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Quantitative Funds Flee Equities for Gold
27 Feb
Summary
- Some funds have reduced US equity exposure significantly.
- McElhenny Sheffield Capital Management exited equities entirely.
- Gold and US Treasuries are favored for capital preservation.
Recent market turbulence has prompted some quantitative investment managers to exit US equities entirely, seeking refuge in assets like gold and US Treasuries for capital preservation. McElhenny Sheffield Capital Management, a trend-following firm, moved its equity allocation to zero on February 6th, as its models indicated a lack of sustained uptrend.
This shift aligns with a broader repositioning by systematic investors who rely on data-driven models. These funds mechanically adjust exposure based on market trends and volatility. The S&P 500 Index has experienced significant intraday swings recently, with realized volatility reaching its highest point since December.
Commodity Trading Advisors (CTAs) have also reduced their US equity allocations, with Barclays data showing them around the 50th percentile and potentially declining further, especially in vulnerable US tech stocks. Goldman Sachs reports a surge in demand for downside protection, indicating investor frustration with market narratives and price action.
Gold, traditionally a hedge against uncertainty, has seen a rally, with some analysts predicting further price increases. This defensive strategy has yielded positive results for firms like McElhenny Sheffield Capital Management, which has achieved a 4.35% return this year by prioritizing capital preservation until market data confirms a broad uptrend.
