How Trend Followers Navigate Geopolitical Chaos: Inside Longboard’s Approach to Iran Risk
As missiles strike the Gulf and oil surges past $80, systematic CTA strategies face their first major tail-risk test since 2022—and the results expose hard truths about crisis alpha.
Systematic trend-following strategies are processing their highest volatility signals in 18 months as Iran launched retaliatory attacks on U.S. embassies in Saudi Arabia and Kuwait, with the Revolutionary Guards announcing closure of the Strait of Hormuz, testing the core thesis that managed futures provide effective geopolitical hedges.
Oil futures surged Monday after the United States and Israel launched strikes against Iran over the weekend, with U.S. crude jumping 7.5% and Brent crude spiking 6.2% to around $77 a barrel, according to CNN Business. Gold prices rose 2% and briefly reclaimed $5,400 a troy ounce, while most major stock markets, Treasuries and other bonds and even safe-haven gold were sold, upending the normal interplay between safe and riskier assets, Reuters reported Tuesday.
The Trend-Following Thesis Meets Reality
Longboard Asset Management, led by Chief Investment Officer Cole Wilcox, runs an award-winning systematic trend-following strategy with data-driven precision, according to the firm’s website. Founded over two decades ago by Cole Wilcox and Eric Crittenden with capital from Robinhood seed investor Howard Lindzon and Standpoint Asset Management Chairman Tom Basso, Longboard specializes in applying trend models to single-stock portfolios rather than traditional futures—a structural difference that matters when energy markets detonate.
Since inception in 1986, the Barclay BTOP50 Index, comprised mostly of trend-following strategies, has averaged an annualized return of 8.9% per year, with risk significantly lower over the same period at 9.4% volatility versus about 15% for global stock markets, according to analysis from BNP Paribas Wealth Management. But managed futures had faced grim performance since May 2024, with September finally seeing a glimmer of recovery, RCM Alternatives noted in October.
Why Geopolitical Shocks Are Different
The Iran escalation differs from 2022’s inflation grind in critical ways. Investors are bracing for risk-off trades once markets reopen after the weekend, with gains expected in so-called safe-haven assets like the U.S. dollar and gold, while equities could pull back, CNBC reported. But markets could swing between risk-on relief if regime collapse removes the threat of oil blockades or nuclear escalation, and risk-off persistence if conflict drags on and supply disruptions intensify, according to Ben Emons of FedWatch Advisors.
Traditional trend models rely on sustained directional moves lasting weeks or months. Geopolitical shocks often produce violent whipsaws—sharp initial moves followed by reversals within days as diplomatic headlines shift market sentiment. This creates a hostile environment for momentum strategies that need time to build positions.
Iran borders the Strait of Hormuz to the north, the only sea passage from the Persian Gulf to the open ocean, and Iran has threatened to officially close this waterway through which about 20% of global oil passes, CNN Business reported. Brent is expected to open Monday in the $85-90 range, with gasoil and jet cracks set to spike, while Russia stands to benefit as India and China pivot away from disrupted Middle East supply, according to Kpler.
Unlike the 2025 12-Day War, this conflict is larger and likely to last one to three weeks, at most two months, and Iran cannot win but disrupting Gulf oil flows could inflict material economic damage, with oil, gas, out-of-region energy stocks, gold, and aerospace defense likely to spike before fading as the conflict will not last beyond two months, Oxford Economics assessed.
The Structural Challenge for CTAs
Longboard’s single-stock trend approach faces different exposure than diversified futures CTAs. Managed futures and globally diversified portfolios optimize for low correlation and the ability to maybe make money in a really big crisis event, but Longboard is not trying to optimize for low correlation per se—they’re trying to optimize for lower risk investing without sacrificing what you would otherwise get as being an equity investor, Wilcox explained in a Top Traders Unplugged podcast.
This positioning matters when energy stocks surge but broader equity markets sell off. The Dow closed lower by just 73 points or 0.15% after sliding nearly 600 points earlier, while the broader S&P 500 and tech-heavy Nasdaq turned into the green and rose 0.04% and 0.36%, demonstrating the sectoral divergence that complicates single-stock momentum models.
- Trend signals need 3-5 weeks to establish reliable positions; geopolitical events often reverse within days
- Cross-asset correlations break down—gold and bonds both sold Tuesday despite safe-haven status
- Energy exposure is double-edged: oil stocks rally but consumer discretionary tanks on inflation fears
- Whipsaw risk peaks when diplomatic headlines (Geneva talks, ceasefire rumors) trigger 5-10% intraday reversals
Recent geopolitical developments have heightened concerns about potential disruptions to energy supply chains, with investors closely monitoring the Strait of Hormuz, and even the possibility of conflict affecting these routes can trigger sharp movements in oil prices because supply disruptions can occur suddenly and have immediate global effects, creating both risks and opportunities for commodity traders and hedge funds, according to HedgeCo Insights.
Performance During the First 72 Hours
Early indications suggest mixed CTA performance. Investors remain focused on market fundamentals that are largely unaffected so far, with the biggest threat being an oil supply disruption, but the probability of a prolonged effect is low and geopolitical events typically do not have a sustained impact on the market’s longer-term trajectory, David Stubbs of AlphaCore Wealth Advisory told CNN Business.
Carson Group compiled a list of 40 major geopolitical and historical events across the past 85 years and calculated that the S&P 500 lost 0.9% in the first month after but rose 3.4% across the six months following the event, suggesting markets price in shocks faster than trend models can capture them.
The real test comes if oil prices blow past $100 a barrel if there is an extended disruption to the strait, as Goldman Sachs estimated during last year’s Iran-Israel conflict. At that threshold, inflation concerns would force central bank policy reassessments—a macro shift trend models can exploit over quarters, not days.
What Systematic Managers Are Watching
The current US and Iran situation has a live diplomatic timetable and a very visible military risk premium that comes in and out of markets day by day, with crude already reacting to the Geneva talks calendar, and when diplomacy looks credible traders remove some of the war insurance from oil, creating whipsaw as the core investing challenge where prices can move hard in either direction before you ever get a definitive headline, Share Talk noted.