The Trend is Our Friend strategy was developed by Andrew Clare, James Seaton, Peter N. Smith, and Stephen Thomas.
The strategy was outlined in their paper: The Trend is Our Friend: Risk Parity, Momentum, and Trend Following in Global Asset Allocation.
At the time of writing, Clare, Seaton, and Thomas were at the Cass Business School at City University London while Smith was at the University of York.
The strategy uses a combination of risk parity and trend following to determine when to move in and out of assets and the weighting.
On average, the portfolio holds 20% in equities, 26% in bonds, and 54% in cash, commodities, and real estate.
Weight | Ticker | ETF Name | Sector | |
|---|---|---|---|---|
32% | BIL | SPDR Blmbg Barclays 1-3 Month T-Bill ETF | Bond, U.S., Ultra Short-Term | |
14% | IEF | iShares 7-10 Year Treasury Bond ETF | Bond, U.S., Intermediate-Term | |
12% | BWX | SPDR Barclays International Treasury Bond | Bond, International, All-Term | |
10% | DBC | Invesco DB Commodity Index Tracking Fund | Commodity, Gold | |
8% | EEM | iShares MSCI Emerging Markets ETF | Equity, Emerging Markets, Large Cap | |
7% | SPY | SPDR S&P 500 ETF | Equity, U.S., Large Cap | |
6% | RWO | SPDR DJ Wilshire Global Real Estate ETF | Real Estate, Global | |
6% | VNQ | Vanguard Real Estate Index Fund ETF | Real Estate, U.S. | |
5% | EFA | iShares MSCI EAFE ETF | Equity, Inter. Developed, Large Cap |
This strategy trades once per month.
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Low | Average | High | |
|---|---|---|---|
1-Year | -7.4% | 8.9% | 34.2% |
3-Year | -1.2% | 8.9% | 21.1% |
5-Year | -1.0% | 9.1% | 18.0% |
10-Year | 1.4% | 9.3% | 15.5% |
Portfolio | 60/40 | S&P 500 | |
|---|---|---|---|
Annual Return | 8.7% | 9.3% | 10.3% |
10Y Annual Return | 2.1% | 7.9% | 12.2% |
Sharpe Ratio | 0.73 | 0.51 | 0.43 |
Max Drawdown | -9.0% | -29.7% | -50.97% |
Volatility (annualized) | 5.6% | 9.9% | 15.4% |
Dot Com Annual Return | 4.5% | -4.2% | -14.60% |
Great Financial Crisis Annual Return | 8.6% | -0.3% | -5.66% |
Positive Periods | 72.5% | 65.8% | 63.3% |
**S&P 500 backtest to 1972 and 60/40 backtest to 1970
