Episode summary
Trend Following Rewards Investors Who Wait | Systematic Investor | Ep.422
Top Traders Unplugged
· · 1 hr 9 min · Hosts: Niels Kaastrup-Larsen, Katy Kaminski
Summary
Geopolitical risk, inflation, and the stress they place on traditional portfolios were the core themes of the conversation. The guest argued that supply-side geopolitical shocks can create a structural inflation premium, which makes bond investors nervous because bonds can lose their diversification role when inflation is the dominant risk. That view was tied to a broader point: 60/40 can work well in low-inflation regimes, but the assumptions behind it weaken when inflation and geopolitical risk rise together.
The discussion then turned to a recent AQR paper on inflation regimes and asset behavior. The guest highlighted that different strategies respond differently to rising, stable, and falling inflation, and that trend following stands out as one of the more robust approaches across regimes. Commodities can help in inflation spikes, but they are volatile, episodic, and often poor on a passive risk-adjusted basis. The guest argued that investors need a framework for “first responders” and “second responders,” rather than a single all-purpose hedge.
A final paper from Quantica focused on why investors often capture less than the headline return from trend following. The guest said the biggest months drive much of the long-run return, which means return chasing and bad timing can severely damage outcomes, especially in public funds. The practical answer is clearer communication, better portfolio framing, and structures such as model portfolios or portable alpha that help investors stay invested through the dull stretches.
Key takeaways
- The guest said geopolitical risk can create a structural inflation premium, which is why bond investors should be nervous.
- The guest argued that inflation can cause bonds to lose their safe-haven role, especially when stocks also fall.
- The AQR paper was used to show that trend following is more robust across inflation regimes than equities, bonds, or private equity.
- The guest said commodities can help in inflation spikes, but passive commodity exposure is often too volatile and too undiversified.
- Quantica’s research showed that a small number of months drives much of trend’s long-run return, making investor timing especially damaging.
Notable quotes
“I think that for anybody who's a bond investor should make you a little nervous”
“bonds lose their safe haven status when inflation is high and stocks are down”
How the episode opens
Geopolitical risk foreshadows inflation. What this means is that when you have geopolitical risk, especially on the supply side, you will end up with a inflation risk premium or a structural inflation premium. That's exactly what we're living in right now.
We're seeing that repricing or pricing of that inflation risk premium in markets. And so I think that for anybody who's a bond investor should make you a little nervous. Welcome to Top Traders Unplugged.
In markets, success doesn't come from predicting what happens next. It comes from being prepared for what you can't predict. In each episode, we go deep with some of the world's most thoughtful minds in investing, economics, and beyond to understand how they think, how they prepare, and how they decide, and the experiences that shaped how they see the world.
No noise, no shortcuts, just real conversations to help you think better and invest with confidence. Welcome and welcome back to this week's edition of the systematic investor series with Katie Kaminsky and I, Neils Castro Lasten, where each week we take the polls of the global market through the lens of a rules-based investor. Katie, it is really, really great to have you back this week.
How are you doing? I uh I hear you've been traveling recently. Yes, I'm good.
I was uh back in your home country as well. Spent a little time in Denmark recently. So um and then I've been back in the US.
I was also out in Palm Springs. So been a little bit of a glow dropper globe globe trotder this week.
Absolutely. Did you manage to see any any sites in Copenhagen? — I mean the best sites in Copenhagen are jumping in the canal. That I did that one day. Even if it's cold, you still got to do it, you know.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- geopolitical risk
- structural inflation
- crisis alpha
- trend following vs commodities
- liquid alternatives timing
Companies and tickers mentioned
- Quantica
Watch the episode
Watch “Trend Following Rewards Investors Who Wait | Systematic Investor | Ep.422” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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Top Traders Unplugged, this episode and its artwork belong to Niels Kaastrup-Larsen. Octagon is not affiliated with the show; this page is an independent summary.
