Kathryn Kaminski - Don’t Fire Your Diversifier | #604

What It Covers

Kathryn Kaminski explains managed futures drawdowns during 2025 market turbulence, analyzing historical patterns showing second-worst drawdown since index inception, recovery dynamics during equity stress, and why Liberation Day shocks create challenging whipsaw conditions for trend followers.

Key Questions Answered

• •Drawdown timing patterns: Managed futures drawdowns typically occur during strong equity markets, but recover fastest during equity turbulence. The 2019-2021 trade war period represented the longest and deepest drawdown, followed by exceptional 2022 performance during bond market trends.
• •Rebalancing advantage: Institutions successfully rebalance into managed futures during drawdowns and take profits after strong performance like 2022. This disciplined approach outperforms attempting to time strategy entries and exits, particularly given the cyclical nature of trend following returns.
• •Portfolio allocation framework: Managed futures show slightly negative correlation to equities over 25 years, providing premier diversification with positive expected returns. Unlike tail risk strategies that function as insurance costs, trend following offers crisis alpha while maintaining long-term profitability across macro themes.
• •Trend extension profits: The largest profits in trend following come from extended moves beyond fundamental valuations, not initial trend formations. The 2014 oil collapse and current gold rally above 4000 demonstrate how trends persist far beyond rational expectations when following systematic signals.