Automatic Stock and Treasury Adjustments? There's an ETF for That

Retail investors doubling as ‘do-it-yourself’ portfolio managers can orchestrate their own capital allocations into stocks and bonds. But the majority of investors can opt for a ‘set it and forget it’ option with the VanEck Vectors Long/Flat Trend ETF (LFEQ).

The fund seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the Ned Davis Research CMG US Large Cap Long/Flat Index (NDRCMGLF). The NDRCMGLF Index follows a proprietary model that determines when, and by how much, it allocates to U.S. equities and/or U.S. Treasury bills to seek to help avoid losses in declining markets or capitalize from rising markets.

The model produces daily trade signals to determine the Index’s equity allocation percentage (100%, 50%, or 0%). The fund comes with a net expense ratio of 0.58%. LFEQ:

  • Tactically allocates between S&P 500 equities and U.S. T-bills: It does so based on a breadth model that measures 24 industries, not just the top line S&P 500 return.
  • Seeks to minimize the impact of market downturns and participate in uptrends: The fund measures short, intermediate, and long-term trends and includes a mean reversion signal to participate in bounce backs.
  • Is driven by the institutional expertise of Ned Davis Research: Ned Davis is of the largest independent institutional investment research providers.

LFEQ Chart

Hedging Against Volatility with an ETF Wrapper

As a vaccine rollout continue around the globe, the markets can still be prone to bouts of volatility, which calls for a proper hedging strategy. This ensures that investors can capture any upside when markets rise and protect the downside when a drawdown occurs.

The latest fear in the markets now that could trigger some short-term volatility is inflation. As Treasury yields start to rise, the Federal Reserve could change their current stance of keeping interest rates unchanged.

“While we think inflation may spike in the near term as pent-up demand meets constrained supply, we believe fears about a persistent rise are likely to prove overdone. However, such concerns could still trigger bouts of market volatility-S&P 500 futures were down 0.7% on Monday-and may test investors’ resolve,” said Mark Haefele in a Monday note to clients.

With possible volatility on the horizon, funds like LFEQ can provide investors with the proper allocation to equities and bonds. It can sense trends in the market and adjust accordingly; investor need not continuously monitor their portfolios.

For more news and information, visit the Tactical Allocation Channel.