Investing.com -- Commodity trading advisors (CTAs) have significantly reduced their exposure to equities over the past month, selling approximately $100 billion in stocks in just four weeks, according to UBS.
While their equity beta remains positive, the bank said it is now below the 30-year average, and the firm does not anticipate CTAs to turn into aggressive buyers unless market conditions become more favorable.
"We still see scenarios where CTAs will remain sellers in the near term," UBS noted.
The bank suggests that without strong price action to support renewed equity accumulation, CTAs are unlikely to drive a significant market rebound.
In the bond market, UBS observed that CTAs are currently pausing their short positions but remain largely underweight in Europe, the UK, and Japan, while being neutral on U.S. bonds.
The firm expects that rising bond volatility could lead to some deleveraging and short covering in the coming weeks.
Regarding credit markets, CTAs have already cut 50% of their long positions in credit spreads, shedding about $10-15 million Spd Dv01 since UBS’s last update.
The firm anticipates further selling of $5-7 million Spd Dv01, which would leave CTAs neutral on U.S. investment-grade (IG) and high-yield (HY) credit spreads while maintaining a long position in European credit indices (Itraxx Main & Xover).
Meanwhile, CTAs are said to have returned to a neutral stance on the U.S. dollar, closing post-election trades, and continue to adjust their positioning in commodities by holding a massive long position in metals (both precious and industrial) while remaining short on energy and agricultural commodities.
UBS expects some profit-taking in these areas over the next few weeks.