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JPMorgan Sees ‘Severe’ Unwind by Systematic Strategies Coming to an End

The unwinding of positions by some systematic strategies has been “so severe” that it should be nearly over, and retail investors appear to be the main risk left to stocks, according to JPMorgan Chase & Co.

Commodity trading advisers and risk-parity funds have been at the center of the recent correction and suffered unprecedented losses, strategists led by Nikolaos Panigirtzoglou wrote in a note.

“The position unwinding from both CTAs and Risk Parity funds has been so severe that any further position unwinding by these investors should be limited from here, especially if stop losses have been triggered already,” the report said. “This, combined with the low equity exposures of Discretionary Macro and Equity Long/Short hedge funds, leaves retail investors as the main residual risk for equity markets going forward.”

“The picture we are getting in the U.S. equity ETF space is one of advanced rather than early stage de-risking,” the strategists concluded.

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