Pacer ETFs has expanded on its line of trend-following strategies with a new exchange traded fund that switches between a risk-on to risk-off mode according to certain market triggers.
On Tuesday, Pacer launched the Pacer WealthShield ETF (Cboe: PWS), which has a 0.60% expense ratio.
The Pacer WealthShield ETF tries to reflect the performance of the Pacer WealthShield Index, which incorporates systematic risk management strategy that directs the portfolio’s exposure to U.S. equity securities, U.S. Treasury securities or a mix of each, according to the prospectus sheet.
The underlying index uses a rules-based methodology to implement a trend-following strategy that directs some or all of its exposure to U.S. equity securities or U.S. Treasury securities depending on the strength of the high-yield corporate bond market relative to U.S. Treasury bonds and the momentum of certain U.S. equity sectors or industries and of long-term U.S. Treasury bond.
To determine its component weights and strategy direction, the index will observe the ratio between the S&P U.S. High Yield Corporate Bond Index and the S&P U.S. Treasury Bond 7-10 Year Index. This Risk Ratio relative to its 5-month exponential moving average determines whether the underlying index will be in Equity Mode or Fixed Income Exposure. If the Risk Ratio is at or above its 5-month exponential moving average, the index will be in Equity Exposure for the following month. If the Risk Ratio is below its 5-month exponential moving average, the index will be in Fixed Income Exposure for the following month.
When the index is in equity mode, it will select five sectors with the best performance updated quarterly and based on the total return for the six month period ending on the selection date. The pool of sectors include all 10 S&P 500 sectors, along with S&P Biotechnology Select Industry Total Return Index and Dow Jones Internet Composite Index. The five sector picks are equally weighted. If the value of any of the equity sectors selected is below the component’s 7-month exponential moving average, the 20% allocation will instead be allocated to 3-month U.S.
Source: Pacer ETFs
For more information on new fund products, visit our new ETFs category.