Global Risk Parity Trend-Following (Clare, Seaton, Smith & Thomas)

Jan 2013 – Sep 2026	Strategy	SPY
Annual return (CAGR)	3.1%	14.8%
Worst drawdown	-12.4%	-33.7%
Sharpe ratio	0.52	0.91
Volatility	6.2%	16.8%
Annual return since publication (Feb 2016)	4.7%	15.7%

May 2009 – Sep 2026	Strategy	SPY
Annual return (CAGR)	3.3%	15.3%
Worst drawdown	-15.7%	-33.7%
Sharpe ratio	0.48	0.92
Volatility	7.3%	17.1%
Annual return since publication (Feb 2016)	4.7%	15.7%

Global Risk Parity Trend-Following is the main portfolio of The Trend is Our Friend by Andrew Clare, James Seaton, Peter N. Smith, and Stephen Thomas, a working paper from 2012 published in the Journal of Behavioral and Experimental Finance in 2016. It holds five global asset classes, gives calmer ones larger shares, and moves any asset below its 10-month average into Treasury bills.

The idea#

The authors asked whether two simple rules could fix the main weakness of a diversified buy-and-hold portfolio: deep losses when stocks, commodities, and property fall together. Risk parity sizes each asset by the inverse of its volatility, so government bonds carry a large share and no single asset dominates the portfolio's risk. Trend following sells an asset when its price drops below its 10-month average and buys it back when it recovers.

In their sample each rule helped on its own, and the combination gave the best risk-adjusted return with much smaller drawdowns. The paper also tried trend following across many individual markets; this page covers its five-asset-class portfolio.

How it works#

At the close of the last trading day of each month:

Measure each of five funds' volatility over the past year: developed-market stocks (URTH), emerging-market stocks (EEM), international government bonds (BWX), commodities (DJP), and global real estate (RWO).
Give each fund a share in proportion to one over its volatility, so the calmest funds get the most.
For each fund, hold it if its price is above its 10-month (210-session) average; otherwise hold its share in Treasury bills (BIL). The other shares do not grow to fill the gap.

As in the paper, each share comes from the fund's own volatility even while that share sits in bills.

What the backtest shows#

The test starts in January 2013, a year after URTH launched. Since then the strategy returned about 3% a year, far behind the S&P 500's 15% and a 60/40 mix's 9%. It trailed the 60/40 on risk-adjusted return too, although its worst drawdown, about 12%, was smaller than the 60/40's 21%.

This was a difficult period for the strategy's assets, with international bonds, commodities, and emerging markets often flat or falling. It lost money in 2013, 2015, 2018, 2022, and 2023, and its worst drawdown ran from January 2018 to the March 2020 crash, recovered by December 2020. Its better years were 2017, 2021, and 2025, each up 10–12%.

Since the journal version appeared in early 2016 it has returned about 5% a year with a better risk-adjusted return than over the full period.

Simulated history only reaches back to 2009, because three of the funds have no older stand-in, and it adds little: about 3% a year, with a worst drawdown of about 16% from April 2011 to January 2016.

When it struggles#

Weak international markets. When foreign bonds, commodities, and emerging stocks lag, as after 2011, the portfolio has little to hold.
Low interest rates. A large part of the portfolio sits in bills when assets fall below trend, so returns shrink when yields are near zero.
A strong US market. It holds US stocks only through the world index, so it captures little of a US-led rally.

Using it on Tactfolio#

The live strategy above uses volatility from a year of daily returns in place of twelve monthly returns, a 210-session daily average in place of ten month-end prices, and ETFs for the paper's indexes; BWX leaves out US Treasuries, and RWO holds property companies beyond REITs. Copy it to swap in other funds, or compare it with the US version, which has a longer and stronger record.

Year by year

Year	Strategy	SPY
2026*	13.7%	14.0%
2025	11.5%	17.7%
2024	1.0%	24.9%
2023	-1.7%	26.2%
2022	-1.7%	-18.2%
2021	10.0%	28.7%
2020	4.5%	18.3%
2019	4.3%	31.2%
2018	-3.5%	-4.6%
2017	11.0%	21.7%
2016	2.0%	12.0%
2015	-3.1%	1.2%
2014	0.3%	13.5%
2013*	-3.7%	28.1%

Year	Strategy	SPY
2026*	13.7%	14.0%
2025	11.5%	17.7%
2024	1.0%	24.9%
2023	-1.7%	26.2%
2022	-1.7%	-18.2%
2021	10.0%	28.7%
2020	4.5%	18.3%
2019	4.3%	31.2%
2018	-3.5%	-4.6%
2017	11.0%	21.7%
2016	2.0%	12.0%
2015	-3.1%	1.2%
2014	0.3%	13.5%
2013	-2.9%	32.3%
2012	2.8%	16.0%
2011	-4.7%	1.9%
2010	2.4%	15.1%
2009*	14.0%	27.2%

* Partial year.

The rules as implemented

This is the exact tree Tactfolio runs, rebalanced monthly with signals and trades at the close. Open it to inspect or copy it.

Sources and caveats

ETFs stand in for the paper's indexes: URTH for MSCI World, EEM for MSCI Emerging Markets, BWX for the Citigroup World Government Bond Index (BWX excludes US Treasuries), DJP for the DJ-UBS Commodity Index, and RWO for the FTSE/EPRA Global REIT Index (RWO also holds non-REIT property companies), with BIL for US 3-month Treasury bills.
Each asset is weighted by the inverse of its own trailing volatility, and an asset below its 10-month average keeps that weight in Treasury bills, as in the paper; the portfolio is not renormalized.
Volatility uses 252 daily returns instead of 12 monthly returns, and the trend test compares the close with its 210-session average instead of ten month-end closes, on dividend-adjusted prices; the paper uses price indexes for stocks and real estate.
Signals and trades use the close of the last trading day of each month, as in the source.

Common questions#

What is The Trend is Our Friend strategy?#

It is the risk parity and trend following portfolio from Clare, Seaton, Smith, and Thomas's paper. It sizes five global asset classes by inverse volatility and moves any asset below its 10-month average into Treasury bills.

What ETFs does the global version use?#

URTH for MSCI World, EEM for MSCI Emerging Markets, BWX for world government bonds, DJP for the Bloomberg (formerly DJ-UBS) Commodity Index, RWO for global real estate, and BIL for cash.

How is it different from the US version?#

The US version, which Allocate Smartly tests, swaps the global assets for US large caps, small caps, Treasuries, commodities, and US REITs. Its funds have longer histories, and it did better than the global version in most years since 2013.

Does risk parity trend following still work?#

It has kept drawdowns small since publication, but with global assets its returns have been low, about 3–5% a year. The live record on Tactfolio shows how it is doing now.