Systematic funds that link their stock allocations to measures of market volatility unloaded large equity positions through March, and evidence suggests that the most intense phase of that selling may now be behind the market. The unloading, driven by strategies that reduce exposure as realized volatility climbs, added meaningfully to market pressure amid geopolitical tensions and a jump in oil prices.
Those volatility-aware approaches - a group that includes volatility control funds and commodity trading advisers (CTAs) - automatically pare back equity risk when market swings increase. While the total assets managed by these vehicles are small compared with the entire equity market, their tendency to sell into weakness and buy into strength can accentuate price moves, analysts say.
Nomura’s data show that the set of strategies in question dumped about $24 billion of equities last week, taking the cumulative net sales since the beginning of March to roughly $108 billion. Nomura estimates assets held in these strategy types, which also encompass some risk-parity funds, are about $1 trillion or slightly higher.
That selling has pushed equity exposures within these programs to levels rarely seen in recent periods. Nomura notes that only about 20% of past observations recorded even lower exposure than what is being observed today. In short, much of the systematic risk-taking capacity that amplifies downturns has been removed from the market.
"The outlook is turning more neutral, but not yet a tailwind," said Joanna Wang, Nomuras cross-asset and equity derivatives strategist. "If volatility picks up from here, there’s still meaningful selling capacity in the system," she added.
Part of the continued caution stems from how these strategies evaluate volatility. They typically base decisions on realized volatility looking back a month or more. Although the Cboe Volatility Index (VIX) has pulled back from its highs - a gauge of market expectations for future swings - the backward-looking historical measures remain elevated. For example, Nomura points out the S&P 500s one-month historical volatility sits around 21%, a level near the highest readings since mid-May 2025 and more than five percentage points above its 20-year median.
For investors hoping the worst of the selling is over, the reduced equity exposure is a clear relief. With much risk already trimmed, these strategies have less scope to fuel additional broad-based declines.
"Were moving past the steepest selling," Wang said. "Strategies like volatility control and CTAs have already taken a lot of risk off the table."
Nomuras modeling illustrates the sensitivity of outcomes to short-term volatility paths. If realized volatility remains at current levels or continues to ease through late April, the models suggest that systematic strategies could reverse course and become net buyers of roughly $20 billion by early May. By contrast, a material pickup in volatility would leave room for another round of liquidation, with potential additional equity sales of about $48 billion by the end of April, according to Nomuras estimates.
Those dollar figures are modest when compared with the broad scale of U.S. equities. Nomura highlights that the S&P 500s market value alone is roughly $55 trillion. Yet analysts caution that the way these funds trade - the timing and the mechanism of automatic de-risking and re-risking - can cause outsized short-term moves relative to their share of total market capitalization.
Market participants will be watching volatility measures closely in the weeks ahead. If realized volatility continues to moderate, the prospect of systematic buyers re-entering could support a rally. If realized volatility rises again, the residual selling capacity, though reduced, could still exert meaningful downward pressure.
Contextual note: Nomuras estimates and the quoted strategist comments underpin the analysis above. The scenario outcomes are contingent on short-term realized volatility behavior and reflect the specific modelling cited.