Investing.com -- Systematic funds are lowering their exposure to U.S. equities while building long positions in U.S. Treasuries amid changing macroeconomic conditions, according to Barclays (LON:BARC).
“Volatility Control (VC), commodity trading advisors (CTAs), and Risk Parity funds have meaningfully cut back on equities amid historically stretched policy uncertainty, growth concerns, and diminishing U.S. exceptionalism,” the bank said in a Tuesday note.
VC equity allocations have declined to near-lowest levels since August 2024, implying limited potential for further selling. Any stabilization in volatility could prompt a gradual reallocation back into stocks, but for now, systematic strategies are clearly risk-off.
CTAs, which rely on trend-following strategies, have been particularly aggressive in reducing U.S. equity exposure.
According to Barclays strategists, CTA equity unwinds “have been primarily driven by the U.S., and our estimates indicate that they are in the process of building shorts."
Meanwhile, exposure to European and Chinese equities has also declined, but it remains meaningfully long in those markets.
The rotation away from U.S. stocks has led CTAs to increase Treasury longs, cut dollar exposure, and expand short positions on Bunds, reflecting expectations of weaker U.S. economic data and diverging fiscal policies.
This de-risking extends beyond systematic funds. Barclays highlights that institutional investors had already been trimming equity exposure ahead of the recent selloff, whereas retail investors continued buying, pouring roughly $380 billion into global equities over the past six months, with over 65% allocated to the U.S.
However, with sentiment now at bearish extremes, retail outflows from U.S. stocks have started to pick up, contributing to a shift toward European and APAC developed-market equities.
Despite the broad equity outflows, Barclays notes that the selloff has remained "orderly through the volatility lens."
Measures such as S&P 500 skew flattening, VIX downside buying, and outflows from VIX-related exchange-traded products suggest that investors are monetizing hedges rather than panicking.
Still, Barclays warns that the Federal Open Market Committee’s (FOMC) upcoming meeting could test market confidence.
A more hawkish stance from the Fed amid disappointing inflation progress could challenge the belief in a so-called "Fed put," potentially triggering further risk aversion among investors.