Systematic hedge funds, including commodity trading advisers (CTAs) and volatility control strategies, are poised to ramp up equity exposure in the coming weeks, regardless of short-term market moves, according to a report by Bloomberg citing new analysis from Goldman Sachs.
After months of tariff-driven volatility that drove systematic players to aggressively de-risk, models are now shifting back into buy mode – a move that could inject meaningful support into US equities, particularly if volatility trends continue to decline.
“The systematic bid is real and growing,” wrote Goldman’s derivatives sales trading team, led by Brian Garrett and Lee Coppersmith. The desk expects algorithmic funds to become consistent net buyers, with reallocation flows likely to accelerate as realised volatility recedes.
CTAs, which typically follow trend-based strategies – adding exposure into rising markets and reducing risk when prices fall – had slashed equity allocations to five-year lows amid the geopolitical noise tied to the Trump administration’s trade policies. But as tariff escalation fears subside, the door is opening for a coordinated return to risk assets.
UBS estimates that CTAs’ current equity exposure sits in the 16th percentile relative to five-year history, suggesting significant dry powder remains on the sidelines. Even a moderate reversal in market volatility could trigger a substantial repositioning.
That view is echoed by Nomura’s Charlie McElligott, who flagged that volatility control funds – systematic strategies that adjust equity exposure inversely to realised volatility – are on the verge of re-engaging with risk. With 20-day realised volatility falling from 52 to 39, these funds are likely to begin reallocating aggressively over the coming sessions.
“We project substantial reallocation to begin over the course of this week, specifically from Vol Control funds,” McElligott wrote, noting that aggregate systematic equity exposure remains near historic lows.
