In addition to pumpkin-infused drinks at your local coffeehouses, volatility has been in season thus far, which supports the case for the Pacer CFRA-Stovall Equal Weight Seasonal Rotation ETF (NYSEArca: SZNE).
A decade-long bull run that saw growth fueled by FANG stocks and the technology sector in general dwindle was paired with copious amounts of volatility. However, a move back into tech is par for course per SZNE’s market strategy for November through April.
Rotation to Get Diversification
Diversification is an obvious benefit of ETFs as opposed to concentrating investment capital into a single stock, but SZNE offers the same diversification via the ETF wrapper. SZNE tracks certain sectors found within the S&P 500 Equal Weight Index, but with a twist–getting diversified at the right time at the right season.
From November through April, the fund will offer equal weight exposure to companies in the consumer discretionary, industrial, information technology and material sectors. From May through October, the ETF will be exposed to companies in the defensive sectors of consumer staples and health care.
SZNE serves as a prime alternative for the large-cap investor seeking exposure to various sectors, but only during the times of the year when they are thriving.
“The ideal investor for SZNE is core Large Cap long-term investor,” said Sean O’Hara, president of Pacer ETFs. “The premise for the ETF is based on the old Wall St. adage of ‘sell in May and go away.’ There have been patterns that are long standing that show that different sectors do better than others historically during certain months during the year.”
Related: ETF of the Week: Pacer CFRA-Stovall Equal Weight Seasonal Rotation ETF (SZNE)
Getting Defensive at the Right Time
Pacer ETFs have been able to identify which sectors perform the best during which season–the premise for SZNE’s strategy. As more volatility rains down on U.S. equities, investors can opt for a defensive play like SZNE.
“The defensive sectors, Health Care and Consumer Staples, have performed better than the overall market during the period May through October,” said O’Hara. “The period between November through April shows that Consumer Discretionary, Info Tech, Materials and Industrials have historically performed better than the overall market. So, the ideal investor for SZNE is a long-term Investor who desires an alternative to simply buying the broad market through one of the cheap beta ETFs because they seek to receive higher returns over time.”
U.S. equities have been racked by volatility the last two months due to a confluence of rising rates, worries of an inverted yield curve and trade wars. SZNE was able to neutralize the volatility through its seasonal rotation strategy with a defensive shift into health care and consumer staples.
“Since its launch, SZNE has been less reactive to some of the external shocks in the market like trade, because of how it is allocated currently in health care and staples,” said O’Hara. “Health care names have been less sensitive to the overall threat of trade and tariffs.”
Furthermore, since the fund utilizes a passive strategy, haphazard adjustments to the portfolio are avoided even during market downturns. It speaks to SZNE’s resilience in the markets and its unflinching strategy–“sell in May and go away.”
Investors can visit PacerETFs for more information on their various funds.
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