We can’t blame you if you’ve been looking to put out an APB on trend following so far this year—needing some help from that Alts bucket in what is increasingly looking like an ugly market moment. The S&P 500 is now down 17% from its highs, while the Nasdaq and Russell indices have plunged into bear market territory (down 21.5% and 21%, respectively). But Mr. Trend hasn’t answered the call… thus far. The SG CTA Index is down -5.3%, SG Trend Index down -7.3% through Thursday, April 3rd, and the average managed futures ETF/mutual fund we track has fallen 5.92% YTD through Friday.
What’s more… they aren’t just not showing up—they’re actually losing alongside equities. That makes it even more frustrating, as they’re adding to losses rather than offsetting them. What’s happening?
Where Trend Losses are Coming From:
Main Culprit: Currencies
Currencies have been problematic for trend followers for much of the past year, with moves just big enough to trigger full short or long positions—right before sharp reversals in the opposite direction. The image of the Japanese Yen below tells the story better than we can explain it… if you can imagine it takes about half of the reversal to signal an end to the previous trend and the start of the next one. This same story played out in the Euro, British Pound, and Yen in mid-March as tariff threats emerged, resulting in losses.
Adding insult to injury, most commodities are priced in U.S. dollars, and the USD also exhibited this whipsaw-type action. That caused problems not just in currency trades, but also in commodity positions. The USD rallied approximately 10% from October 2024 through January 2025, only to fall 8% in the 2.5 months since.
Secondary Culprit: Bonds
Bond positioning has been similarly challenging over the last quarter. The 30-year Treasury sold off 13% from September 2024 to mid-January 2025, when rates started falling and bonds began rallying. However, the reversal took time to confirm, and most models remained short bonds until March.
This means trend followers have only been on the “risk-off/crisis period performing” side of U.S. bonds for 2–3 weeks. What’s more, many trend followers remained short German, UK, and Japanese bonds into April—meaning the net overall “flight to safety” positioning has been more flat bonds rather than materially long.
Tertiary Culprit: Metals
More of the culprit last week… April 3rd and 4th saw substantial pressure from metals. While the lengthy uptrend in gold has kept trend followers long in that market for more than two years (SG Trend indicator showing the position lasting 514 days), Friday’s sell-off in gold hurt performance.
Even more damaging were the newer long positions in silver, copper, and industrial metals, which hadn’t been in place long enough for systematic models to move stops into profitable territory. Silver plummeted 15% in essentially two days, with copper close behind at -13%, platinum at -11%, and palladium at -9%. Those types of instant reversals are incredibly difficult for trend-following models to handle, wiping out four months of gains in just days.
One more… MEGA vs MAGA
Additionally, the MEGA (Make Europe Great Again) vs. MAGA (America) trade playing out over the last two months kept the trend mostly long foreign equities (expecting Japan). Even as models began to exit and go short US equities that topped in mid-February, the net effect was that trend was flat equities versus short equities over the past two days.
This Is Actually sorta Normal
Here’s the weird part… This pattern isn’t all that unusual, in our experience. Market shocks like this typically come out of left field, and represent reversals of the status quo (stocks up). It stands to reason long term trend followers would also be long equities coming into such reversals.
But don’t just take our word for it.. .here’s data from Tyler Lovingood at Potomac laying out the stats to show trend strategies typically underperform during the first 10% of an equity drawdown.
Recent CTA performance seemed less than expected during this new 10% S&P 500 Index drawdown (Intraday close to low).
I ran the numbers and it’s actually almost exactly as it has been historically, proving me wrong.
CTAs, as defined by the SG CTA index, only made gains once… pic.twitter.com/NpnvFmXs6S
— Tyler Lovingood, CMT (@Tyler_Lovingood) March 13, 2025
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This makes intuitive sense – trend followers are unlikely to be short equities just as they reach their peak. Similarly, they aren’t necessarily in short commodity or long bond position which would do well in the first leg down. Rather, they’re more likely to be reflecting the current trends; and need some period of time to exit those treds and enter into the new, down market or risk off type market trends.
Here was another great image from Schroders research (h/t to our friends at return stacking [link], showing different corrections versus full blown crisis periods, where trend following strategies have historically delivered strong returns. They show that during the 2000-2002 dot-com bust, the 2008 Global Financial Crisis, and the 2022 inflation-driven market decline, trend following strategies significantly outperformed traditional asset classes – but critically, not during the initial market drops.
So Where Do We Go From Here?
Well, we can’t help but think of the old adage, “you don’t buy flood insurance after the flood.” But this situation flips that conventional wisdom on its head. Typically, that saying warns against paying exorbitant premiums after disaster strikes—a classic “too late, you missed it” scenario. Yet, in today’s market, this valuable portfolio diversifier is actually on sale, trading at a 5% to 15% discount depending on which trend following program or index you examine. It’s the rare case where crisis protection becomes more affordable precisely when the waters are beginning to rise.
Of course, the market could rally sharply from here, leaving trend followers on the wrong foot. Just as these strategies are beginning to position for extended downside, a V-shaped recovery would catch them in transition—potentially extending their underperformance.
So there’s the trade off and risk calculus to now perform. Trend following requires sustained directional moves to deliver on its historical crisis period profile, with a whipsawing market quickly reversing between one regime and another is its kryptonite.
This presents a rather unique scenario for investors who are worried about a sustained move lower or so called 2nd leg down. Trend following strategies have essentially “reset” during this initial market decline, shedding their prior positioning and now beginning to establish the very exposures that would benefit from continued market stress—short equities, long bonds, and various commodity positions aligned with extended crisis scenarios.
