Trend Following Can Enhance Withdrawal Rates

I thought this was worth highlighting outside of my usual links-post. This paper (Can Sustainable Withdrawal Rates Be Enhanced by Trend Following? Clare et. al 2017) suggests that trend following can enhance withdrawal rates asymmetrically - less negative effect with no great loss of positive outcomes. In the paper's summary (PWR is "perfect withdrawal rate" or the maximum withdrawal rate possible over a fixed period of time if one had perfect foresight of investment returns) they conclude thus:

The application of a trend following filter to the assets within each portfolio substantially improves the performance by reducing volatility and maximum drawdown without any loss of return. A result of this is much less variable PWRs, particularly through eliminating many of the lowest PWRs, but without too much reduction in the chance of unusually high outcomes. Trend following enables portfolios to contain more risky assets, and the greater upside they offer, for the same level of overall risk and significantly less maximum drawdown and sequence risk compared to standard portfolios.

I have not read the whole thing yet but as a fan of momentum and trend following I can intuit without the paper that in the presence of sequence risk, techniques to try to convert some of the worst draw-downs into something less severe can have a positive impact on withdrawal rates over the long haul.  I have seen in my own strategies -- the ones that use, among other things, trend following -- that fairly significant gains in efficiency can be had that deliver equity like returns with bond like vol (up and left, I say). For a retiree with a multi-period plan with consumption present, that is a holy grail.   Here is how they visualize it. 

Trend Following Can Enhance Withdrawal Rates - Part 2