As financial institutions rebalance their investment strategies, fund repositioning could put selling pressure on technology stocks to reduce risk.

IShares MSCI USA Momentum Factor ETF, also known as MTUM, owned by Blackrock, a big asset management company, is preparing for a semi-annual rebalancing of asset allocation next week.

The fund said that the recent momentum of the value index in the US stock market is high, while the momentum index has been under pressure (see chart below).

Technology stocks have performed poorly recently in the face of persistently high inflation and the Fed's aggressive policy of raising interest rates, and the market's "buy winners and sell losers" model will exacerbate the downward trend of technology stocks.

Chris Harvey, head of equity strategy at Wells Fargo & Co of the United States, predicted in a report在Smart Beta75% of the investment strategyThe fund will shift from growth technology stocks to value energy stocks.

Because the energy industry is an industry that can benefit from high inflation, soaring interest rates could put pressure on technology stocks with high valuations.

At the same time, Harvey points out that positions in financials that are sensitive to the economy could also be cut by fund managers to support defensive industries such as health care. Harvey said:

We initially estimate that the fund will adjust its positions on a large scale, and we expect growth stocks to realign with value stocks and show old-fashioned defensive characteristics:Lower price volatility, more stable returns, larger scale, and more stable dividends.

Such a shift may reduce the volatility of the fund as a whole.As shown in the industry volatility chart below, while increasing the allocation of energy stocks will increase the overall volatility, reducing the allocation of technology and financial stocks will reduce the overall volatility.

In addition, the following chart shows that the increase in implied correlation indicates that the volatility of the index has risen much higher than that of individual stocks in the index. However, since the VIX has not risen significantly, it shows that there have been significant differences between individual stocks (or sectors).

Some analysts predict that the adjusted MTUM fund will be more similar to the low volatility fund, with 56 per cent of the expected weight of MTUM falling into the 20 per cent with the lowest volatility in the Russell 1000 index.

For MTUM funds, now may be the time to buy energy stocks and sell technology stocks.