An ETF to Take Advantage of the "Dead Cat Bounce" in Large Caps

“The dead cat bounce” is often used in financial vernacular to portend a short-term price spike in a stock following an unceremonious fall from grace due to a bearish move. This strategy now comes in the convenience of an ETF wrapper via the Vesper US Large Cap S-T Reversal Strategy ETF (NYSEArca: UTRN).

UTRN seeks to provide investment results that correspond generally to the total return performance of the Vesper U.S. Large Cap Short-Term Reversal Index. The fund will normally invest at least 80% of its total assets in securities of the index.

In short, the index UTRN tracks is designed to measure the performance of a portfolio of 25 stocks selected from the S&P 500 that Vesper Capital Management, LLC believes will most likely benefit from the “short-term reversal” effect, as determined by applying a proprietary algorithm known as the Chow Ratio–created by Victor Chow a finance Ph.D. and Chartered Financial Analyst.

The impetus of the Chow ratio forms around the premise that not all stocks are prone to experiencing this “dead cat bounce.” As such, the ratio evaluates stocks with a recent losing streak based on risk and volatility measures in order to identify those have the highest likelihood of experiencing a short-term reversal.

Investment Process:

  • Rank stocks in the S&P 500 based on the Chow Ratio.
  • The 25 stocks with the most attractive (lowest) Chow ratio are selected for inclusion in the index.
  • The Index is evaluated and re-balanced on a weekly basis.
  • A stock in the index is removed at rebalance when its Chow ratio becomes unattractive.  It is replaced with a stock that has a more attractive Chow ratio.
  • The Index is equal-weighted and is provided and calculated by SPDJI.

Offering the strategy via an ETF wrapper gives investors the convenience of capitalizing on this methodology without holding a number of securities with reversal potential. UTRN offers investors a unique rules-based ETF to enhance their current portfolio of ETFs.

For more information on UTRN and Vesper Capital Management, click here.

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