Macro Timing with Trend Following (Link)

The Big Question
Can we use economic signals to help determine when to follow trends and when to just be buy-and-hold?

The Most Important Chart
Incorporating PMI- and Unemployment-based economic signals into an already-diversified trend-following strategy does not appear to add much value.

The Key Take-Away
If using a single trend signal, economic regime filters might provide valuable diversification.  Using multiple trend signals, however, appears to dilute this benefit.

Yield Curve Trades with Trend and Momentum (Link)

The Big Question
Can we capture different types of changes to the yield curve (e.g. level shift, slope change, etc) as portfolios and then apply trend-following on those portfolios?

The Most Important Chart
Long/flat trend-following on level changes appears to meaningfully reduce drawdown risk over the tested period, suggesting that investors might be able to govern their duration exposure with such a signal.

The Key Take-Away
Recent changes to the yield curve are significantly impacted by Federal Reserve policy, making it difficult to disentangle level and slope changes.  Nevertheless, this research suggests that changes may be persistent and trend-following signals may be one way of quantifying these changes.

Risk-Adjusted Momentum: A Momentum and Low-Volatility Barbell? (Link)

The Big Question
If we use risk-adjusted momentum (i.e. momentum divided by volatility) as a signal to buy stocks, do we create a natural blend between momentum and low-volatility portfolios?

The Most Important Chart
The risk-adjusted momentum portfolio tracks a naive momentum portfolio much more closely than a low-volatility portfolio.

The Key Take-Away
Naively combining two signals does not necessarily lead to balance in portfolio composition.  In this case, risk-adjusted momentum behaves far more like a momentum portfolio than a low-volatility portfolio.

Factor Orphans (Link)

The Big Question
How do stocks not owned by any factor portfolio (i.e. S&P 500 Enhanced Value, Momentum, Low Volatility, and Quality) fare over time?

The Most Important Chart
An equal-weight portfolio of factor orphans appears to behave almost identically to an equal-weight S&P 500 portfolio.

The Key Take-Away
Factor orphans make up about 40% of the S&P 500 at any given time.  These stocks are not necessarily anti-factor, however, and therefore a portfolio of them has not historically under-performed.

 

Corey is co-founder and Chief Investment Officer of Newfound Research, a quantitative asset manager offering a suite of separately managed accounts and mutual funds. At Newfound, Corey is responsible for portfolio management, investment research, strategy development, and communication of the firm's views to clients. Prior to offering asset management services, Newfound licensed research from the quantitative investment models developed by Corey. At peak, this research helped steer the tactical allocation decisions for upwards of $10bn. Corey holds a Master of Science in Computational Finance from Carnegie Mellon University and a Bachelor of Science in Computer Science, cum laude, from Cornell University. You can connect with Corey on LinkedIn or Twitter. Or schedule a time to connect.