Citadel Securities: Systematic Funds Preparing to Re-Leverage and Buy Stocks

Odaily News, Scott Rubner, head of stock and derivatives strategy at Citadel Securities, stated that the equity market leverage reset is largely complete. As volatility declines, the room for systematic strategies to re-enter equity exposure is expanding. Market breadth is improving, with correlations near historical lows, while investors are increasingly willing to pay a premium for upside potential. The next wave of meaningful mechanical fund flows could be re-leveraging, rather than continued deleveraging.

Citadel Securities data shows that assets under management for leveraged ETFs have dropped from $218 billion at the end of June to $154 billion in July, a decline of nearly 42%, with semiconductor leveraged ETFs holding approximately $31 billion in assets. Other Wall Street institutions have observed similar trends. Meanwhile, Morgan Stanley's Prime Brokerage team noted that after experiencing record deleveraging at the end of July, funds began restoring capital and re-buying global stocks last week. (Bloomberg)