Podcast Summary: Top Traders Unplugged

Episode: SI381 – Process Over Pain: Trend Following in an Unforgiving Market (Group Conversation Part 2)

Date: January 3, 2026
Host: Niels Kaastrup-Larsen
Guests: Katie Kaminski, Jem Kasang, Rob Carver, Mark Rasulczynski, Rich Brennan, Alan Dunn, Nick Bolters, Andrew Beer, Yoav Gitt

Overview of the Episode

This special year-end roundtable brings together the show’s co-hosts and recurring guests for a deep, candid conversation on the state of systematic trend following, portfolio construction, risk management, and the industry’s pressing questions. The panel discusses how allocators are shifting (or not) towards more holistic portfolio approaches, debates the role and reality of AI in model research, and dissects the evolutionary pressures on trend models amidst a challenging market regime. From the subtleties of process stability to practical lessons on drawdown management, the episode is a masterclass in the thinking processes behind robust investment strategies.

Key Discussion Points and Insights

Strategic Portfolio Construction & TPA vs. SAA

(02:36 – 12:05)

• AI’s Place in Research & Modeling:
  The panel touches on the feverish adoption of AI. Most agree that AI helps with workflow, coding, presentations, and summarization, but its creative application in model design remains cautious.

  • “I can feed my presentation to an AI and it comes back and it’s oh my God, I didn’t actually mean to say that… The AI has not understood what I said. That’s been very useful for me to rethink the message and what is the absolute message.” – Yoav (06:50)

• Total Portfolio Approach (TPA) vs. Strategic Asset Allocation (SAA):
  Panelists (Yoav, Alan, Andrew) argue that TPA, in theory, calls for a far greater allocation to managed futures and CTAs, thanks to their diversification power.

  • Despite strong theory, practical allocations remain stubbornly low due to institutional inertia and 'benchmark anchoring.'
    • “In a strategic asset allocation, managed futures is a 25 allocation. It's sort of mathematically obvious… There just wasn’t much else there.” – Andrew (09:35)
    • “TPA could break the anchoring around indices and allocations. ... But it is, I think, maybe Alan may have just added that – a lot of it is theater.” – Andrew (11:00)

• Trend Following as Natural TPA:
  Alan observes that trend following is inherently a TPA-like process, as it dynamically reallocates risk where there is opportunity, unlike static SAA.

The Role of Volatility in Portfolio Diversification

(12:05 – 17:41)

• Long Volatility as Portfolio “Brakes”:
  Jem uses the metaphor of long volatility as “brakes” on a race car—essential for both control and acceleration, debunking the myth that such strategies necessarily slow portfolio returns.

  • “Brakes give you control… you win races, you go faster by having Vol in the portfolio.” – Jem (15:10)

• Widespread Misunderstanding among Allocators:
  Most allocators and advisors, Jem contends, do not understand Sharpe ratios or true diversification – making education around these concepts vital.

Process Stability vs. Reactive Change

(17:47 – 34:03)

• Embracing Drawdowns, Avoiding Panic:

  • Rich asserts that a stable process prevents behavioral drift and panic; frequent process changes in response to pain usually erode performance.
    • “A stable process does not eliminate drawdowns.… What it does is prevent panic and behavioural drift.” – Rich (17:55)
  • Andrew and Yoav recount how seldom changing models—backed by clear process ownership—builds allocator confidence.
    • “People ask: ‘Tell us all the changes you made in your model.’ The answer is none. Zero. Not a line of code, not an instrument. And that is not what they want to hear.” – Andrew (21:01)

• The Importance of Measuring & Understanding Underperformance:
  Changing models requires deep understanding of what drives performance or underperformance, IOav stresses, especially as some markets become more “financialized” and lose their original properties.

• Pain as Invitation for Reflection (Not Change):
  Nick, echoing consensus, argues underperformance should trigger thorough reflection but only rarely necessitates fundamental model change (28:50).

Benchmarking, Market Selection, and Behavioral Biases

(23:58 – 34:03)

• Choosing Markets Carefully:
  Yoav gives the example of iron ore evolving from a “non-financialized” market to one dominated by CTAs, forcing reevaluation of its role in a diversified trend portfolio.

  • “About 70% of the volume in the front month contract [iron ore] are CTAs.… To me that’s a warning sign. I don’t want to trade this market.” – Yoav (26:40)

• Replication Model vs. Underlying Model:
  The difference and relationship between direct trading models and replication/aggregate models; the latter must maintain flexibility but ensure their assumptions about constituent strategies hold.

Drawdowns: Deep vs. Long, and How Investors Perceive Risk

(34:12 – 48:05)

• Nature of CTA Drawdowns:
  CTA drawdowns often stem from lack of opportunity (e.g., “volume compression”) rather than poorly managed risk or singular bad events (34:12).

  • “With CTAs, ... the reason why CTAs tend to lo[se] is mostly because nothing happens.“ – Yoav (34:12)

• Investor Education:
  Katie notes that drawdowns in managed futures are often shorter and less severe than equities, with return recoveries often following lean periods—a point lost on many allocators.

  • “The strategies on average tend to recover… usually followed historically by one or two years of very positive performance.” – Katie (39:20)
  • Andrew points out that in the ETF world, “drawdown” is less often discussed; retail investors simply view funds “not at a new high,” underscoring differences in perception and communication challenges.

Product Innovation: High-Volatility, Leveraged, & Efficient CTAs

(48:19 – 56:30)

• High-Volatility and Leveraged CTA Products:
  Rob cheekily proposes offering high-volatility trend products for retail audiences who crave excitement, noting that historically, retail prefers high-variance products (48:19).

  • “People want volume, they want massive returns, they want massive outliers… meme stocks, weird crypto coins. So actually I think we should be going for that market.” – Rob (48:50)
  • Andrew and Jem respond, noting risk-averse institutional investors drive most AUM, but small “niche” high-vol product launches can still achieve scale (up to billions).

• Capital Efficiency vs. “Leverage”:
  Jem emphasizes the critical role of capital efficiency—stacking returns/yields and using capital multiple times over—especially as rates rise.

  • “The trend towards capital efficiency… is what I think is critical.… The growth in [leveraged products] will be because people want to be more capital efficient… not for more risk per se.” – Jem (52:37)

• Institutional “Vol Drag”:
  Alan reminds that institutional flows led to the decline of realized volatility in CTA indices and sees a modest swing back toward higher-vol or return-stacked products (55:12).

Outrageous Predictions for 2026

(56:31 – End)

The group closes with “outrageous” yet insightful predictions—showing the diverse perspectives and senses of humor on the panel:

• Andrew Beer:
  Institutional money begins flowing into managed futures ETFs. (56:37)
• Katie Kaminski:
  2026 will be a macroeconomic roller coaster, with swings between boom and bust. (57:17)
• Rob Carver:
  Next Fed chair will be Jared Kushner. (57:58)
• Jem Kasang:
  “2026 will look like 2022: market down, volume down, rates up.… I think trend has a great year anyways as part of that.” (59:01)
• Alan Dunn:
  Major bond breakout: 10-year US yields to 6%, then down to 3.5%. (58:31)
• Mark Rasulczynski:
  Shift to higher inflation, credit crises, and stable-to-down equities; European recovery. (60:13)

Notable Quotes & Timestamps

• Yoav:
  “In a strategic asset allocation, managed futures is a 25 allocation. It's mathematically obvious.” (04:20)
• Jem:
  "Brakes give you control… you win races, you go faster by having Vol in the portfolio.” (15:10)
• Andrew:
  "People ask: 'Tell us all the changes you made in your model.' The answer is none. Zero. Not a line of code, not an instrument." (21:01)
• Katie:
  "The strategies on average tend to recover… usually followed historically by one or two years of very positive performance.” (39:20)
• Rob:
  "People want volume, they want massive returns, they want massive outliers… meme stocks, weird crypto coins." (48:50)
• Jem:
  “The trend towards capital efficiency… is what I think is critical.” (52:37)
• Alan:
  “We have seen some managers launching high volume trend again in the last while… But… the challenge… is you want more risk, we give you more equities, whereas in fact you should have a balanced portfolio and then decide how much leverage to apply to it.” (55:12)

Major Segments & Timestamps

• [02:36] AI & Portfolio Construction: TPA and SAA Debate
• [12:05] Volatility as a Risk Management Tool
• [17:47] Process Stability in Trend Following
• [34:12] Drawdowns and Risk Communication
• [48:19] Product Innovation: High-Vol & Leveraged Trends
• [56:31] Outrageous Predictions for 2026

Tone:

Candid, engaged, and deeply analytical, but always with a hint of humor and humility.

Conclusion

This episode is a masterclass in trend following, bringing to life the vital distinctions between theory and practice in modern portfolio management. It’s a must-listen (or read) for anyone seeking long-term resilience in their investment process, offering wisdom on process discipline, innovation, and the enduring need to educate allocators on the real role of diversification and risk management.