During periods of extreme volatility, such as the recent financial depression of 2008, all asset classes underperformed, sending everyone fleeing to cash. Most investors, though, timed their exits poorly, but some new exchange traded fund indexing methodologies help mitigate large negative returns.
For instance, the AdvisorShares‘ actively managed Cambria Global Tactical ETF (NSYEArca: GTAA) tries to sell out the market early in case of a extreme plunge based on a trend-following strategy, writes ETF Analyst Timothy Srauts for Morningstar. GTAA has an expense ratio of 1.42%. [Beyond Indexing: ‘Alpha’ ETFs Threaten Mutual Funds]
“GTAA is an allocation fund for those with a moderate to aggressive risk tolerance who are interested in an actively managed absolute-return strategy,” according to Strauts. “For investors who do not have the time or inclination to research, monitor, and rebalance multiple funds, allocation funds like this provide a simple solution.”
Chief Investment Officer and Portfolio Manager Mebane T. Faber manages GTAA and employes a trend-following strategy based on the simple moving average with diverse holdings, such as U.S. stocks, international stocks, bonds, commodities and foreign currencies. The fund will only follow funds that are on an uptrend and avoid declining investments.
For example, here at ETF Trends, we adhere to the 200-day exponential moving average to determine when we are in or out of a position. [Trend Following Strategy]
“Research shows that a moving-average timing strategy is successful at avoiding the worst of bear markets,” Strauts wrote.
Along with the SMA, GTAA will tactically overweight top performing assets, focusing on assets that show relative strength, or how well it an investment is performing relative to others.
GTAA acts like a fund-of-funds where it will hold a large selection of 50 to 100 ETFs at any one time.