Not many investors in the Nordics explicitly allocate to trend-following strategies, yet those who do often regard them as an essential building block in a multi-asset portfolio. Increasingly, the emergence of CTA-focused ETFs is lowering the barrier to entry, making it easier for a broader set of investors to access and implement trend-following exposures within traditional portfolio frameworks. For Danish fund boutique Othania, trend-following, particularly in ETF format, has become a cornerstone allocation in its multi-asset strategy.
“We have used trend-following funds since 2021; they have to be a key part of a multi-asset portfolio,” says Vincent Dilling-Larsen, Chief Investment Officer of Othania. From a portfolio construction perspective, the primary appeal lies in their low long-term correlation to traditional asset classes and their convex return profile during periods of market stress. “They tend to protect the portfolio when everything else isn’t working, thanks to their ability to go both long and short across different markets,” he explains. “From a portfolio optimization perspective, how many asset classes can truly diversify over the long term? This is one of the few that actually does.”
“We have used trend-following funds since 2021; they have to be a key part of a multi-asset portfolio. They tend to protect the portfolio when everything else isn’t working,…”
Vincent Dilling-Larsen, Chief Investment Officer of Othania.
Dilling-Larsen includes trend-following strategies to reduce drawdowns and enhance portfolio robustness. While he does not explicitly frame them as “crisis alpha” or tail-hedging strategies, their value becomes evident during challenging market environments. “They tend to deliver when stocks and bonds do not,” he notes, pointing to 2022 as a clear example, when both asset classes declined in tandem, while trend-followers generated strong returns by capturing trends across asset classes.
From Hedge Funds to ETFs: A Structural Shift
Historically, managed futures and CTA strategies have primarily been accessed through traditional hedge fund structures, often characterized by higher minimum investments, limited liquidity, and operational complexity. However, CTAs represent a strategy rather than a structure. What is changing is the packaging, with increased availability through UCITS funds and ETFs. Dilling-Larsen favors ETFs as a transparent, liquid, and cost-efficient way to access the asset class.
Although he considers CTAs to warrant a strategic, long-term allocation, the ETF format offers an important tactical advantage. “You can quickly adjust your exposure if your view on a manager or allocation changes,” he explains. “The liquidity and ease of implementation make it very efficient to manage.”
That said, he emphasizes that an ETF remains merely a wrapper. The underlying strategy still requires rigorous analysis. “You have to conduct manager due diligence regardless of whether it’s an ETF, mutual fund, or hedge fund,” he argues. “There is a misconception that ETFs are synonymous with passive investing. That is not the case here. You still need to understand both the manager and the underlying strategy.”
“There is a misconception that ETFs are synonymous with passive investing. That is not the case here. You still need to understand both the manager and the underlying strategy.”
Vincent Dilling-Larsen, Chief Investment Officer of Othania.
This is particularly important given the wide dispersion within the trend-following universe. Strategies differ across multiple dimensions, including model speed, investment horizon, and the range of instruments traded. “There are many ways to approach trend-following,” says Dilling-Larsen. “The due diligence process is exactly the same. You need to understand both the manager and the strategy, because they can be very different.”
Blending Active and Passive Exposures
Given this dispersion, Othania prefers to diversify across multiple managers. Othania currently allocates to five or six CTAs, balancing exposures across different styles and approaches. “We want manager diversification, a mix of active and passive approaches, and different speeds,” Dilling-Larsen explains. “The optimal number depends on the size of the allocation, it needs to be meaningful to have an impact,” he adds. “But diversification is important because return dispersion within CTAs is significant.”
“Blending index replication with active managers that have an edge is how we construct the CTA allocation.”
Vincent Dilling-Larsen, Chief Investment Officer of Othania.
In addition to active managers, Dilling-Larsen also sees merit in index-based approaches, such as replication of the SG Trend Index. “ETF providers focusing on index replication offer an efficient way to access the overall return characteristics of the asset class,” he notes. However, he also highlights that such products can exhibit meaningful tracking error relative to the index. As a result, he combines passive exposure with selected active managers. “Blending index replication with active managers that have an edge is how we construct the CTA allocation.”
Within this framework, Dilling-Larsen seeks diversification across model speeds, asset class exposures, and lookback periods. Some managers employ narrow, specialized approaches, while others operate across a broader opportunity set. One advantage of ETFs in this context is transparency. “ETFs provide better visibility into the underlying portfolio on a daily basis,” he adds.
Implementation, Innovation and Adoption
While the CTA ETF space has evolved significantly in recent years, particularly in the United States, Dilling-Larsen stresses that the complexity of the asset class still demands careful manager and strategy selection. Investors also need to be mindful of potential discrepancies between an ETF’s market price and its net asset value (NAV). “The underlying markets that CTAs trade are not always open when the ETF itself is trading, and vice versa,” he explains. “This can lead to wider bid-ask spreads or deviations from NAV, which investors need to take into account.” As a result, execution becomes an important consideration. “The implementation aspect of investing in CTA ETFs should not be overlooked.”
“Many investors, including family offices, are still unfamiliar with the asset class. I think the key is education. Investors need to understand the role and characteristics of trend-following before we see broader adoption.”
Vincent Dilling-Larsen, Chief Investment Officer of Othania.
At the same time, innovation within the space continues to accelerate. One notable development is the emergence of return-stacking products, which combine CTA exposure with equities or fixed income to enhance capital efficiency. “These structures can support broader adoption,” says Dilling-Larsen. “From an advisory perspective, they offer a more efficient way to integrate CTAs into portfolios, which could accelerate uptake.”
While adoption of trend-following strategies remains relatively limited in the Nordics, Dilling-Larsen believes the primary barrier is education. “There has been some effort to educate institutional investors, and that has been done well,” he notes. “But many investors, including family offices, are still unfamiliar with the asset class. I think the key is education,” he concludes. “Investors need to understand the role and characteristics of trend-following before we see broader adoption.”
