Karl Rogers, the Chief Investment Officer of Elkstone, has launched a new series called “Investment Thoughts from the Road” where he shares insights on alternative investments and trends in the industry. In his first article, he defines alternative investments and delves into trend following, which is part of the public pillar within his five-pillar methodology for portfolio construction and tactical allocations.
The alternative investment universe according to Rogers is divided into private equity, private credit, real assets, uncorrelated investments, and liquid alternatives. Trend following, which falls under the public pillar, involves systematic investment strategies that aim to make money from price trends in markets like gold, commodities, cryptocurrencies, and commodity trading advisors.
Trend following has shown strong performance in 2024, with the SocGen Trend Index up 7.64% at the time of writing. Rogers is a big fan of trend following due to its reliability in providing returns and its ability to perform well during market stress periods. This strategy is rules-based and relies solely on price, making it adaptable to changing market dynamics, which gives investors confidence in its performance over time.
Rogers suggests considering a tactical repositioning given the historical increase in risk premium in a higher interest rate environment. Trend following could provide a counterbalance to expected increased market volatility from upcoming elections globally. With the recent positive relationship between equities and bonds, diversification through trend following can offer a strategic advantage, especially since the strategy is not tied to economic growth.
In constructing a portfolio, Rogers recommends focusing on pure trend managers rather than diluting the strategy with other correlated strategies. This can help maintain convexity during periods of market stress and generate better returns in choppy market conditions. It is important to consult with a licensed professional for personalized investment advice, as the information provided is not specific to individual circumstances. Karl Rogers aims to help investors navigate the complex world of alternative investments through his series and provide valuable insights for portfolio construction and allocation decisions.
