When rigid portfolios reach their limits – and how flexible multi-asset strategies respond to market changes

Many portfolios are dominated by an overly one-sided or fixed asset allocation, with a high share of bonds for safety and a low share of equities for return opportunities. This approach is easy to understand and historically sound, but today it is often too static and, especially in the case of bonds, vulnerable to interest rate and duration risks when the environment changes.

An alternative is trend-following mixed funds (multi-asset funds), which do not hold equities, bonds, money market instruments, or even cryptocurrency investments in fixed proportions, but manage them based on rules: during periods of stable upward trends, risk exposure is increased, while in weaker market periods, risk is consistently reduced.

The weakness of rigid portfolios

Rigid portfolios follow a predefined structure, even when the market environment changes. In practice, this means that the asset allocation remains the same even though interest rates, risk appetite, and market volatility change significantly.

Whether a portfolio invests exclusively in bonds or is built as a multi-asset model with fixed allocations, the main issue is not the asset class itself, but the lack of adaptability. If the market changes, a fixed-allocation portfolio does not react.

In periods of increased uncertainty and stronger market fluctuations, the more turbulent the environment is, the more important flexibility in portfolio management becomes.

Are mixed funds the answer?

Mixed funds combine multiple asset classes to diversify risks and use different sources of return. But the same rule applies here as well: multi-asset does not automatically mean flexibility. The decisive factor is whether the allocation is merely "mixed" or whether it can be managed dynamically.

Flexible mixed funds can significantly increase or reduce the equity allocation depending on the market phase and can reallocate the entire capital into more conservative segments. It is precisely this ability to control exposure that makes mixed funds generally more robust than rigid models in volatile markets.

Following trends instead of making forecasts

Systematic trend-following models apply a forecast-free, rules-based approach: they do not try to predict turning points or find the perfect timing, but instead react flexibly to volatile or uncertain markets.

The principle is easy to explain:

• Enter when a stable positive trend has been established.
• Exit or reduce exposure when the trend weakens or reverses.

"The trend is your friend until the end, when it bends"

Trend-following strategies can be applied to almost any tradable asset class, from equities and bonds to cryptocurrency markets. Implementation is based on predefined mathematical rules, without being influenced by emotions or personal opinions.

Systematic implementation in mixed funds

A trend-following system continuously analyzes a broad investment universe and identifies the markets, regions, or sectors that currently show the strongest trends. One example of such an approach is the absolute return trend-following mixed funds from ARTS Asset Management: the trading system used monitors more than 10,000 funds and 3,000 ETFs and decides portfolio allocation based on rules.

Important for investors: the equity allocation is not a fixed value, but a variable. In weaker phases, the equity or cryptocurrency allocation can be gradually reduced – down to 0% in order to limit risk.

The goal is not to "capture" every movement, but to invest during periods of strong trends and reduce risk during periods of weak or negative trends.

Two variants – different risk profiles

Trend-following mixed funds can be implemented with different risk ranges:

Thus, both funds target different comfort zones, but with the same underlying logic: following trends instead of forecasts, rules instead of emotions.

Conclusion: structure instead of forecasts

Markets cannot be predicted reliably. What investors can influence, however, is the structure with which they navigate different market phases.

A trend follower acts similarly to a captain who raises the sails according to the prevailing wind rather than simply predicting the weather for the next few days.

Trend-following mixed funds rely on systematic adaptation: risk is increased when trends are stable and reduced when the environment deteriorates. This creates an alternative to rigid portfolios: not as a promise to "always be right", but as a disciplined framework for taking advantage of opportunities and limiting losses.