With smaller stocks back in style, investors can gain conservative exposure to mid caps with the Pacer Trendpilot US Mid Cap ETF (CBOE: PTMC).
A trend-following strategy could diminish drawdowns during bearish market conditions to help improve overall long-term investment returns. The Pacer Trendpilot strategy attempts to participate in the market when it is trending up, pare back market exposure during short-term market downtrends, and prevent extended declines by moving to T-bills during long-term market downtrends.
The strategy follows strict guidelines with three indicators, including an equity indicator, a 50/50 indicator, and a T-bill indicator.
PTMC, which has nearly $438 million in assets under management, tracks the Pacer Trendpilot US Mid Cap Index.
PTMC Mid Caps: Potent Returns, Less Risk
PTMC’s Equity Indicator refers to when the Benchmark Total Return Index closes above its 200-day SMA for five consecutive business days. In this case, fund exposure will be 100% to the Benchmark Index. From the equity position, the Index will change to the 50/50 position or the T-Bill position depending on the 50/50 Indicator and the T-Bill Indicator.
The Price Signal 50/50 Indicator refers to when the Benchmark Total Return Index closes below its 200-day SMA for five consecutive business days. In this scenario, fund exposure will be 50% to the Benchmark Index and 50% to 3-Month US Treasury bills. From the 50/50 position, the Trendpilot Index will return to the equity position or change to the T-Bill position, depending on the Equity Indicator or T-Bill Indicator.
Lastly, the Trend Signal T-Bill Indicator refers to when the Benchmark Total Return Index’s 200-day SMA closes lower than its value from five business days earlier. Here, fund exposure will be 100% to 3-Month US Treasury bills. From the T-Bill position, the Trendpilot Index will change to the equity position when the Equity Indicator is triggered. It will not return to its 50/50 position unless the Equity Indicator is first triggered.
Mid cap companies are slightly more diversified than their small cap peers, which allows many to generate more consistent revenue and cash flow, along with more stable stock prices. Many are not so big that their size slows down growth.
The mid cap category has also outperformed its larger peers, but with lower volatility than small caps. Moreover, the returns of mid cap stocks have also beaten those of small cap stocks during the trailing three-, five-, and 10-year periods, with lower volatility to boot.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.