Key Takeaways
- • Katy Kaminski, co-author of "Trend Following," argues that rising geopolitical risk feeds a structural inflation premium that undermines the traditional 60/40 portfolio and raises the value of rules-based trend following as a diversifier.
- • Citing a January 2026 paper using over 100 years of data across 44 countries, Kaminski says geopolitical risk foreshadows inflation, especially supply-side shocks, and bonds lose safe-haven status when inflation is high and stocks are down.
- • Quantica's "Paid for Presence" paper reports trend's average return of about 5.6%, falling to roughly -0.5% if the 20 largest months are removed, while the dollar-weighted index return is about 4%.
- • Institutions with dedicated risk-mitigation buckets tend to rebalance and hold trend, whereas retail and public-fund investors chase returns, a gap Kaminski calls the most striking finding.
- • AQR's inflation-regime research finds commodities work only during inflation spikes while trend is the most robust across inflationary and deflationary periods.
Summary
Katy Kaminski, a systematic-investing researcher and co-author of "Trend Following," argues on the Top Traders Unplugged podcast (Systematic Investor, Episode 422) that geopolitical risk now feeds directly into a structural inflation premium, undermining the traditional 60/40 portfolio. Co-host Niels Kaastrup-Larsen described the combination of Middle East tension lifting oil, higher rates raising U.S. government borrowing and bond issuance, and energy-intensive AI-driven capital demand as a near "perfect storm" for traditional portfolios.
Kaminski drew on a January 2026 paper, which finds that geopolitical risk foreshadows inflation using over 100 years of data across 44 countries, particularly through supply-side shocks. She linked this to her paper "Bonds Behaving Badly" with Alex Greyserman, which finds that bonds sometimes co-move with stocks when inflation is the key risk, that bond volatility rises with inflation, and that bonds lose safe-haven status when inflation is high and stocks are down. She stressed she was not advocating abandoning bonds, noting that "bonds are great if the yield's high enough."
On commodities and portfolio roles, Kaminski uses a risk-mitigation framework that separates first responders, second responders such as trend, and robust diversifiers. She warned that passive commodity indices are heavily energy-weighted and have poor risk-adjusted returns over time, recommending active commodity strategies or trend instead. She cited AQR research finding that commodities work during inflation spikes, while trend is the most robust across inflationary and deflationary regimes.
Kaminski cited Quantica's "Paid for Presence" paper, which reports trend's average return of about 5.6% over a long horizon, falling to roughly -0.5% when the 20 largest months are removed. The dollar-weighted return on the index was around 4% versus the 5.6% time-weighted figure, indicating investors bought after gains and sold after losses. Timing damage was more pronounced in public funds, while institutions with dedicated allocations tended to rebalance and fared better.
Kaastrup-Larsen raised concern that daily-liquid ETFs and mutual funds give anonymous, easily traded access to an episodic strategy. Kaminski argued that model-portfolio builders and intermediaries now bear responsibility for holding behavior, and for institutions recommended a defined role, appropriate benchmarks, and explicit long-term expectations. The episode's central unresolved tension is that the more accessible the wrapper, the more easily investors time themselves out of trend's payoff.
Kaminski drew on a January 2026 paper, which finds that geopolitical risk foreshadows inflation using over 100 years of data across 44 countries, particularly through supply-side shocks. She linked this to her paper "Bonds Behaving Badly" with Alex Greyserman, which finds that bonds sometimes co-move with stocks when inflation is the key risk, that bond volatility rises with inflation, and that bonds lose safe-haven status when inflation is high and stocks are down. She stressed she was not advocating abandoning bonds, noting that "bonds are great if the yield's high enough."
On commodities and portfolio roles, Kaminski uses a risk-mitigation framework that separates first responders, second responders such as trend, and robust diversifiers. She warned that passive commodity indices are heavily energy-weighted and have poor risk-adjusted returns over time, recommending active commodity strategies or trend instead. She cited AQR research finding that commodities work during inflation spikes, while trend is the most robust across inflationary and deflationary regimes.
Kaminski cited Quantica's "Paid for Presence" paper, which reports trend's average return of about 5.6% over a long horizon, falling to roughly -0.5% when the 20 largest months are removed. The dollar-weighted return on the index was around 4% versus the 5.6% time-weighted figure, indicating investors bought after gains and sold after losses. Timing damage was more pronounced in public funds, while institutions with dedicated allocations tended to rebalance and fared better.
Kaastrup-Larsen raised concern that daily-liquid ETFs and mutual funds give anonymous, easily traded access to an episodic strategy. Kaminski argued that model-portfolio builders and intermediaries now bear responsibility for holding behavior, and for institutions recommended a defined role, appropriate benchmarks, and explicit long-term expectations. The episode's central unresolved tension is that the more accessible the wrapper, the more easily investors time themselves out of trend's payoff.
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