Relative Sentiment in the MOOD for Tactical Allocation | ETF Trends

Relative Sentiment Technologies LLC, a firm that focuses on the research and development of relative-sentiment-based tactical asset allocation strategies, has launched the Relative Sentiment Tactical Allocation ETF (NYSEArca: MOOD) on the New York Stock Exchange.

MOOD is an actively managed ETF that seeks to grow capital by tactically investing in equities, bonds, and gold based on “relative sentiment” factors. Relative sentiment measures the difference in sentiment between institutional and retail investors.

The fund’s portfolio will be tactically allocated among passively managed U.S. and foreign, developed market equity ETFs, bond ETFs, and in some instances, gold exchange traded products as described below:

Equity Allocation Determination

In general, Relative Sentiment determines the fund’s equity allocation by taking the average of the following four indicators, each of which can range from 0% (extreme relative bearishness) to 100% (extreme relative bullishness):

  • A positions-based relative sentiment indicator derived from the Commitments of Traders Report
  • A survey-based relative sentiment indicator derived from Sentix sentiment indexes
  • A cross-asset relative sentiment indicator derived from non-equity components of the Commitments of Traders Report
  • A retail macro sentiment indicator derived from the Daily Sentiment Index

Bond and Gold Allocations

Once Relative Sentiment has determined MOOD’s equity allocation, it will recommend that the fund allocate the remainder of its portfolio to broad-based or inflation-protected bond ETFs and, in some instances, to gold ETPs.

In particular, as subadvisor, Relative Sentiment will allocate between gold, broad-based bonds, and inflation-protected bonds based on the following indicators:

  • U.S. dollar relative sentiment (derived from the Commitments of Traders Report)
  • Federal Reserve policy sentiment (derived from data on real interest rates)
  • Retail macro sentiment (derived from the Daily Sentiment Index)

For example, if U.S. dollar relative sentiment is bearish and real rates are declining, the fund will generally allocate its non-equity holdings evenly between bond ETFs and gold ETPs. Whereas with respect to intra-bond allocations, the level of retail macro sentiment will determine how bond allocations are apportioned between broad-based and inflation-protected bonds.

MOOD has an expense ratio of 0.71%, according to the fund’s summary prospectus.

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