Latest news with #systematicfunds
Bloomberg
05-08-2025
- Business
- Bloomberg
Citadel Securities' Rubner Sees Fast-Money Funds Turning Bearish
Fast-money investors will likely reach full exposure to US equities by September, which could prompt them to sell stocks as they become vulnerable to downside market shocks, according to Scott Rubner of Citadel Securities. Systematic funds, which typically let factors such as volatility or momentum dictate their exposure to risk, have been piling into US stocks as indexes like the S&P 500 extend rebounds from April lows. But such funds will run out of firepower to buy equities by the end of August, said Rubner, the firm's head of equity and equity derivatives strategy, in a note to clients Tuesday.
Yahoo
27-06-2025
- Business
- Yahoo
Quant funds are about to plow a massive amount of money into stocks, just as the S&P 500 approaches record territory
An avalanche of cash could be heading for the stock market over the next month or so, one Wall Street strategist said on Wednesday. Charlie McElligott, a cross-asset strategist at Nomura known for his dense, stream-of-conscious markets commentary, said in a note shared with MarketWatch that his model mapping expected inflows from so-called volatility-control funds showed that these investors could pour more than $100 billion into stocks over the next month or so. 'He doesn't seem to care': My secretive father, 81, added my name to a bank account. What about my mom? Israel-Iran clash delivers a fresh shock to investors. History suggests this is the move to make. My job is offering me a payout. Should I take a $61,000 lump sum or $355 a month for life? My friend asked me to chip in $1,600 for her son's prom-night limo. Has the world gone mad? How can I buy my niece a home in her name only — without alienating or upsetting her husband? That is the largest figure that the model has ever predicted since it was first deployed in 2004, McElligott said. The S&P 500 SPX on Wednesday was on the cusp of tallying what could be its first record closing high since February. Volatility-control funds are a subset of systematic funds. Systematic funds typically use algorithms and predefined inputs to make investing decisions, rather than the discretion of human investment managers. Many of them employ leverage, and they frequently adjust the amount of exposure they have to the market. Many of the funds whose investing behavior McElligott aims to anticipate use realized volatility as a key determinant of how much money they are comfortable deploying in stocks at any given time. To be sure, their exposure doesn't necessarily need to take the form of actual share-buying — many of these funds operate primarily in the derivatives market, meaning they are trading options contracts and futures. McElligott said the model's output was largely driven by the looming drop in three-month realized volatility. Realized volatility is a widely used metric for measuring how volatile stocks have actually been over a given period. As stocks tumbled in late March and early April, realized volatility shot higher. But now that the most violent swings have receded further into the past, systematic funds could soon get the green light from their risk managers to start ramping up exposure once again, McElligott said. That a seemingly unshakable calm has returned to the market over the past six weeks or so has likely also helped reinforce the notion that it is safe to wade back into the market. McElligott told MarketWatch that, if anything, his model likely underestimates the size of the systematic universe. Most of the firms using these strategies are hedge-fund investors. That can make it difficult to assess the exact amount of capital they have available to deploy. But in the past, when it has flagged a potential surge in buying from systematic traders, McElligott's model has presaged strong returns for stocks, particularly over the next month or two, as the chart below shows. The model has predicted gains over the short term with 100% accuracy, and strong excess returns — or returns beyond what should have been expected — as well. Stocks have staged a remarkable comeback since April. Depending on how long it takes the S&P 500 to reclaim its record high, it could be the fastest comeback in stock-market history, Dow Jones Market Data showed. On Tuesday, the Nasdaq-100 NDX logged its first record close since February as shares of technology stocks have powered much of the recent rally. But McElligott doesn't expect the good times will last forever. Instead, the rush of money into stocks could precipitate another big selloff, given that the money deployed by these investors isn't particularly sticky. If volatility were to pick up again, it could drive a sharp but painful selloff similar to what investors experienced in August, when the Japanese yen carry trade unwind stoked a selloff in global stocks. Some of this downward pressure could be exacerbated by options dealers as they scramble to hedge their exposure to contracts that they have sold to buy-side traders. Stocks were trading mixed on Wednesday, with the S&P 500 and Nasdaq Composite COMP modestly higher, while the Dow Jones Industrial Average DJIA was off by more than 50 points at 43,036 in recent trade, according to FactSet data. 20 banks expected to increase their dividends the most following the Fed's stress tests The vanishing 'Buffett premium': Has Berkshire Hathaway lost the Oracle of Omaha's aura? 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