Applying a Systematic Investment Process to Distributive Portfolios: A 150 Year Study Demonstrating Enhanced Outcomes Through Trend Following

Abstract

The objective of this paper is to examine the absolute and risk-adjusted effects on distribution rates and total wealth created by adding loss-limiting trend following strategies to buy and hold portfolios. Using 150 years of equity and bond data, we found that applying trend following to distributive portfolios results in less frequent and less severe failures compared with a buy and hold strategy. Additionally, we concluded that trend following allows for an increased allocation to equities without increased volatility relative to buy and hold. As a result, at the same level of volatility, portfolios can create greater total wealth and distributions.

Keywords: Investments, Portfolio Management, Risk Management, Trend Following, Volatility, Withdrawal Rates, Endowments

JEL Classification: Y10, N2, N21, N22, N20, N24, N25, G00, G01, G02, G1, G10, G11, G12, G14, G15