In “Quants And Mortals” I gave readers what I’d describe as the “generic” version of the systematic/discretionary positioning divide story, which I’ve told again and again over the past two or three months.

Part and parcel of that tale is the notion that systematic support for equities could be less robust going forward given the scope of 2023’s re-allocation bid. Posed as a question: Are quants “out of ammo”?

The answer is “It depends.” On volatility. And, relatedly, on whether markets continue to trade in a reasonably well-behaved range.

“Re-risking into exposure has reignited demand for downside / hedges especially with debt ceiling saber-rattling alongside the ‘slow bleed’ of the regional banks profitability crisis both lurking in the background [but] equities have been rangy in [a] tight band,” Nomura’s Charlie McElligott said Wednesday.

Note that despite the bank drama and rampant policy uncertainty, there really hasn’t been much in the way of “distribution expansion” (if you will) so far in 2023. Hence the ongoing “glide path” in three-month realized.

“Even with some modest resumption of discretionary single-name selling recently, corporate buybacks post OpEx clearly are helping to offset in addition to historically ‘long to quite long’ futures positioning from asset managers,” McElligott went on to say, adding that the “resumption of dealer long gamma from traders willing to supply vol has seen daily range compression.”

That compression is what allows the “latent” vol-control bid to manifest in higher exposure. On Nomura’s models, that re-allocation flow came to nearly $72 billion in US equities futures over the past three months.

Of course, that flow is itself a vol-suppressant which, as always, speaks to the self-fulfilling prophecy in these systematic, vol-sensitive feedback loops.

Potentially, there’s scope for more. “On projection, we see significant further potential for additional equities re-allocation buying from the vol control space over the next month if this ongoing rVol smash / tight daily ranges phenomenon holds,” Charlie said, putting the prospective (note the emphasis) exposure add at up to $37.8 billion, assuming stocks trade in a 0.5% daily range.

I suppose I don’t have to say this, but: If the US were to default, all bets are well and truly off, and the range of daily spot outcomes would surely expand dramatically.