Key Takeaways
- • Katy Kaminski, co-author of "Trend Following", says trend following averaged about 5.6% a year over a long horizon but falls to roughly -0.5% once the 20 best months are removed, per research from Quantica ("Paid for Presence").
- • Dollar-weighted returns for trend investors trail the headline figure, at around 4% versus 5.6%, because investors buy after gains and sell after losses.
- • The timing gap is worst in liquid ETFs and mutual funds, while private funds with lockups show a smaller gap, and institutions that rebalance a dedicated risk-mitigation bucket can match or beat the index.
- • Kaminski argues inflation driven by geopolitical risk is a structural premium that undermines the bond hedge in a 60-40 portfolio, with the 10-year Treasury near 5.2%.
- • Kaminski recommends assigning each diversifier a defined role, with commodities as first responders and trend as second responders, and using active commodity or trend strategies over passive indices.
Summary
Katy Kaminski, systematic-investing researcher and co-author of "Trend Following," argues that geopolitical risk has become a structural inflation premium that weakens the traditional 60-40 portfolio. Speaking on the Systematic Investor podcast, she cited research showing trend following averaged about 5.6% a year over a long horizon, but returned roughly -0.5% once the 20 strongest months were excluded. She said the Quantica paper "Paid for Presence" quantifies why holding the strategy matters more than predicting its best periods.
On the macro backdrop, Kaminski referenced a January 2026 paper arguing that geopolitical risk drives inflation, particularly supply-side shocks. She cited the 10-year Treasury yield near 5.2%, with PIMCO strategists seeing scope for 6% by year-end, and tariffs averaging 9.6% across imports according to the Tax Policy Center. In her paper with Alex Greyserman, "Bonds Behaving Badly," she found that bonds can move with stocks when inflation dominates, that bond volatility rises with inflation, and that bonds lose safe-haven status when inflation is high and equities fall. Co-host Niels Kaastrup-Larsen described the combination of Middle East tension, higher government borrowing costs and AI data-center capital demand as close to a "perfect storm."
Kaminski also discussed behavior and portfolio construction. She described a risk-mitigation framework that sorts diversifiers into first responders (commodities, in an inflation-driven shock), second responders (trend, which tends to perform over weeks to months), and robust diversifiers. She cautioned that passive commodity indices are energy-heavy and have weak risk-adjusted returns over time, favoring active commodity or trend strategies instead. She cited an AQR study finding trend to be the most robust strategy across inflation regimes.
The article's central practical concern is investor timing. Dollar-weighted returns of about 4% trail the 5.6% time-weighted figure because investors chase performance. The gap is largest in public funds and daily-liquid vehicles, while institutions with defined mandates and rebalancing discipline can match or beat the index. Kaminski said conversations about holding trend have shifted to model portfolio builders and consultants, and that portable alpha products pairing equities with trend suit some investors but not all.
On the macro backdrop, Kaminski referenced a January 2026 paper arguing that geopolitical risk drives inflation, particularly supply-side shocks. She cited the 10-year Treasury yield near 5.2%, with PIMCO strategists seeing scope for 6% by year-end, and tariffs averaging 9.6% across imports according to the Tax Policy Center. In her paper with Alex Greyserman, "Bonds Behaving Badly," she found that bonds can move with stocks when inflation dominates, that bond volatility rises with inflation, and that bonds lose safe-haven status when inflation is high and equities fall. Co-host Niels Kaastrup-Larsen described the combination of Middle East tension, higher government borrowing costs and AI data-center capital demand as close to a "perfect storm."
Kaminski also discussed behavior and portfolio construction. She described a risk-mitigation framework that sorts diversifiers into first responders (commodities, in an inflation-driven shock), second responders (trend, which tends to perform over weeks to months), and robust diversifiers. She cautioned that passive commodity indices are energy-heavy and have weak risk-adjusted returns over time, favoring active commodity or trend strategies instead. She cited an AQR study finding trend to be the most robust strategy across inflation regimes.
The article's central practical concern is investor timing. Dollar-weighted returns of about 4% trail the 5.6% time-weighted figure because investors chase performance. The gap is largest in public funds and daily-liquid vehicles, while institutions with defined mandates and rebalancing discipline can match or beat the index. Kaminski said conversations about holding trend have shifted to model portfolio builders and consultants, and that portable alpha products pairing equities with trend suit some investors but not all.
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