The alternative is to think a little more broadly about the definition of "bad times". The deviations for growth or growth recessions are also periods when defensive assets should do better. If there is a slowdown in economic growth firms and market prices will adjust. Price discounting will occur when growth slows. Inventories will build during growth slowdowns. Investors will be more cautious.
It is noticeable that there has been little deviation from trend since the Great Financial Crisis. The current period may be a better representation of the Great Moderation than the mid 1990's. The difference is that the deviations seem to be closer to the trend. This does to mean that we have exception growth in the current environment but only growth that is closer to trend. We show in green the 12-month rolling average value.
This research on "bad times" is ongoing but we have found that returns for managed futures are slightly higher during periods of declining or negative deviations from trend. This mean difference has a p-value of .2 for a one tailed test which suggests a weak difference. Our analysis shows that performance for managed futures is higher than normal when there is a deterioration of financial condition versus periods of just slower economic growth. Our ongoing research is to look at the impact of "growth recessions" on other hedge fund strategies.
The crisis alpha that may exist in managed futures shows stronger performance during market downturns, but more importantly, managed futures performance is tied to changes in economic performance. Deterioration of financial conditions or growth, the harbinger of a possible asset price crisis, are the more primal cause of excess returns.