“What we think is unique here is two quantitatively focused investment teams, that are seemingly competitors, coming together to actually develop a strategy in collaboration,” Hoffstein told ETF Trends. “We shared ideas, data, and research with one another in an effort to create a result where the whole is greater than the sum of the parts.”
Each week, the Newfound/ReSolve Robust Equity Momentum Index combines the votes of thousands of simple models, pursuing robustness through a combination of simplicity and diversification, not complexity. The index tilts towards out-performing equity regions – and thereby avoid perennial losers – by allocating towards the equity region that is exhibiting the strongest relative performance. The index seeks to avoid the impact of prolonged equity market declines by allocating towards short- or intermediate-term U.S. Treasuries when global equity market returns turn negative.
Rodrigo Gordillo, Managing Partner at ReSolve Asset Management, said foreign equities can go through multi-year periods of relative under- or out-performance versus U.S. equities, which can make structural diversification frustrating.
“We believe that momentum provides us with a systematic method for tilting our portfolio in whichever direction the market winds are blowing,” Gordillo told ETF Trends. “This type of ETF option should be especially salient to investors today given we’re in the midst of one of the longest-running US Equity bull markets in history whilst global international equities are hovering in the low single digits since the great financial crisis. In contrast, the previous cycle international and emerging equities massively outperformed US equities. These things cycle and this product aims to benefit from either scenario.”
Hoffstein added their strategy is fully flexible with ability to shift 100% to short- and intermediate-term US Treasuries.
“We both believe that investors care deeply about capital preservation, and this is especially true for investors entering retirement who are highly susceptible to large market drawdowns,” Hoffstein said. “We believe that a fully flexible approach built upon trend-following signals allows investors to embed an active means of managing risk whilst maximizing returns within their portfolio”
ReSolve Asset Management CIO Adam Butler described its tactical model that is more akin to a “dimmer switch” than a “light switch”.
“Many popular tactical models behave more like a light switch, generating large and sudden tactical shifts within the portfolio often because they rely on only a single signal,” Butler told ETF Trends. “Our research demonstrates, however, that combining a large number of independent momentum and trend models together produce empirically robust results that have a higher likelihood of performing in live trading.”
For example, where one investor might use a 10-month moving average, another might use prior 12-month returns, Butler said.
“Rather than picking a specific approach, we aim to create a more robust process by combining the output of many simple models together,” he said. “In doing so, we create a tactical model that behaves more like a dimmer switch. In many ways we believe this approach allows us to view the problem from a place of humility with an aim to be broadly correct, rather than from a place of overconfidence that could result in being specifically wrong.”
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