Key Takeaways
- • Katy Kaminski, co-author of "Trend Following," cites research showing trend following averaged about 5.6% annually over a long horizon, but excluding the 20 best months the return falls to roughly -0.5%, according to figures she relayed from a Quantica paper, "Paid for Presence."
- • Dollar-weighted returns trail the headline figure, at around 4% versus 5.6%, because investors chase gains and exit after losses; the gap is widest in liquid ETFs and mutual funds versus private funds, where lockups limit impulsive exits.
- • Kaminski argues geopolitical risk is feeding a structural inflation premium that undermines the 60-40 portfolio, with the 10-year Treasury yield near 5.2% and inflation above the Federal Reserve's 2% target.
- • Institutions with a dedicated risk-mitigation bucket that rebalance can match or beat the index, suggesting that packaging, defined roles for diversifiers, and expectations management matter as much as the strategy itself.
- • An AQR study found trend is the most robust strategy across inflation regimes, while commodities work mainly when inflation is spiking.
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 emphasized research showing trend following delivered an average annual return of about 5.6% over a very long horizon, falling to roughly -0.5% once the 20 strongest months are removed. She described the core lesson as holding through periods of inactivity, saying investors "think that they can predict when the big run-up is going to come."
Kaminski cited a January 2026 paper, which she reviewed, arguing that geopolitical risk drives inflation, particularly supply-side shocks, using news-based indicators across 44 countries over a century. She linked this to her paper with Alex Greyserman, "Bonds Behaving Badly," which finds bonds can move with stocks when inflation dominates, bond volatility rises with inflation, and bonds lose safe-haven status when inflation is high and stocks fall. She noted 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. Co-host Niels Kaastrup-Larsen described the combination of oil pressure, government borrowing costs and AI data center capital demand as a "perfect storm."
On behavior, Kaminski contrasted discretionary bond specialists, who find it hard to reverse long-held views, with systematic processes that short or go long based on data. She also outlined a risk-mitigation framework sorting diversifiers into first responders (commodities, in the current inflation-led environment), second responders (trend), and robust diversifiers. She warned that passive commodity indices, heavily weighted toward energy, offer limited exposure to segments such as wheat.
A separate AQR analysis, as Kaminski relayed it, found commodities perform when inflation is spiking, while trend is the most robust strategy across inflationary and deflationary regimes. Her figures from the Quantica paper showed the timing damage is worst in public funds rather than private funds, and institutions that rebalance can match or beat the index. Kaminski said the conversation about staying invested has shifted to model portfolio builders and consultants, while Kaastrup-Larsen flagged that daily-liquid vehicles make retention harder. Kaminski presented these views at the CFA and Finance Institute Alternative Investment Conference in Copenhagen.
Kaminski cited a January 2026 paper, which she reviewed, arguing that geopolitical risk drives inflation, particularly supply-side shocks, using news-based indicators across 44 countries over a century. She linked this to her paper with Alex Greyserman, "Bonds Behaving Badly," which finds bonds can move with stocks when inflation dominates, bond volatility rises with inflation, and bonds lose safe-haven status when inflation is high and stocks fall. She noted 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. Co-host Niels Kaastrup-Larsen described the combination of oil pressure, government borrowing costs and AI data center capital demand as a "perfect storm."
On behavior, Kaminski contrasted discretionary bond specialists, who find it hard to reverse long-held views, with systematic processes that short or go long based on data. She also outlined a risk-mitigation framework sorting diversifiers into first responders (commodities, in the current inflation-led environment), second responders (trend), and robust diversifiers. She warned that passive commodity indices, heavily weighted toward energy, offer limited exposure to segments such as wheat.
A separate AQR analysis, as Kaminski relayed it, found commodities perform when inflation is spiking, while trend is the most robust strategy across inflationary and deflationary regimes. Her figures from the Quantica paper showed the timing damage is worst in public funds rather than private funds, and institutions that rebalance can match or beat the index. Kaminski said the conversation about staying invested has shifted to model portfolio builders and consultants, while Kaastrup-Larsen flagged that daily-liquid vehicles make retention harder. Kaminski presented these views at the CFA and Finance Institute Alternative Investment Conference in Copenhagen.
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