Trend following: the diversifier that showed up when it counted

Alternatives are meant to do their work when the rest of the portfolio struggles. In FY26, most of them did not. Of the 31 funds in FundMonitors.com’s alternatives peer group, only 10 beat the group’s own return of 11.31 per cent.

The strategy that topped the table did so by a distance. It runs on systematic trend following.

The ECCM Systematic Trend Fund, run by Sydney-based East Coast Capital Management, returned 31.17 per cent over the financial year to rank first in the alternatives category of Australian Fund Monitors’ Annual Performance Review for FY2026. It did it with a Sharpe ratio of 1.68 and annualised volatility of 14.7 per cent, a combination that says as much about the quality of the return as its size.

You could argue that the number that matters is not really the 31.17 per cent. It is the gap between it and the rest of the field. In a year that was supposed to reward diversifiers, two thirds of them could not clear a fairly modest bar.

Bucking the trend

Systematic trend following is an algorithmic strategy that identifies established price trends across equities, bonds, commodities and currencies, then trades them according to a fixed rule set, with risk controls built into the program rather than layered on afterwards. There is no view, no forecast and no discretion at the trade level.

“Our process doesn’t try to predict those moves before they happen,” says Simone Haslinger, chief executive of East Coast Capital Management. “It identifies them once they’re underway and follows them for as long as they persist.”

That is the whole discipline. The fund does not decide what markets ought to do; it responds to what they are doing.

“We don’t seek to outguess markets. We respond to what markets are actually doing, without behavioural biases about what markets should do.”

The appeal for a portfolio is that the return has nothing to do with an equity or credit call. It comes from the persistence of trends across a broad universe of futures markets, which is why it can add ballast in exactly the periods when traditional assets are under pressure.

Return drivers

FY26 handed trend followers the kind of market they are built for: clear, sustained moves rather than choppy, directionless ones. Haslinger points to three of them.

“In FY26 markets gave us what systematic trend following is designed to capture: genuine, sustained moves. We experienced significant trends in precious metals, technology-linked equity indices, and earlier in 2026, energy markets.”

Precious metals and the technology-linked equity complex ran hard through the year, and the fund followed them rather than called a top. The strategy has traded as a standalone approach since January 2020 and reflects a process the firm, founded in 2008 by chief investment officer Adam Havryliv, has been developing for far longer.

The consistency is worth noting alongside the headline number. Haslinger points to top three or four returns over three and five years, with the fund posting 11.96 per cent annualised over three years and 11.72 per cent over five. That is not a one-year spike dressed up as a track record.

The trade-off

The honest qualification is the same one that makes the strategy work. Systematic trend following earns its keep in years like FY26, when moves are large and durable. It can just as easily give ground in whippy, mean-reverting markets that turn before a trend establishes, and the returns arrive in lumps rather than a smooth line.

An adviser putting it in a client portfolio is buying a return stream that will sometimes look uncomfortable in isolation and only make sense at the portfolio level.

The dispersion in this year’s table makes the wider point.

Alternatives is not an asset class you can buy off a label. The peer group spans systematic trend, global macro, commodities, currency and private markets, and the range of outcomes inside it was enormous. What sits under the word matters far more than the word itself.

“A disciplined, rules-based approach can deliver real diversification benefits precisely when investors need them most,” Haslinger says.