CFA Level I · CFA Level I Exam · Hedge Funds
A trend-following managed futures fund is most likely to generate its strongest performance during a period in which markets:
Trend-following funds perform best when markets move sharply and persistently in one direction, since they can ride the trend long or short. Frequent reversals or narrow ranges produce whipsaw losses because signals trigger entries and exits without sustained price moves to capture.
- Amove sharply in one direction for a sustained timeCorrect
- Breverse direction frequently without a clear trend
- Ctrade in a narrow range with low volatility
Explanation
Trend followers profit from persistent price movements in either direction. Choppy, reversing or range-bound markets generate whipsaw losses as signals are repeatedly triggered and reversed.
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