Rethinking Trend Investing: Alternative Signals, Not Alternative Markets

AllianceBernstein contends that inflation, geopolitical fragmentation and concentrated, AI-driven markets have raised the premium on investors' ability to navigate directional moves across asset classes, and that systematic trend-following strategies, often called managed futures or CTAs, can help. The firm argues, however, that design matters. Many managers have tried to enhance trend strategies by expanding into more markets, but AllianceBernstein says this can mean entering specialized, illiquid markets without meaningfully improving diversification. Managers also frequently rely only on structured inputs such as price and volume, which are easier to process across large universes.

In the firm's view, an enhanced trend strategy should emphasize the depth of unique, actionable signals rather than the breadth of asset classes. A "trend 2.0" approach would complement traditional trend signals with macroeconomic inputs, including central bank policy shifts, inflation and labor market developments, and with language-based sentiment drawn from corporate earnings and news. AllianceBernstein says these qualitative inputs can capture intent, tone and emerging themes before prices fully reflect them. The firm also points to advanced techniques, including deep learning models that analyze price, volatility and cross-asset relationships, market reaction signals to data releases that may reveal positioning and crowding, and latent trends such as changes in short-term interest-rate futures. Other signals it cites include carry, which seeks to benefit from futures-pricing differences, and event-driven signals that aim to provide liquidity during market events.

On performance characteristics, AllianceBernstein describes trend following as broadly uncorrelated to risk assets rather than negatively correlated. Strong results often arrive in bursts, and the strategy is not designed to react instantly to shocks. The firm cites the global financial crisis, when trend managers initially did not benefit from the sell-off but later captured powerful trends across equities, bonds, currencies and commodities. It also notes that the Société Générale (SG) Trend Index provided ballast during the brief COVID-19 equity sell-off and during the inflation-driven stock decline of 2022. Trend strategies typically struggle when markets lack direction or reverse suddenly, a phenomenon known as being "whipsawed."

AllianceBernstein concludes that today's environment differs from the post-GFC period, with inflation still elevated and an uncertain path, geopolitical tensions reshaping trade and investment flows, and rapid technological change creating both opportunity and disruption. Because these forces are difficult to predict, the firm believes a thoughtfully designed systematic trend strategy may help investors navigate them, provided it draws on a deeper and more diverse set of information while remaining liquid and scalable.