SI287: No Pain, No Gain ft. Katy Kaminski

This episode explores the intricacies of trend following as an investment strategy, featuring an interview with Katy Kaminski, a trend-following portfolio manager. Against the backdrop of recent market trends, including significant moves in cocoa prices and the potential shift in the Bank of Japan's monetary policy, the discussion delves into the nuances of portfolio construction within trend following. More significantly, Kaminski highlights the crucial role of risk variation in shaping portfolio performance, contrasting equal risk allocation across asset classes with a time-varying approach that dynamically adjusts risk based on signal strength. For instance, the conversation analyzes how different risk allocation strategies can lead to vastly different return profiles, even when using similar signals. The discussion further examines the often-misunderstood concept of positive skewness in trend-following returns, explaining that it arises not from individual asset skewness but from the interplay of multiple signals and time-varying risk. In conclusion, the episode underscores the importance of understanding risk allocation and its impact on portfolio performance, emphasizing the need for investors to consider the time horizon and specific characteristics of trend-following strategies when assessing their suitability.