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The index’s model follows a two-phase process. The first phase measures trend following and mean reversion within the S&P 500 industry groupings to determine a bullish or bearish market environment. Additionally, the model applies a risk filter process to ensure that all of the price-based industry level indicators are effective over time.
The second phase utilizes the scores taken from the first phase to produce the equity allocations of the index. When the index is not completely long or flat, either 80% or 40% of the portfolio will be allocated to the S&P 500, with the remainder allocated to the Solactive 13-week U.S. T-bill Index.
The ETF’s indexing methodology “avoids market directions that can affect an investors’ longer term goals,” Lopez told ETF Trends in a call.
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