Top Traders Unplugged: SI385 – When Volatility Becomes the Signal (ft. Katy Kaminski)

Date: January 31, 2026
Host: Niels Kaastrup-Larsen
Guest: Katy Kaminski
Main Theme: Exploring how volatility itself is becoming the key investment signal in systematic trend following, with a deep dive into recent market dynamics, research insights, and practical portfolio implications.

Episode Overview

This episode of the Systematic Investor Series features Katy Kaminski and host Niels Kaastrup-Larsen dissecting the state of systematic trend following strategies in early 2026. Their conversation pivots around commodities’ meteoric rise, the use of volatility as a core signal for risk management, differences between trend and macro approaches, and fresh academic research. They also discuss return dispersion drivers, the dynamic between fully diversified CTAs and newer replicator products, and emerging themes such as the impact of macro regime change and geopolitical risk.

Key Discussion Points & Insights

1. Extreme Weather as a Metaphor for Market Extremes

• Casual opening chat about winter storms and infrastructural challenges (e.g., power outages and why the U.S. doesn’t bury electrical cables).
• Tone: Relatable, humanizing the co-hosts before launching into technical topics.

2. Spotlight on Commodities and Currency Shifts

Timestamps: 02:31–09:47

• 2026 has seen extreme moves in precious and base metals: Silver up 68%, Platinum 35%, Gold 27% year-to-date.
• Niels links surges in gold demand to new monetary regime possibilities, like Tether’s gold accumulation rivaling central banks.
• Central banks have had a net positive gold purchase every year since 2011—a reversal from two decades prior.

Memorable Quote:

"It just shows you people are looking for value and they're going back to basics, right?" – Katy Kaminski (04:20)

The Weak US Dollar

• Discussion on the US dollar threatening to break its 200-day moving average.
• Weak dollar regimes often correlate with commodity bull markets and may spark another "commodity supercycle".

CTAs, Replicators, and Diversification

• Replicator CTA products are trending, but often underweight commodities, potentially sacrificing diversification benefits if a supercycle takes hold.
• Katy: "One of the main drivers of return dispersion in our space is that positive returns come from big trends... it's how much risk allocation you have to them that differentiates relative performance." (08:29)

3. Return Dispersion: Portfolio Construction Matters

Timestamps: 07:43–11:15

• Market universe, risk allocation, and volatility adjustment explain large differences among CTA performance each year.
• Silver vs. Gold: Silver is less liquid, more volatile, and can lead to significant return differences, especially when outsized trends emerge.

4. Trend Following in 2026: A Roaring Start

Timestamps: 12:03–16:34

• Early 2026: Metals are primary drivers of trend-following performance; currencies (not just Yen) are contributing again.
• Equities trending up, “short US dollar” trades, and pro-metals stances diversify returns—energy commodities less decisive.
• Niels notes many broad trend indices (e.g., Soc Gen Trend Index) are near all-time highs, with some niche indices ("pure trend" five-manager index) up 7.26% in January alone.

Notable Statistic:

"My trend barometer yesterday finished at 59. So that's a strong, strong reading..." – Niels (16:34)

5. Media Attention & The Journalism Indicator

Timestamps: 20:15–23:04

• Bloomberg/WSJ are covering trend following; such coverage typically marks market extremes (either outstanding or terrible).
• 2026 is “off to a roaring start” versus 2025, which was tough for price-based CTAs ("Liberation Day" event discussed as a turning point).

6. Research Deep Dive: When Volatility Becomes the Signal

Timestamps: 23:29–48:49

Research Highlights (with Ying Shan Xiao)

• Contrast: Trend vs. Macro Strategies (2025 lessons):
  • 2025 saw macro outperform trend due to headline risk/shocks; now, as fundamental clarity improves, trend is leading again.
  • Economic trend and price trend are structurally different but often converge—correlated ~40-50%, but with different timing.

"Trend really struggled in 2025, whereas macro strategies... were a little bit better positioned for a year where there was a lot of headline risk." – Katy (23:29)

• Return Dispersion Sources: The Three Big Drivers
  1. Speed of Signal (Lookback Period/Model Timeliness):
     • Best returns in 2025 from shortest and longest windows; the 4–9 month “sweet spot” was worst—showing that major shocks can fool mid-term systems.
     • Short windows = nimble, in/out quickly. Long windows = steady, less whipsawed. Mid-range = “caught in the chop.”
  2. Market Universe Concentration vs. Diversification:
     • Trend-following on just 10 mega-liquid markets (gold, crude, bonds etc.) outperformed in the recent 3 years, but underperformed diversified approaches for a decade straight before.
     • Concentration can be right for several years—but dangerous over long horizons if trends shift elsewhere.
  3. Volatility Estimation & Position Sizing:
     • How fast a manager adjusts vol targets after a shock changes everything. Fast adjustment = quick risk reduction but also quicker re-leverage; slow adjustment = maintain exposure to ongoing trends, sometimes at the cost of more drawdown.
     • E.g., in 2022, slower vol estimates let managers ride the bond selloff longer; in 2025, fast vol adjustment helped after shock events.

Notable Quotes:

"There's a lot of nuance... That's what makes it fun, especially for those of us that like to geek out." – Katy (40:19)

"What volatility. And it's so nerdy... we don't talk about dollars, we talk about risk and we allocate risk." – Katy (43:21)

7. Regime Change & 'Crisis Alpha' Revisited

Timestamps: 48:49–54:20

• 2025 as a year of regime change: Market behavior, macro policy, and geopolitics have structurally shifted.
• Katy revisits the original “Crisis Alpha” framework: adaptive, liquid, and unbiased strategies perform best during macro dislocations.
• Trend-following does best "when things are disruptive or moving a lot," showing cyclicality that complements traditional assets.

"It's about being adaptable. It's about being liquid and avoiding bias." – Katy (51:14)

8. Key Academic Paper Mention & Industry AUM Trends

Timestamps: 55:39–58:43

• Niels and Katy discuss a new Makita paper on industry evolution:
  • Trend-following AUM as percent of hedge fund assets has fallen from 20% a decade ago to under 10% now.
  • Despite performance, CTAs remain a small part of the hedge fund landscape (official AUM figures).

9. Research Pipeline & Thematic Explorations

Timestamps: 59:56–62:39

• Katy teases upcoming research with Ying Shan Xiao:
  • Macro/trend strategy complementarity.
  • Geopolitical risk as a market regime driver—early research suggests higher geopolitical risk is positive for trend-following.
  • New methods to measure geopolitical risk (news-based, LLM-powered indicators).
  • Persistent focus on improved risk management (volatility sizing, market selection, trade war impacts).

"All of the research I've done on Trend, it likes disruption, change and difficulty." – Katy (61:39)

Notable Quotes & Moments

• Volatility & Position Sizing:
  "Volatility estimation is not really an alpha signal, but it's a calibration... can create very different return patterns for trend depending on how fast or slow you adjust." – Katy (43:21)
• Commodity Outperformance:
  “If you had just picked gold, like you looked really smart in 2025 – and it’s not necessarily the case in every year for CTAs...” (41:01)
• Cycles in Trend-Following:
  “Our strategy is very cyclical as well, but just on a different cycle... it’s been like that for decades.” (54:20)
• On Return Dispersion:
  “There’s a lot of noise... a choice might look very smart one year, and then next year it could look not so smart.” (29:13)

Timestamps for Key Segments

• 02:31 – Commodities, gold, and macro regime shifts
• 07:43 – CTA diversification vs. replicator products
• 12:03 – Trend performance/return drivers YTD 2026
• 20:25 – Media coverage as indicator; return dispersion in 2025/26
• 23:29 – Research synopsis (macro vs. trend; crisis periods)
• 29:13 – Different sources of CTA return dispersion: speed, markets, vol adjustment
• 43:21 – Volatility management: the hidden lever
• 48:49 – Regime change and “crisis alpha”
• 55:39 – Recent academic summaries, Makita paper, AUM trends in CTAs
• 59:56 – Future research topics: geopolitical risk, macro/trend, trade wars

Conclusion

The episode paints a vivid, data-driven, and practitioner-oriented picture of the systematic trend-following landscape. Katy Kaminski and Niels Kaastrup-Larsen highlight why volatility management, market universes, and strategic adaptability are more central than ever—especially in an era marked by macro shifts, geopolitical shocks, and potential commodity supercycles. Academic research continues to validate and refine the intuition and techniques of experienced CTA practitioners—providing valuable lessons for portfolio builders and allocators alike.

For further learning:

• Katy Kaminski’s new research with Ying Shan Xiao (to be released in 2026)
• Makita’s recent macro-trend analysis (available at makita.com under “leadership”)
• The Ultimate Guide to the Best Investment Books (found at toptradersunplugged.com/ultimate)

Next Episode Preview:
Rob Carver joins to discuss his latest book and offer insights for navigating the evolving landscape of systematic investing.

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