Managed Futures Funds: These Mega Bulls Could Trigger the Next Big Sell-Off

August 7, 2019 | Hedge Funds, News

Managed futures funds can flip from being bullish to bearish in a flash. And that’s a lurking risk – a big one

Managed futures funds could fuel a big sell-off soon

A toxic mix of factors could trigger a self-sustaining downturn in already top-heavy markets.

Consider trade war machinations, a bull run in stocks that is long in the tooth, and the Fed’s uncertainty.

Add to this a group of hedge funds, known as managed futures funds, that have loaded to the gills with bullish bets on the market.

And these guys, $300 billion in size, are computer-driven.

Leverage at uncomfortable levels

Managed futures funds have their bullish positions funded through leverage. This leverage is now at levels observed when the markets peaked in January and September 2018, according to a note from Morgan Stanley.

These trend-following funds which extensively use automated trading can reverse their positions on the mere whiff of a change in trend caused by any macro event or risk.

Such an occurrence could “activate forced selling” from these funds, says Morgan Stanley.

Self-perpetuating downtrends

When such a macro event happens, investors would be aghast to see significant gap-down declines in stocks, “due to the average trend follower being extremely net long,” according to Robert Duggan, Partner at SkyBridge Capital.

Worse, the sell-offs could feed on themselves, exacerbating the downtrend.

Free Industry News

Subscribe to our free newsletter for updates and news about alternatives investments.

  • This field is for validation purposes and should be left unchanged.


Latest Alternative Investment News
Alternative Investments: Accelerate Launches An ETF For Alternative Assets
November 25, 2020     Alternative Investments, News

Accelerate Financial Technologies launched its OneChoice Alternative Model Portfolio in September. Aimed at hard-pressed advisors and portfolio managers, the strategy offered a quick and easy way to put together a…
Digital Assets: Japanese Financial Group SBI Launches Crypto Lending
November 25, 2020     Digital Assets, News

SBI Group (TYO: 8473) is launching a crypto lending service through SBI VC Trade, its crypto-focused exchange subsidiary. SBI said it will initially allow customers to tender only bitcoin (BTC),…
FinTech: Hippo Insurance Gets $350M Funding From Mitsui Sumitomo Insurance
November 25, 2020     FinTech, News, Venture Capital

Hippo, the home insurance unicorn, announced Tuesday an investment of $350 million from Mitsui Sumitomo Insurance Company, Limited, a subsidiary of MS&AD Insurance Group Holdings, Inc. In July, Hippo raised…
Venture Capital: Astanor Ventures Launches $325M Fund For Impact Investing in Agtech

Based in Luxembourg, Astanor Ventures combines capital, technology, and sector expertise to invest in businesses that build regenerative, scalable, and nourishing food solutions. Using this philosophy, Astanor has invested in…