Quant Investors Left Reeling as a Booming S&P 500 Trade Misfires

Before things went south, Bastian Bolesta made easy money from a quant strategy that worked for years thanks to the rise of automated stock traders on Wall Street.

If S&P 500 futures rise, his trading program goes long. If the index drops, it duly puts on a short. Then the money manager just waits for the 4 p.m. bell and closes the position. And repeat.

Known as intraday trend-following, systematic players like Bolesta have long exploited one-way trading patterns in the world’s most-watched stock index.

But in 2020, the strategy posted the worst decline in two decades -- seemingly out of nowhere. With no sign yet of a spirited revival, quants are trying figure out what’s causing this once reliable options-powered trade to misfire.

“We still saw some large moves intraday, but they were choppy,” said Bolesta, chief executive officer at Switzerland-based Deep Field Capital with $105 million.

The strategy has been faring better in Asian and European benchmarks, he said. But something weird is happening in the underbelly of the S&P, where the likes of exchange-traded funds and index funds trade billion of dollars in stocks on autopilot in the dying minutes of each day.