Our analysis suggests that both CTAs and Risk Parity funds have been at the core of the recent correction. Risk Parity funds have underperformed a hypothetical benchmark by 3.7% since the start of the equity market correction, an even bigger underperformance than that seen during the Fed 2013 taper tantrum. CTAs lost 6.9% in four days from Feb 1st to Feb 7th. Pure trend following CTAs did even worse, losing 9.2% during these four days. These negative 4-day returns are unprecedented, pointing to severe position unwinding. This severe CTA unwinding is consistent with the almost universal collapse of the open interest of futures contracts over the past week, with the exception of the 10y UST futures contract. In our mind, the position unwinding from both CTAs and Risk Parity funds has been so severe that any further position unwinding by these investors should be limited from here, especially if stop losses have been triggered already.This, combined with the low equity exposures of Discretionary Macro and Equity Long/Short hedge funds, leaves retail investors as the main residual risk for equity markets going forward. US equity ETFs, which have been at the epicenter of the fund outflows over the past week, lost $25bn so far. This means that more than half of the $40bn that had entered US equity ETFs in January has been withdrawn already. So again, the picture we are getting in the US equity ETF space is one of advanced rather than early stage de-risking.Momentum retreats from extremes in equities, FX and commodities, but not rates.Retail investors are pouring money again into short VIX ETFs undeterred by recent VIX product turmoil.

JPMorgan