The Fairlead Tactical Sector ETF (TACK) is a model-driven exchange-traded fund that uses a disciplined, repeatable process to adapt across market environments. The model is based ontechnical analysis, with a focus on indicators that identify long-term trends and major reversals. TACK’s primary objective is to harness sector leadership while reducing risk during equity market draw downs through asset allocation. Opportunities are identified using signals from a blend of trend-following indicators, after which a quantitative momentum overlay refines the portfolio.
Volatility was elevated in March as equities reacted to the conflict in the Middle East.TACK declined 4.14% for the month on a total return basis, holding up better than the SPDR S&P 500 ETF Trust (SPY), which fell 4.93%, resulting in 79 basis points of outperformance. TACK underperformed its benchmark, the Russell 1000 Equal Weight Index, by 15 basis points for the month.
For the first quarter, TACK’s relative performance compared favorably, not only against market cap-weighted ETFs like SPY, but also popular equal-weight ETFs like the Invesco S&P 500 Equal Weight ETF (RSP). TACK posted a total return of 1.74% for the quarter, outperforming RSP by 1.13%, and topping SPY by 6.11%.
Most S&P 500 sectors declined in March due to geopolitical pressures. The Energy Select Sector SPDR Fund (XLE) was a notable standout, gaining 10.26% for the month, helping cushion TACK’s portfolio. For April, TACK maintains its 12.4% model allocation to the energy sector, a significant overweight relative to SPY, which has a 4.0% weight in energy.
April’s rebalance marks a significant risk-off shift with TACK closing positions in the megacap-heavy areas of the market that have lost momentum, including the Technology Select Sector SPDR Fund (XLK), the Consumer Discretionary Select Sector SPDR Fund (XLY), and the Communication Services Select Sector SPDR Fund (XLC). Of the proceeds, 12.5% was reallocated to the Consumer Staples Select Sector SPDR Fund (XLP), and 25.0% was divided between the SPDR Gold MiniShares Trust (GLDM), the SPDR Portfolio Short Term Treasury ETF (SPTS), and the SPDR Portfolio Long Term Treasury ETF (SPTL).
With these changes, TACK has a 75% allocation to sector ETFs and a 25% allocation to alternative assets, positioning it more defensively as the second quarter begins. The shift reflects the strategy’s ability to adapt as leadership and risk conditions change, with asset allocation playing a key role in managing downside risk.
We expect the environment for equities to remain volatile in the coming months, with growth-oriented sectors being a primary drag on the major indices. So far this year, TACK has outperformed by capturing meaningful sector rotation, favoring winning sectors like energy while avoiding losing sectors like financials.
Emphasis on Risk Management
Over its four-year history, TACK has exhibited a favorable risk profile, limiting drawdowns versus its benchmark (as highlighted last month) while maintaining a beta of 0.46. This means that TACK has been significantly less volatile than the Russell 1000 Equal Weight Index while posting similar returns since the fund’s inception. The ability to manage risk, and to do so without the use of complicated options strategies, is particularly valuable in corrective environments.
The reintroduction of U.S. Treasuries to TACK’s portfolio through SPTS (1-3 year) and SPTL (10+ years) aligns with its low-beta profile. Both SPTS and SPTL have lagged the equity market over the long term. That said, our relative strength indicators show early signs that they could contribute to relative performance in the months ahead. The accompanying ratio of SPTL to the S&P 500 Index reveals a secular downtrend and reminds us of the bear market cycle of 2022, when both equities and long-term Treasuries performed poorly.
Fortunately, while the current environment bears several uncomfortable similarities to 2022, the relative performance trend of Treasuries is not one of them. SPTL appears to be bottoming versus the S&P 500 (i.e., Treasuries versus equities), with the ratio above its 40-week moving average following what appears to be a basing phase. For TACK, increasing fixed income exposure can serve as ballast when the equity market is weathering a storm.
For more information on how TACK navigates volatile markets, visit the fund’s website or reach out to [email protected].
Performance data shown represents past performance and is no guarantee of, and not necessarily indicative
of, future results. Current performance may be lower or higher than quoted. Returns include changes in share price and reinvestment of dividends, if any. For fund performance information current to the most recent month-end, please call 1-877-865-9549.
Total return and value will vary, and you may have a gain or loss when shares are sold. Returns include changes in share price and reinvestment of dividends, if any. Market returns are based upon the closing price at 4:00 p.m. Eastern time, when the NAV is normally calculated for ETFs. Your returns may differ if you traded shares at other times. NAV returns represent the closing price of underlying securities.
Investors should carefully consider the investment objectives, risks, charges and expenses of the fund before investing. The prospectus contains this and other information about the fund, and it should be read carefully before investing. Investors may obtain a copy of the prospectus by calling 877-865-9549, emailing [email protected] or it may be downloaded here.
The fund is distributed by Northern Lights Distributors, LLC (Member FINRA). Northern Lights Distributors, LLC, Fairlead Strategies, LLC, and Cary Street Partners Asset Management LLC are separate and unaffiliated. Cary Street Partners is the trade name used by Cary Street Partners LLC, Member FINRA/SIPC; Cary Street Partners Investment Advisory LLC and Cary Street Partners Asset Management LLC, registered investment advisers. Cary Street Partners is the Adviser for the Fairlead Tactical Sector ETF (TACK). For full disclaimers and disclosures, please view Disclaimers and Disclosures.
Fairlead Strategies, LLC is a registered investment adviser and the Subadviser for TACK. For access to the full disclaimers and disclosures for Fairlead Strategies, including their policy regarding editor securities holdings, go to https://www.fairleadstrategies.com/disclaimers-and-disclosures or email [email protected].
Notice of Benchmark Change: Effective as of 07/31/2024, the Russell 1000 Equal Weight Index replaced the Morningstar Moderate Target Risk Index as the Fund’s broad-based securities market index. The Russell 1000 Equal Weight index was selected in connection with certain regulatory requirements to provide a broad measure of market performance. The Fund will retain the Morningstar Moderate Target Risk Index as a secondary benchmark.
Important Risk Information:
Investing involves risk, including loss of principal. There is no guarantee the fund will achieve its investment objective. As an actively-managed ETF, the fund is subject to management risk. The ability of the Adviser to successfully implement the fund’s investment strategies will significantly influence the fund’s performance. The success of the fund will depend in part upon the skill and expertise of certain key personnel of the Adviser, and there can be no assurance that any such personnel will be successful. Neither the Adviser nor the Subadviser has previously served as an adviser or a subadviser to a mutual fund or exchange-traded fund. As a result, there is no long-term track record against which an investor may judge the Adviser and/or Subadviser.
The TACK ETF is structured as a fund-of-funds and is subject to the same risks as the Funds it holds. Investors will incur the expenses of the Fund in addition to fees of the underlying Funds in the portfolio.
The Adviser may allocate more of the Fund’s investments to a particular sector or sectors in the market, including the following sectors: Communications Services,
Consumer Discretionary, Consumer Staples, Energy, Financials, Health Care, Industrials, Materials, Real Estate, Technology, and Utilities. If the Fund invests a significant portion of its total assets in a certain sector or certain sectors, its investment portfolio will be more susceptible to the financial, economic, business, and political developments that affect those sectors than a fund that is more diversified.
Important Terms and Definitions: A basis point is a standard measure of percentages in finance that equals 1/100th of a percent (i.e., 0.1%). A risk-adjusted return is a calculation of the profit from an investment that considers the degree of risk that must be accepted to achieve it. The risk is measured in comparison to that of a virtually risk-free investment. Our Risk-Off Classification applies when the TACK strategy invests in Treasury ETFs and Gold Shares to reduce market exposure.
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