The S&P 500 index entered correction territory overnight after a dramatic sell-off on Monday, and investors are touting the return of volatility in equity markets as the Cboe Volatility Index sails past 30.
Analysts are blaming the S&P 500 index’s sell-off on technical factors after support levels were hit, inducing stop loss orders.
TS Lombard’s head of strategy, Andrea Cicione said hedge funds, which had the second highest exposure to equities since 2007, were probably forced to liquidate leveraged positions. Momentum-chasing algos probably did the rest.
In fact, the 115% jump in the Vix on Monday spelt doom for products profiting from lower volatility.
On Tuesday, Credit Suisse said that it will begin early redemption for a popular inverse exchange-traded note that was betting on low volatility, after it lost over 80%. Nomura, too, announced the closure of a similar product.
As investors prepare for the return to normal levels of volatility, here are some recommendations from investment gurus in private banks and fund houses.