UTI Mutual Fund’s exchange-traded fund - UTI Sunder and Quantum Fund’s exchange-traded fund - QNifty both of which are supposed to track S&P CNX Nifty and trade at close to one-tenth the value of Nifty have been moving out of sync with the index in recent trading sessions. UTI Sunder closed at Rs 440 and QNifty closed at Rs 351.05 on Thursday, both at significant premiums to Nifty which closed at 3358.50 (The most commonly traded ETF – Nifty BeES closed at Rs 337).
What’s going on? This is too big to call ‘tracking error’. Illiquidity + no arbitrage opportunity => Nonsensical prices!
… vast systematic volumes of quant strategies in various time frames have become a destabilizing factor due to a convergence of strategies. In the end, the only way to win is to buy stocks that go up and sell stocks that go down and all strategies, no matter how many PhDs portfolio managers are involved, and so quants had to be in the same stocks, at the same time, swinging the market widely under their own weight. The bigger funds took the lead and the goal of smaller ones become to figure out what bigger guys will do the next day.
How is that any different from AAA CDOs constructed from sub-prime RMBS. Rating agencies made flawed assumptions, and now the prop risk managers allocating the bulk of the trading capital for the de jour hot quant manager, are making comparable mistakes, disguised as “assumptions” yet again.
- Big Picture: US Dollar Index Since March 2008 Bottom
Isn’t it funny that mainstream media across the world has highlighted bearishness on the dollar since its bottom?