Enhancing Investment Performance by Combining Factor-Based Stock Selection with Multi-Indicator Trend Following

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To achieve superior, long-term investment performance, investors should adopt a good offensive and defensive strategy.

An offense-oriented investment strategy that invests in stocks that have significant quality, value, momentum or low-volatility factor advantages is an excellent way to produce long-term, market-beating returns. Unfortunately, those strategies can be volatile and subject to large drawdowns, which makes them poorly suited for risk-adverse investors.

However, by combining factor-based stock selection with a defense-focused, multi-indicator trend-following strategy as a portfolio overlay, investors will significantly reduce the risks associated with this form of stock selection, and thus, achieve better long-term absolute and risk-adjusted returns.

To obtain the best long-term risk-adjusted performance, investors should combine multiple trend-following factor strategies into a single portfolio.


Like any great sports team, an investor needs to play good offense and good defense to win. By combining the offensive power of factor-based stock selection with the defensive benefits of multi-indicator trend following, an investor can do just that. The objective of such a combined strategy is to produce long-term market-beating returns through superior stock selection while also significantly reducing downside risk by using a robust trend-following strategy.