Portfolio Managers Andrew and Mathew Kaleel discuss different approaches to capturing both micro and macro trends in markets and their outlook for trend following in the near and longer term.

Key Takeaways

• When seeking to capture trends in markets, we feel it is important to consider both micro and macro trends, each of which may come into play for different reasons and at different points in the cycle.
• Capturing macro trends in economic indicators such as inflation, industrial activity and yield curve movements helps to offset the negative carry typically associated with trendless asset class markets.
• We think the prospect of inflation, reflation and extended moves in the U.S. dollar could provide significant upside opportunities for trend following over the next three to five years.

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Mathew Kaleel: There are a number of ways to capture and define trends in markets. Firstly, there are market-based trends or bottom up. Often those particular markets don’t trend and there is not a lot of opportunities there. However, there are often opportunities at a sector level or a portfolio level and it is quite important to capture trends at different parts of the portfolio, because they come through at different times for different reasons and different points in the cycle.

Andrew Kaleel: So we have designed a strategy that seeks to capture both micro trends from the bottom up level and macro trends from the top down perspective. And it is the macro trend component that is quite unique to our strategy. When we talk about macro trends, we are referring to inflation, industrial activity, capital flows, trends in the yield curve. So we effectively get two parts of the cherry.

Mathew Kaleel: For the near term, the outlook for trend following is positive. We have seen an increase in volatility across most asset classes and extended moves. And we think that bodes well for trend following over the next year or so. Longer term over the next three to five years, the prospect of inflation, reflation and extended moves in the U.S. dollar provide significant opportunities on the upside of the trend following.