Jenny Kellams, Director of Investment Strategy for Dunn Capital Management, joined Julie Cooling, Founder and CEO of RIA Channel, at the GTE Wealth Forum to discuss the benefits of diversifying traditional stock and bond portfolios with trend following strategies.
Dunn’s flagship program has been trading since 1984. When evaluating an investment with Dunn Capital, Kellams encourages advisors to consider the long-term returns, as monthly returns look very different than traditional stock market investments. Because of the short-term return differences, Dunn Capital’s programs can be very complementary to portfolios invested 60/40 or 70/30 in stocks and bonds.
Dunn’s WMA Strategy is a medium-to-long-term, rules-based trend following strategy. The strategy trades futures markets across commodities, currencies, interest rates, equity indices, and volatility. Trend following models search for sustainable price moves. Historically, the strategy has had negative correlations to traditional markets during times of distress while having little to no correlation during times of normal market volatility. The strategy is available in separately managed accounts, a mutual fund, and private placement onshore and offshore funds for accredited investors.
Dunn Capital published a study, Hi-Vol Trend Following (PDF), that makes the case for why high-volatility trend following may be the most valuable alternative investment. Over 25 years, a portfolio invested 20% in high-volatility managed futures, 50% in stocks, and 30% in bonds, outperformed the 60/40 portfolio with lower portfolio volatility and maximum drawdown, with much of the value-added occurring during times of crisis in the equity markets.
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