ETF Trends CEO Tom Lydon discussed the Pacer CFRA-Stovall Equal Weight Seasonal Rotation ETF (SZNE) on this week’s “ETF of the Week” podcast with Chuck Jaffe on the MoneyLife Show.
SZNE seeks to track the total return performance, before fees and expenses, of the Pacer CFRA-Stovall Equal Weight Seasonal Rotation Index.
Sam Stovall is the chief investment strategist at CFRA Research. Equal weight signals how this ETF was put together. And seasonal rotation could explain how things may change. However, in terms of the importance of this fund now, Lydon has some answers.
“Sam is a student of sectors, in addition to the markets,” Lydon notes. “One thing that we know is that sectors, like markets, have good times and bad times. But, from a seasonal standpoint, you can actually see, historically, that there are times when the market does well, and there are times when the market doesn’t do well.”
Keeping in mind the phrase, “Sell in May and go away,” which is what this ETF is based on. May to November is historically not a great time for the market. Based on this research, SZNE is structured to change the underlying holdings based on the seasonal rotation of sectors.
This data goes back to WWII and the worst period for the S&P 500, so seeing the market generate great results from November to April has paved the way for SZNE to develop a proper strategy to tap into this seasonal change in the market progress.
Tracking For The Better
So, in partnering with CFRA and Stovall, Pacer is now tracking an equal weight of consumer discretionary stocks, industrial sector stocks, informational technology stocks, and materials stocks from November to April. At the end of April, SZNE will then rotate into other areas that tend to do better during that period, which includes more defensive sectors, or consumer staples, or healthcare.
With all of this work in the ETF, the investor doesn’t have to do anything. While the work can be done individually, SZNE makes for a better option. The difficulty would be evident without the ETF. It would also be more expensive, and the tax efficiencies from an ETF would not be present outside of it.
Lydon continues, “The great thing about SZNE is, it’s unemotional.” In talking with Stovall at the end of October, Lydon was made aware of the start of this rotation and saw it happen seamlessly due to the design of the ETF. And with that, all the shareholders within this ETF now have a new shift of concentration in their portfolios.
“Hopefully, over the long term, it will continue to do what it’s done in the past, and fit nicely in a portfolio.”
Related: ETF of the Week: ProShares Russell 2000 Dividend Growers ETF (SMDV)
Considering how many people have a high correlation to the S&P 500, whether it’s in the form of actively managed mutual funds or index mutual funds or index-based ETFs, performing that analysis would surprise investors in showing how coordinated their portfolio is to the S&P. So, if that’s the case and the SZNE strategy is appealing thanks to the manner of diversifying from an equal-weight standpoint and provide sector rotation, it makes sense to put 10% of what’s already coordinated into something like this and see how it does.
Lydon does explain that it’s tough to time the market, in regards to how much accuracy there indeed can be. That said, it’s especially difficult for those attempting to do it themselves. Trend following works overtime; however, these 200-day periods are trickier, requiring patience and spending.
Big moves prove to be very important. Moving to the upside and avoiding those declines is a process. However, if that discipline is too tricky, SZNE relies on a timing strategy that has historically worked and has been transferred over to a simple ETF that should decrease worries.
Hear Tom Lydon Discuss Season Rotation & More on SZNE ETF:
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