Katy Kaminski

SI403: Trend Following in an Era of Geopolitical Risk ft. Marat Molyboga & Katy Kaminski

- Crisis alpha and risk mitigation frameworks: Trend following strategies are "second responders" in Makita's risk mitigation model, designed to capture prolonged market dislocations over quarters to years, distinct from first responders (tail risk) that react to sudden drops. - Common investor mistakes: Performance chasing at both manager and industry levels destroys returns; investors often allocate to CTAs after crises, then reallocate away during normal performance, missing compounding benefits. - Portfolio construction principles: Equal-risk allocation and volatility-targeting across time outperform mean-variance optimization, which relies on unpredictable future estimates and produces unstable weights. - Geopolitical risk as an inflation driver: Historical analysis shows increased geopolitical risk correlates with delayed inflation (2–3 years), supply disruptions, and lower growth—environments where trend following thrives, particularly in commodities and fixed income. - Short-term trend's complementary role: Short-term strategies offset early transition losses that long-term trend experiences (e.g., COVID reversals in February 2020) but require substantial execution infrastructure investment to overcome transaction costs; high manager mortality in this segment. - Multi-manager diversification essential: Return dispersion among CTAs is extreme (e.g., 80% spread in 2022); diversified multi-manager portfolios with managed accounts reduce idiosyncratic risk and deliver consistent crisis alpha.