Deutsche Bank estimates that systematic strategy equity positions have risen to the 76th percentile historically, with volatility control strategy funds reaching the 99th percentile and CTA equity positions rising to the 82nd percentile. In contrast, discretionary investor positions are only at the 44th percentile.
Given the already high trend signals, further increases in systematic fund holdings are more likely to rely on continued declines in volatility rather than a strengthening trend.
Currently, volatility control strategies are already heavily weighted, limiting further room for additions; a significant market pullback could actually increase the risk of mechanically reducing positions.
In other words, the current low volatility is not merely a result of rising prices, but rather supports systematic funds maintaining high positions; if volatility increases again, this feedback loop could reverse.
