Alternative Investing

Trend Following and Rising Rates

Topics - Alternative Investing Trend Following Market Risk and Efficiency

Read Time - 10 mins

${ numberSection } ${ text }
Trend Following and Rising Rates

AQR White Paper

Given the current low yields in global bond markets and the possibility of a rising rate environment going forward, two questions regarding trend-following strategies are often asked. First, can trend followers benefit from the uncertain impacts of rising yields on asset class returns? Second, if trend followers get short fixed income, will the strategy maintain its diversification properties?

This paper addresses those questions by examining the performance of a simple trend-following strategy during a historical period of secularly rising rates. The data demonstrates that trend followers would not have required declining rates to generate meaningful returns, and trend following’s attractive portfolio diversification properties would not be diminished during rising rate regimes.

The authors conclude that the data indicate that while trend followers may have generated a significant portion of their returns from bullish trends in fixed income markets during the past few decades, that doesn’t mean expected returns or diversification properties will necessarily worsen when rates begin to rise.

Generally, they add, an analysis of historical returns of trend following suggests that the strategy is designed to benefit when markets experience gradual and persistent changes in either direction.

Published In

Alternative Investment Analyst Review

AQR Capital Management, LLC, (“AQR”) provide links to third-party websites only as a convenience, and the inclusion of such links does not imply any endorsement, approval, investigation, verification or monitoring by us of any content or information contained within or accessible from the linked sites. If you choose to visit the linked sites, you do so at your own risk, and you will be subject to such sites' terms of use and privacy policies, over which has no control. In no event will AQR be responsible for any information or content within the linked sites or your use of the linked sites.

The information contained herein is only as current as of the date indicated, and may be superseded by subsequent market events or for other reasons. The views and opinions expressed herein are those of the author and do not necessarily reflect the views of AQR Capital Management, LLC, its affiliates or its employees. This information is not intended to, and does not relate specifically to any investment strategy or product that AQR offers. It is being provided merely to provide a framework to assist in the implementation of an investor’s own analysis and an investor’s own view on the topic discussed herein. Past performance is not a guarantee of future results.


Hypothetical performance results have many inherent limitations, some of which, but not all, are described herein. The hypothetical performance shown was derived from the retroactive application of a model developed with the benefit of hindsight.  Hypothetical performance results are presented for illustrative purposes only.


Diversification does not eliminate the risk of experiencing investment loss.


Certain publications may have been written prior to the author being an employee of AQR.

This material is intended for informational purposes only and should not be construed as legal or tax advice, nor is it intended to replace the advice of a qualified attorney or tax advisor.


AQR Capital Management is a global investment management firm, which may or may not apply similar investment techniques or methods of analysis as described herein. The views expressed here are those of the authors and not necessarily those of AQR.