Despite disappointing recent performance, trend-following strategies can add portfolio value—efficiently balancing risk and reward when the next real macro trend takes hold.

I’ve heard the phrase, “Trend following is dead,” more than once this year. In my experience, whenever someone declares a long-standing investment approach finished, it’s usually just a matter of time before it springs back to life.

A rough start to the year

Back in January, I was calling this the year of the CTA (commodity trading advisors—professional money managers who use data-driven strategies to trade futures contracts across asset classes such as stocks, bonds, commodities, and currencies). I still am.

In 2022, managed-futures funds reminded the world that they can deliver outsized gains, even when it seems there is no safe place to turn. They seemed poised to resume their role as portfolio shock absorbers heading into this year.

As I look back at the first six months of 2025, that premise has not materialized.

Instead of offering protection, CTAs have looked more like plain-vanilla beta—but without any upside. The S&P 500 was up about 5.5% for the first half of 2025, staging a strong comeback from April’s steep sell-off, while the SocGen CTA Index (a key benchmark for CTA performance) was down about 7.9%.

What’s going on, and where might we be heading?

A trend toward shorter signals

One major factor in this year’s disappointing CTA performance is the industry’s quiet shift toward shorter lookback windows. Over the past decade, speed has become fashionable: Instead of waiting months for a trend signal to ripen, models started reacting after a few weeks—sometimes days—to capture moves earlier and “cut losses faster.”

On paper, it makes perfect sense. In practice, it leaves you increasingly dealing with noise, not signal. There’s less time for a real macro trend to confirm, so you end up chasing moves that feel promising one day, only to watch them reverse the next.

The thinking is that you’ll take lots of tiny cuts while hunting for the start of a true trend. But in 2025 so far, it’s been all cuts and no trend. Every hint of a trend has quickly evaporated, making it extremely hard to profit from trend following.

Politics adds another layer of whiplash

On top of that technical turbulence, there’s the very human wild card of politics. Markets have always reacted to policy, but President Trump’s influence is particularly sharp and unpredictable. A single tweet about tariffs can send investor emotions—and prices—into orbit.

These sudden moves aren’t tied to economic fundamentals, but trend models respond to price action regardless. The result? Short-term filters get pulled into reacting to every headline shock, creating volatile moves with no follow-through.

Many trend-following strategies have taken the brunt of every dip while missing each rebound. One month, they’re long equities, and the market slips; the next month, they abandon the asset class right before a snap rally back to all-time highs. It’s frustrating for an investment style that sells itself as persistent.

Here’s the thing: CTA performance has been disappointing, but they’re not totally failing. They’re just not getting strong signals. Those signals have been drowned out by a relentless wave of short-term noise: tariff tweets, geopolitics, billionaire skirmishes, central-bank sound bites, and commodity rumors. The models aren’t broken—the market just hasn’t picked a lane.

The outcome is an asset class that, for now, hasn’t delivered on its promise.

Why we still believe in trend followers

But here’s the key: The reason to own trend followers has never been their month-to-month Sharpe ratios. It’s their ability to generate asymmetric gains when conventional assets suffer sustained stress. These strategies still have a structural edge because they can be long or short anything, anywhere, without a built-in bullish bias.

(As an aside, being long and short without having to own equity beta and producing positive returns is as close to true alpha as you can get. But I digress.)

When macro conditions truly shift, like the interest-rate spike in 2022, CTAs may be the only part of a portfolio that’s in the green. Yes, the industry struggled through a grinding drawdown from 2015 to 2020, but from late 2020 through 2023, trend-following strategies delivered exactly the kind of convex payoff they’re designed for. The SocGen Trend Index topped 27% in 2022, while traditional 60/40 portfolios lost money on both sides.

That pattern of performance during major economic shifts isn’t going away just because signals have gotten twitchier.

What comes next?

If anything, the choppiness so far this year suggests we’re sitting at an inflection point. The shorter-term crowd was getting whipsawed precisely because no durable economic trend had emerged.

So far, economic fundamentals continue to look decent. The political noise hasn’t sparked a full-blown global meltdown. But whether the next shift brings continued growth or a slide into recession, we’d expect CTAs and trend followers to start showing their value again.

A key piece of the diversification puzzle

For investors, the takeaway is simple: If you believe diversification is important to a smoother investment experience, CTAs may still deserve a place in your portfolio.

CTAs were originally marketed to farmers to manage price risks associated with commodity markets like agriculture, energy, and metals. By using futures contracts, producers could hedge against price fluctuations and better manage their inventory. For instance, a corn producer could hedge the price of their expected crop yield for the year by using the futures market to sell contracts for future delivery.

Over time, CTAs evolved beyond their agricultural roots. Today, they manage and trade risks across more markets around the world, including equity indexes and currencies, using systematic and quantitative methods. CTAs are bucketed as their own asset class and historically trade in an uncorrelated fashion to traditional equity and fixed-income markets.

What makes CTAs unique is their flexibility. Unlike traditional investments that rely on market growth, CTAs can go long (profiting when prices rise) or short (profiting when prices fall). This adaptability allows them to respond to changing market conditions, making them a valuable tool for diversification and risk management. CTAs can go long or short in any asset class—stocks, bonds, commodities, currencies, and more.

With such a flexible approach to investing, it’s no surprise that CTAs have gained traction in recent years. Following the global financial crisis of 2007–2009, CTAs saw a surge in popularity, with industry assets growing from $196 billion to $337 billion in 2013, according to BarclayHedge data. However, after the initial excitement around their diversification benefits, growth stagnated—until the 2020 COVID-19 crisis reignited interest.

In 2022, CTAs had a standout year, with the SocGen CTA Index posting an 18% return, its best performance since 2000. This success has driven renewed interest, with industry assets hovering around all-time highs entering this year.

Despite two years of strong global equity performance, investors may want to consider CTAs as a strategic addition to their portfolios in 2025. With their flexibility and adaptability, CTAs have provided diversification across market cycles. They have historically improved portfolio metrics such as risk-adjusted returns and drawdowns.

(For more on how CTAs work and their role in navigating uncertainty, check out these articles: “Will investors make 2025 the year of the CTA?” and “From sticky notes to CTAs: Finding opportunity in the unexpected.”)

Trend following isn’t dead. The approach has been a disappointment so far this year, but the reason for owning trend-following investment strategies hasn’t changed: to deliver crisis alpha when the next real macro trend takes hold.

I’d rather endure some noise today than find myself unprepared when that wave finally arrives.

The opinions expressed in this article are those of the author and the sources cited and do not necessarily represent the views of Proactive Advisor Magazine. This material is presented for educational purposes only.