On Friday, Day Hagan Asset Management (DH) and Ned Davis Research (NDR), a leading independent provider of global economic and financial analysis, launched a new ETF looking towards long-term appreciation and preservation.
The Day Hagan/Ned Davis Research Smart Sector ETF (SSUS) is designed to seek long-term capital appreciation and preservation of capital. A proactive, adaptive strategy, SSUS is incorporated in the U.S. and considered a “fund of funds” that, under normal market conditions, seeks to achieve its investment objective by principally investing in unaffiliated equity ETFs that track the performance of the individual sectors of the S&P 500 index.
Additionally, the investment objective of SSUS is non-fundamental and may be changed by the Board of Trustees without shareholder approval. If the Board decides to change the Fund’s investment objective shareholders will be given 60 days’ advance notice.
The strategy seeks to enhance returns over a buy-hold, equity benchmark by overweighting and underweighting S&P 500 sectors based on NDR’s proprietary sector model. It will also, ideally, mitigate the effects of major market declines by reducing equity market exposure through the use of NDR’s Catastrophic Stop model.
An Objective, Weight-of-the-Evidence Approach
The thought of sector selection means determining each sector’s probability of outperforming the S&P 500 total return index by combining sector-specific fundamental, technical, economic, and behavioral indicators. Adding in the “Catastrophic Stop,” the idea here is to identify periods of high risk for the broad U.S. equity market through time-tested indicators measuring breadth, trend, fundamentals, economics, interest rates, sentiment, and volatility.
In terms of managing risk, the strategy remains fully invested unless the Catastrophic Stop model is triggered, whereupon the equity-invested position is reduced to 50%. When the Catastrophic Stop model moves back to bullish, indicating lower risk, the strategy immediately returns to being fully invested.