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As on October 2018 , Hedge Funds had total Asset Under Management (AUM) of $3.06 Trillion and Managed Futures (CTA) had total AUM of $357 Billion. This is very influential when the markets global have become so interlinked with Algorithms doing 40-50% of Daily Turnover.

Below is the performance of Barclays Elite Systematic Trades Index that is indicator of performance of these CTA funds.

As seen in the table October & November 2018 together has given a negative return of 4.81% whereas the total return year till date is -6.77% . There has been liquidation of US long positions by these funds at a very quick pace which has resulted S&P500 fall by 6% in the same period.

Above it can been Equity Allocation in CTA , Volatility Control & Risk Parity funds have reduced drastically compared to June-July 2018. This is still continuing in December 2018 as the S&P500 falls by 16%.


Above is the chart showing past 5 years movement between NIFTY & S&P500 if compared it has been on the same movement for the all time except December 2018 in which India had two important events which were State Elections and new RBI Governor appointment. But if it was given a closer look then you will see that the Algorithm selling happens during India overnight and during Indian market open hours it stay subdued. This can be seen in the charts below but it is a trend not the only reason for not falling by that much.

NIFTY December 2018 :

S&P500 December 2018


2018 till Date has been the year with 93% of asset gave a negative return as seen below in the graph.

December Effect – It is when in USA and other Calendar Year countries all the Funds & Retail Investors start booking profits and create cash for Tax Loss Harvesting purpose. But this year CTA funds added to selling pressure that accelerated the sell off.

January Effect – It is when All the Funds & Retail Investors start deploying the cash created last month and this helps derive a positive return month. But the CTA funds are not liable to the same and this might continue the selling pressure until the levels are reverse.

If these assumptions are seen in past then it holds on 30% true in past 10 years of S&P500 history and 50% true for NIFTY. We might see the pattern repeat in NIFTY cause of two main reasons one is RBI Board meeting which would take up Reserve issue and PSU Bank capital infusion, which will bring out certain banks of PCA.

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