Investors who are looking for a smart way to keep their money invested in the markets may look to a dynamic exchange traded fund that incorporates a tactical allocation strategy to ride out changing conditions.
“One of the areas that we wanted to tackle was risk management and providing a way to get exposure to large-cap equities but with a guardrails, if you will, ability to take you out into cash as the signals started to weaken,” Ed Lopez, head of ETF Product for Vaneck, said at Inside ETFs 2019.
VanEck has come out with the dynamic VanEck Vectors NDR CMG Long/Flat Allocation ETF (LFEQ ) to provide investors with an investment solution that offers a systematic approach to preserve capital by increasing cash when market health is weak and participating in uptrends with a full allocation to equities when the markets are strong.
“We were trying to solve for our large-cap exposure, and we wanted risk management tied to that index. So, if you think simple trend-following, that’s the beginning part of how we do this,” Steve Blumenthal, Executive Chairman & Chief Investment Officer for CMG Capital Management Group, said.
LFEQ tries to reflect the performance of the Ned Davis Research CMG US Large Cap Long/Flat Index, which follows trade signals that dictates the portfolio’s equity allocation ranging from 100% fully invested or “long” S&P 500 exposure to 100% in cash or “flat” Solactive 13-week U.S. T-Bills.
The index’s model follows a two-step process. The first step measures trend following and mean reversion within the S&P 500 industry groupings to determine a bullish or bearish market environment. Additionally, the model applies a risk filter process to ensure that all of the price-based industry level indicators are effective over time.
The second step calculates the scores taken from the first phase to produce the equity allocations of the index. When the index is not completely long or flat, either 80% or 40% of the portfolio will be allocated to the S&P 500, with the remainder allocated to the Solactive 13-week U.S. T-bill Index.
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