Narrative Diffusion exploits a consistent pattern in markets: when a big theme emerges, not all beneficiaries move at the same time. Tier 1 (direct plays) leads, while Tier 2 and Tier 3 lag behind — sometimes by months. We rotate into laggards after Tier 1 has stretched, capturing the catch-up move with lower risk.

This strategy does not predict the future. It detects narratives that are already forming but haven't been fully priced in — exploiting the natural lag between when institutional money moves into Tier 1 and when it eventually rotates into Tier 2 and 3.

The edge comes from patience and process, not prediction. When a narrative fails to develop (like the Reopening trade in 2021), the strategy exits quickly with minimal loss. 4 out of 5 backtested narratives were profitable, beating SPY in all 4 cases.