How peculiar.

But wait.

I’ve been told to buy and hold and shut the “fill-in-the-blank” up while radically accepting whatever will be, will be.

Moreover, isn’t it better to buy low? Sell high?

I should be dancing in the blood-stained streets when the markets are down because this is my golden chance, right?

So what I’m hearing is mixed messaging.

Buy low and sell high for stocks and bonds.

Trend-follow by riding recent winners and shorting recent losers.

This of course forces an investor to consider the Orwellian term doublethink.

“The acceptance of contrary opinions or beliefs at the same time.”

In order to fully integrate a trend-following strategy with a buy and hold equity/bond strategy an investor must be willing to entertain contrary beliefs that are both true.

This is likely where a lot of investors say sayonara to the thought of ever entertaining trend.

It just likely doesn’t make sense to many folks that you could do two completely different things at the same time and be successful with both strategies over long periods of time.

Lebron of Fencing vs Lebron of Basketball

Hands up who can tell me the nation’s top fencer?

Crickets.

How about the best basketball player of a our generation?

I’m hearing a lot of Lebron from over here.

Being the GOAT of stock picking and equity strategies has you on the Mount Rushmore of Investing Legends.

You’re likely seeing the heads of Warren Buffett, Charlie Munger, Jack Bogle and Benjamin Graham.

Most people on the street, whether they’re investors or basketball fans, have likely at least heard the names of Lebron James or Warren Buffett at least in passing.

How about the GOATs of trend-following?

Bill Dunn. Ed Seykota.

How many of you know those names?

Be honest now.

Probably very few.

Let’s go back to the Lebron of basketball versus the Lebron of fencing.

Wait a minute. I actually need to look up ‘who is the Lebron’ of fencing.

According to Google using the search query, “Who is the best fencer in the USA right now?” I’m seeing Alexander Massialas.

Apologies in advance, Alexander, that I’ve never heard of you before. I’m certainly impressed by your track-record though:

Esoteric Nature of Trend-Following

The last reason trend-following isn’t more popular as an investing strategy has to do with its complexity relative to stocks and bonds.

What is a stock? A sliver of ownership in a company.

And bonds? Basically loans.

Buy and hold em tight.

Easy enough to understand right?

And how about trend-following / managed futures?

An investment strategy that takes advantage of long, medium or short-term moves in various markets utilizing various techniques, calculations and time-frames while paying close attention to trade signals, current market price calculations, moving averages and channel breakouts to determine whether or not to go long or short.

Did ya get all of that, Sonny boy?

Clear as mud.

The fact it takes longer to understand the ins and outs of a trend-following or managed futures strategy clearly keeps it out of many investors portfolios.

Firstly. you have to understand the importance of having an alternative sleeve in your portfolio.

Secondly, you have to spend considerably more time understanding how trend-following works conceptually versus grasping what it means to own stocks and bonds in the form of an index.

FAQ: Why Is Trend Following Not A More Popular Investing Strategy?

1) What is trend-following in plain English?

Trend-following is a rules-based system that goes long assets rising in price and short (or underweights) assets falling in price. It adapts to markets rather than predicting them, often using moving averages, breakouts, or price-based signals across futures on equities, bonds, commodities, and currencies.

2) Why do you call it an “alternative sleeve” that’s uncorrelated to stocks and bonds?

Because managed-futures trend programs derive returns from price trends across many markets, not from equity risk or duration. Over full cycles, their return stream has shown low or negative correlation to traditional 60/40 drivers, which can help when stocks and bonds struggle together.

3) If it’s so helpful, why haven’t most investors heard of it?

Distribution and narratives. People are introduced to index stocks and bonds first (simple, ubiquitous, cheap), while trend-following lives in the alts aisle with fewer mass-market champions. Many investors never encounter it in entry-level books, courses, or default portfolios.

4) Doesn’t “buy low, sell high” clash with “buy what’s going up, sell what’s going down”?

They sound contradictory, but both can be true. Value harvests mean reversion; trend harvests momentum. A diversified portfolio can hold both beliefs simultaneously—accepting that different edges work in different regimes.

5) Why did trend-following look “flat” or disappointing for long stretches?

Trend’s edge depends on persistent, directional moves. During choppy, mean-reverting markets, signals whipsaw and returns compress. These dry spells are the behavioral toll that deters adoption—right up until large trends (often in crises) arrive and pay the “insurance premium” back.

6) Is trend-following too complex for the average investor?

It’s conceptually simple (follow price), but the implementation (instruments, signal design, risk parity, portfolio construction) is nontrivial. That complexity—plus derivatives—can feel intimidating versus “own a stock index and a bond index.”

7) How does trend-following help in real portfolios?

It can reduce drawdowns, diversify equity and duration risk, and improve risk-adjusted returns by performing in inflationary shocks, commodity spikes, rising-rate regimes, and crises—times when 60/40 may falter.

8) What are the main behavioral hurdles?

• Tracking error aversion: It won’t look like the S&P 500.

• Patience risk: Investors abandon after a few quiet years.

• Narrative bias: “Buying highs” feels wrong, even if rules say so.

9) What practical vehicles exist for DIY investors?

Today there are ’40 Act ETFs and UCITS funds that package managed futures/absolute trend exposures. Many investors also access multi-alt funds that include a trend sleeve alongside other diversifiers.

10) How much allocation makes a difference?

Even 5–15% to a robust, diversified trend sleeve can move the needle on portfolio drawdowns and regime balance. Sizing depends on goals, tolerance for tracking error, and how many other diversifiers you already hold.

11) What should I look for in a trend fund?

Breadth (markets traded), risk management (vol targeting, position limits), signal diversity (timeframes, breakout vs. moving average), costs, transparency, and operational robustness. Favor process over recent performance.

12) Bottom line—why isn’t it more popular?

It lacks mass-market storytelling, endures uncomfortable droughts, deviates from common benchmarks, and demands education + patience. Those frictions keep adoption modest despite its potential portfolio benefits.

Final Thoughts on Trend-Following

I’m at the point where I couldn’t fathom my portfolio NOT HAVING a trend-following / managed futures allocation.

It is literally the ‘secret sauce’ that has allowed my Picture Perfect Portfolio to have a 13% ARR, -5% worst year and 90.8% success rate.

Without trend it’s an entirely different story for the Picture Perfect Portfolio.

Yet, I completely understand why Trend-Following isn’t a more popular investing strategy.

It’s not widely recognized by the average investor.

It is harder to grasp compared to stocks and bonds.

And very few ‘experts’ that have the ear of the average investor are suggesting it be utilized.

And that clearly is a shame.

I’m hoping to continue to write posts about trend-following and managed futures trading strategies from the perspective of a DIY investor to help spread the word.

But clearly this is an uphill battle.

Trend-Following, for the time being, remains a contrarian alternative investment strategy that only the most sophisticated of investors utilize.

Speaking of trend, I just noticed I’m “long” commitments to trim bushes around a hotel project I’m currently working on in Argentina and “short” time to write anymore words.

Ciao for now.

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