Hedging Consensus: What If Inflation Isn't Transitory?

Research Bulletin: Managed Futures

“Trend following has done well historically at times of major economic uncertainty
and upheaval, as these episodes tend to be accompanied by large and prolonged shifts in asset prices across multiple sectors. While the importance of having
long commodity exposure during periods of rising inflation is well understood, investors may be overlooking the potential for trends in other sectors. Currencies, for example, are a notable driver of trend following performance.”

Winton Capital
Trend Following and Periods of
Rising Inflation, June 2021

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Today, there is a consensus view that inflation is transitory and central banks have it under control. As observers of market history, we know that market crises
historically occur outside of the scope of consensus.

In light of investor concerns about persistent inflation, we re-examined the characteristics of momentum-based strategies and their ability to provide favorable outcomes in the event the consensus is wrong.

Our investment partners at Winton looked back for periods of rising inflation - defined as periods when the rolling 12-month CPI in the US increases by 4% or more from peak to trough. In Figure 1, the rolling CPI is... click here to continue.