Oct 17, 2026 · 1h 9m
Trend following tests the limits of traditional portfolio protection
SI422: Why Trend Following Rewards Patience ft. Katy Kaminski
When inflation and geopolitical shocks weaken bonds’ diversification, investors must decide whether they can hold adaptive protection before a crisis arrives.
- 1Trend following responds to changing market themes rather than requiring investors to predict the next crisis.
- 2A small number of exceptional months can drive long-term trend-following returns, making patience central to the strategy.
- 3Clear portfolio roles, benchmarks, and institutional expectations can help investors remain committed through quiet periods.
Don't miss
Katy Kaminski explains why a handful of episodic trend-following shocks can dominate long-term returns, making patience a portfolio requirement.
The brief
Katy Kaminski and Niels Kaastrup-Larsen examine whether inflation, deglobalization, and geopolitical shocks have weakened the assumptions behind the traditional 60/40 portfolio.
The central distinction is between predicting a crisis and preparing for changing conditions: rules-based trend following can adapt to prevailing market themes without forecasting the next shock.
They contrast active trend following with commodities, warning that passive commodity exposure can bring roll-yield problems, energy concentration, and limited access to important agricultural moves.
Quantica research supplies the episode’s sharpest behavioral insight: a small number of exceptional months drive much of trend following’s return, so abandoning it during quiet periods can be costly.
The practical answer is structural rather than predictive—define the strategy’s role, set appropriate benchmarks, and build institutional processes that separate short-term emotion from long-term allocation decisions.
What was said on this episode
23 statements · 9 positive · 11 negative · 1 mixed · 2 neutral
Managed futures benefit from the current chaotic market environment.
“it's an ideal time for a managed future. So we like chaos. So it's been a good year, I'd say.”
Listen at 2:37
AI adoption has expanded rapidly over the last one or two years.
“in the last year or two, it's really expanded.”
Listen at 3:53
AI should be used as a tool rather than an automated autopilot.
“you have to use it as a tool, not as sort of an automated autopilot.”
Listen at 4:22
AI is useful for summarization and tedious tasks but can fabricate information.
“it's a great tool for, you know, summarizing. doing tasks that are very, very tedious, but at the same time, it makes up stuff.”
Listen at 4:35
Trend following has been highly diversified across themes during 2026.
“trend has been... extremely diversified this year in that sense.”
Listen at 7:39
Geopolitical risk is priced into markets.
“geopolitical risk does seem to be priced.”
Listen at 15:54
Geopolitical risk precedes higher inflation.
“geopolitical risk foreshadows inflation.”
Listen at 16:53
Geopolitical risk and deglobalization make traditional portfolios more vulnerable.
“when you add geopolitical risk, deglobalization and other. threats, actually your portfolio becomes vulnerable.”
Listen at 20:32
Bonds can move with stocks when inflation is a major risk.
“bonds, A, tend to co-move sometimes with stocks when inflation is a key risk.”
Listen at 21:59
Bond volatility rises when inflation is higher.
“bond volatility is elevated when inflation is higher.”
Listen at 22:11
Bonds lose safe-haven status during high inflation and falling stocks.
“bonds lose their safe haven status when inflation is high and stocks are down.”
Listen at 22:22
Bonds are attractive when their yields are sufficiently high.
“bonds are great if the yield's high enough.”
Listen at 26:27
Trend will go long bonds if bonds become attractive again.
“If bonds just go back to being absolutely lovely, trend's going to be back long again.”
Listen at 29:58
Trend is more robust than examined investments across inflationary and deflationary periods.
“trend is the one strategy in here that is the most robust to and likes inflationary periods, including deflationary periods, more than any of the other investments that they looked at.”
Listen at 34:47
Traditional investments are vulnerable to inflation shocks and changing inflation.
“Many of the more classic investments like private equity, equity, they were very vulnerable to an inflationary shock and changes in inflation.”
Listen at 35:00
Clearly defined portfolio roles can reduce adverse behavioral effects.
“you solve that or at least attempt to solve that problem by having the right framework and the right roles defined in your portfolio.”
Listen at 37:29
Passive commodity allocations have poor long-term risk-adjusted returns.
“a passive allocation to commodities over time is not very good risk-adjusted returns.”
Listen at 43:47
Commodity exposure should be actively managed to avoid extreme outcomes.
“we need to manage them. Otherwise, we might end up with very extreme outcomes.”
Listen at 45:30
Return chasing produces negative investment results.
“return chasing has negative results.”
Listen at 51:47
Liquidity encourages investors to focus excessively on short-term performance.
“the fact that you can actively trade it is sort of a hindrance that... It causes people to kind of be more focused on short term.”
Listen at 53:41
Allowing day trading increases mistakes and sudden emotional decisions.
“if you allow people to day trade, they tend to make more mistakes and more sudden emotional decisions.”
Listen at 59:21
Combining equity rebalancing with trend following can work reasonably well.
“buying the dip or rebalancing a strategy for trend with equities actually works reasonably well.”
Listen at 1:03:30
Equity-trend products may help some investors hold trend exposure more effectively.
“if they can buy and hold an investment like that better than they can just holding trend alone, which we've seen from the Quantica paper that some people can't, then that is a product for that type of investor.”
Listen at 1:04:10
Statements are attributed to the speaker as said on the episode and reflect their view at the time, not PodLume's. They are not advice.
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