Fears of a global economic slowdown saw the Dow Jones Industrial Average post five losing sessions in a row during early March, which is a reminder to investors that the volatility that racked the markets in the fourth quarter of 2018 could return at any time. In 2019, investors may need to play more defense against volatility, and with long-bias focus centered on risk-adjusted returns, the RYZZ Managed Futures Strategy Plus ETF (NYSEArca: RYZZ) could be what investors are looking for.
“The goal of the fund is not only to provide competitive returns over time, but to provide risk-adjusted return,” said Jason Gerlach, managing partner of RYZZ Capital Management. Gerlach’s functions also extend to the role of CEO and managing partner of Sunrise Capital Management.
A Dynamic Equity Strategy
Unlike the majority of ETFs focused on a passive strategy that tracks an index, RYZZ pairs a dynamic equity strategy with complementary long-short managed futures strategies in order to achieve its returns. The goal of the strategy is to foster a low correlation to the overall economic environment, as well as more traditional index-based and long-only strategies.
Low correlation during heavy bouts of volatility will shield investors from heavy oscillations in the market. At the same time, RYZZ seeks to capture any upside when the market environment goes awry.
“It’s going to dynamically allocate to a basket of equities and ETFs at its core with a definite long bias,” he added. “We’re flanking that core with a couple of managed futures strategies, dynamic futures models, that we believe are going to offer downside protection and maybe even some upside potential at times when the stock market might not be doing so well.”
RYZZ debuts with a 0.99 percent expense ratio.
Built on Quantitative Models
RYZZ’s strategy is built on proprietary quantitative models looking to identify repeatable price and volatility patterns in the markets. If the model identifies a pattern rooted in price or volatility, it will take a long or short position in the investment.
With respect to the size of the position, the RYZZ model will use a systematic assessment of the pattern identified, which determines the likelihood this pattern will persist in conjunction with the adviser’s assessment of the investment’s potential risk/reward ratio. RYZZ investments will generally consist of long equities positions that will work in concert with a variety of varying offensive and defensive futures positions based on the pulse of the market environment.
“Our goal is to have models that can act as a significant defense mechanism when equity markets sour,” Gerlach said.
Short positions will be derived primarily through index futures contracts. Based on current market conditions, RYZZ may maintain a total net long, neutral, or short position–a testament to the fund’s adaptability to the market.
To address volatility, the fund’s index futures contracts may, when necessary, include volatility index (“VIX”) futures. However, under a normal market environment, the adviser expects that a significant portion of the fund’s exposure come via futures contracts, though, at times, direct investments may be necessary.
Diversified Exposure Overseas
Furthermore, RYZZ will offer exposure to the international markets, including emerging markets (EM). This speaks to the diversification of the fund where its long bias extends to opportunities outside the U.S.
Thus far in 2019, strength in U.S. equities is translating to strength abroad as emerging markets are gaining after a 2018 to forget. Nonetheless, for investors who are still hesitant when it comes to international market exposure, now presents an opportune time, especially with a possible trade deal between the United States and China looming as the main trigger event
While the majority of investors might have been driven away by the red prices in emerging markets during much of 2018, savvy investors who were quick to see the opportunity viewed EM as a substantial markdown. From a fundamental standpoint, low price-to-earnings ratios in emerging markets ETFs have made them prime value plays.
For more market trends, visit ETF Trends.