Commodity trading advisors, commonly known as CTAs, are maintaining significant long exposure to global equities, Bank of America analysts say, with gains in Japanese and European markets providing the bulk of recent support despite weakening in U.S. markets.
"Trend followers remain long equities globally, with gains in Japanese and European markets supporting CTA performance this week as managers remain in extended long positions," the BofA team led by Chintan Kotecha wrote in their report.
The report underscores that U.S. equities have acted as a performance headwind amid concerns related to AI-driven disruption. BofA cautioned that trends for U.S. indexes could deteriorate further over the near term, particularly affecting faster trading models that rely on short-term signals.
Positioning and potential flows
BofA's analysis points to broadly stretched positioning. Systematic exposure to global equities across CTAs, risk parity and volatility-control strategies sits at elevated levels compared with the past five years, the bank said, making flows especially sensitive to directional moves in markets.
The bank estimated that systematic strategies could sell roughly $117 billion in a down market over the coming week, compared with buying about $11 billion if markets remained flat and selling $6 billion in an up scenario. The analysts noted the asymmetry of risk, saying CTAs on their own could sell up to $112 billion in a down market.
For U.S. equities, BofA highlighted nearby technical thresholds. Its model suggests potential long-position unwinds in the S&P 500 could begin around 6772, with stop-loss triggers positioned at less than 1.6% beneath Friday's close.
Regional and asset-class nuances
While equity exposure is dominant, the report detailed other notable moves by trend followers. In fixed income, CTAs increased exposure to Treasurys as the 10-year yield dipped below 4%. Despite that rise, BofA described CTAs as only "moderately long" Treasurys and said those positions could expand if trends strengthen. The bank also flagged likely buying in Bund futures and the potential unwinding of shorts in Korea Treasury bonds.
In commodities, long positions in gold added positively to CTA returns as futures advanced, with elevated trends keeping positioning largely driven by volatility. Trend followers also continued to add to soybean and soybean oil longs following a fourth consecutive week of gains.
In foreign exchange, CTAs remain broadly short the U.S. dollar versus most tracked currencies, with the notable exception of the Japanese yen. BofA expects trimming of longs in the euro, pound and Canadian dollar in the days ahead.
Takeaway
BofA's report paints a picture of systematic strategies that are heavily exposed to equity trends and other asset-class moves, with positioning that is sensitive to directional shifts and volatility. The asymmetry of potential selling in a down market is a central concern, particularly for models that trade more quickly.