In an extended bull market environment where sudden changes could trigger a quick drawdown, investors may consider a dynamic ETF that may better hedge against market risks.
For instance, the VanEck Vectors NDR CMG Long/Flat Allocation ETF (NYSEArca: LFEQ) can provides investors with an investment solution that offers a systematic approach to preserve capital by increasing cash when market health is weak while participating in uptrends with a full allocation to equity.
LFEQ tries to reflect the performance of the Ned Davis Research CMG US Large Cap Long/Flat Index, which follows trade signals that dictates the portfolio’s equity allocation ranging from 100% fully invested or “long” S&P 500 exposure to 100% in cash or “flat” Solactive 13-week U.S. T-Bills.
“When markets are trending down, the Index responds to signals to raise cash, helping to manage risk and seeking to avoid potentially significant losses that require larger gains to break even,” according to VanEck.
Currently, the strategy may be responding to deteriorating market health.
“Recent negative market breadth, as measured by the Ned Davis Research CMG US Large Cap Long/Flat Index (NDRCMGLF Index) model, has triggered a trade signal, and has caused its equity allocation to be reduced from 100% to 80%,” Meredith Larson, Senior Product Manager of ETFs at VanEck, said in a note.