How trend following helps client portfolios in volatile markets

An alternative strategy to help advisers manage client anxiety, drawdown risk, and Consumer Duty obligations.

Ongoing market volatility, economic uncertainty, and geopolitical tension are creating a difficult backdrop for investors - and a demanding environment for financial advisers.

Clients are understandably anxious. Even if they’re not in the habit of checking their portfolios, it’s hard for them to ignore the steady drumbeat of bad news. And for those drawing income in retirement, the impact of fluctuating markets will be even more visceral.

Of course this is a familiar challenge: managing emotions, explaining short-term movements, and repeating the tried-and-tested, tea towel-inspired message “Keep calm and carry on” is all part of your role as adviser.

But what if there’s an alternative approach?

Perhaps you’re already wondering whether there’s more you could be doing - especially for clients in drawdown?

That’s where trend following comes in: a data-led, dynamic strategy designed to capture gains when markets are rising and limit losses when they’re falling. You might be thinking, surely that’s what every fund manager wants to achieve? Well trend following is different.

How trend following works

Yes, trend following is based on a simple idea: if markets are showing signs of sustained decline, it might be wise to reduce exposure - before it’s too late. But it doesn’t mean overtrading. It’s not about panicking or reacting to every dip. It’s about using academic data, discipline, and judgment to detect meaningful trends - then responding.

Trend following analyses price movement over different time periods to determine whether an asset is showing positive momentum (and should be held or bought) or negative momentum (and should be reduced or sold). But we combine this with current market sentiment, which helps identify real trends rather than short-term noise. 

This provides clear, evidence-based signals to support asset allocation decisions - helping portfolios adapt to market conditions rather than passively enduring them.

In short, trend following adds a dynamic layer of risk control, which makes it especially valuable in periods of volatility.

What the evidence says

Trend following isn't a new idea - it’s backed by over a century of academic research. One of the best-known studies, A Century of Evidence on Trend-Following Investing (2014) used historical data from a number of sources and found that the strategy has been consistently profitable throughout the past 135 years.

In simple, practical terms, this means fewer surprises, fewer panicked phone calls from clients and more predictable investment journeys.

How Crossing Point applies trend following

Our models use moving averages and market sentiment indicators to spot when markets are changing direction. But crucially, we don’t act on every signal. We overlay human discretion, using our judgment to avoid overreacting.

Our portfolios are mostly passive or enhanced passive, but we manage them actively, applying daily testing and conviction-based allocation. In extreme cases, such as COVID-19, our strategy gave us the conviction to move entirely into cash - protecting capital when many others were simply holding on.

The above illustrates the performance of £100,000 invested into the Crossing Point Guardian Balanced portfolio from January 31 to Dec 31 2020 using our trend-following strategy compared with its benchmark without any tactical trading. An investment into Guardian Balanced would have ended the period with £2,982.62 (2.88%) more than an investment in the benchmark.

Why this matters in drawdown

For clients who are already drawing an income from their investments, market volatility isn’t just unsettling - it can have a long-lasting impact on their financial future.

This is due to what’s known as ‘sequence of returns risk’. Research shows that when a portfolio suffers large losses early in retirement, it becomes significantly harder to sustain long-term income withdrawals. Selling assets for income during a market downturn can lock in losses, reducing the capital base and making it difficult to recover - even if markets bounce back later.

This is where our Guardian and Fusion portfolios come in.

They’re specifically designed to minimise sequence of returns risk, volatility and large drawdowns by smoothing long-term returns through trend following, tactical trading, and diversification.

The goal is to give you and your clients greater confidence that income withdrawals can continue without jeopardising long-term outcomes – even when markets are stormy.

This graph above shows the performance of a £500,000 investment in the Guardian Balanced portfolio over the 5-year period from 31 January 2020 to 31 January 2025 while taking an annual income of 4% compared with the same investment and income for a portfolio based on the Investment Association 20-60% benchmark. By using Guardian portfolios, an investor would have ended the period with £40,682.78 (8.6%) more than an investment in the benchmark.

How does trend following compare to smoothed funds?

Some advisers turn to smoothed funds to manage volatility. These funds use mechanisms such as rolling six-month averages to reduce price fluctuations and create a calmer investment experience.

Trend following offers a more transparent, adaptive route and is more cost-effective - Crossing Point’s Guardian portfolio, at 0.30% for example, is significantly cheaper than the average smoothed fund, which can range from between 0.75% and 1.25% per year, depending on the provider and product structure[1].

[1] As an example, LV’s smoothed managed fund is at 0.80%.

Smoothed funds have a place. But for advisers looking for something more responsive, evidence-based and aligned with FCA expectations, trend following may be a better fit.

Final thought

Clients are looking for calm in the storm. You’re looking for confidence in your proposition. If your current investment solution doesn’t have a way to dynamically manage risk – or if you’re relying solely on smoothed or buy-and-hold strategies, it’s worth asking: is there more you could be doing to protect your clients - and your business?

To find out more, please email us to explore how trend following could enhance your investment proposition – and your business.