How ‘Crisis Alpha’ Is Being Harvested by Trend-Following Quants

(Bloomberg) --

They say every crisis is also an opportunity, and some trend-following investment strategies are proving that true by reaping strong returns amid the chaos in markets triggered by the Covid-19 pandemic. AlphaSimplex Group’s Managed Futures Strategy Fund is up more than 7% in 2020, reaping what the firm’s chief research strategist Kathryn Kaminski refers to as “crisis alpha.” 

Kaminski joins the “What Goes Up” podcast this week to discuss how trend following works and how the firm’s strategy saw the crisis brewing in other markets before it sent equities into a tailspin.

Some highlights of the conversation:   

“We saw tremendous trends in the cross-asset space, so there were tremendous opportunities in fixed income, short energy, short industrial metals, long precious metals. The currency market has been a little bit more of a back and forth in all of this situation. But in general the trends we were seeing were relatively strong, much stronger than the typical amount of trend you would see in a time when people are not concerned. And this is why these strategies actually do very well in these environments. It’s that during periods of fear or distress, people are much more coordinated in how they behave. And prices, as a result, can also move in a much more coordinated way.”

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