Analysts say using computers to automate the selling of stocks in volatile markets is making them even more volatile reports Richard Henderson in the Financial Times. He writes:
So-called “volatility-targeting” funds that manage about $400bn in assets have bought up stocks this year as markets have calmed since markets’ dramatic end to 2018. But the renewed turmoil means they were pegged to sell $50bn by the end of Wednesday, according to Wells Fargo estimates.
“When volatility jumps, systematic funds rebalance portfolios away from risky assets like equities,” said Pravit Chintawongvanich, an equity derivatives strategist for Wells Fargo.
Automated, volatility-sensitive trading strategies have become a popular bogeyman in recent years, with many analysts and fund managers blaming them for exacerbating market swings.
The renewed spurt of automated selling comes during a crucial period for the US stock market as it responds to slowing growth, fresh tariffs on Chinese goods and a tepid market response to last week’s interest rate cuts.
Read more here.
Jeremy Jones, CFA
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