Return and risk for trend-followers through time

Where is performance headed for the rest of this year in managed futures? If we just annualized the returns for the SocGen trend-following index, we would get a return of just under 7 percent and a volatility that will be less than the average over the last ten years. What is interesting is that the managed futures pattern of return and risk are not very clear over the last decade. 

We tracked the return and risk each year and place them on the two dimensional plane with a line traveling through the combination from year to year.  You can see that performance can rise and fall without much regard for the volatility during the year. In fact, you can see that the years of poor performance were associated with average or low volatility. but the graph also shows that high returns we're associated with average or low volatility.

To show what is average, we highlighted and oval which takes the average return over the last ten years plus and minus the standard deviation on the vertical, and the average volatility plus and minus its standard deviation on the horizontal. What is noticeable is that there is nothing that seems to be average. Only three of the years are inside the oval. Of course, if we widened the oval to two standard deviations, there would be only one outside of the oval based on higher volatility. 

What this simple graph tells us is that it is hard to say what is normal for managed futures on a unconditional basis. That said, we can place some bounds on possible performance. Our guess is that a sell-off in stocks or bonds will lead to a higher return profile, but there is no such things as an average year.