The big sell-off on Wednesday, particularly in Canada where the S&P/TSX composite index plunged 433 points, puzzled investors as much as it frightened them: After all, commodity prices held up but commodity producers were hammered. Potash Corp. of Saskatchewan Inc. fell an amazing 8.4 per cent and Suncor Energy Inc. fell 4.8 per cent.

Perhaps the best explanation for this strange divergence takes into account the behaviour of institutional players – particularly hedge funds – who suddenly find themselves faced with the prospect of having to raise cash in order to meet redemptions from disgruntled investors, an event that occurs midway through the year.

“Scanning down a list of the better known and larger hedge funds earlier this week, we were struck by how many of the biggest and best known managers are – and almost certainly still are – down for the year,” said Dennis Gartman, author of the influential Gartman Letter.

This creates volatility, because raising cash entails selling stocks – and selling stocks creates volatility that increases the need to raise cash. And so on. The year's winners, particularly agriculture stocks and energy stocks, were not spared.

“It mattered not how strong had been any stocks performance prior to yesterday, they were all taken out and shot,” Mr. Gartman said. “Indeed, the strongest went first because that was where cash could most readily be raised."