New ETF Relies On Momentum Signals

November 04, 2019

Newfound Research has teamed up with Resolve Asset Management to launch an ETF of ETFs that implements a momentum strategy that both firms co-developed and are launching through Strategy Shares. The Strategy Shares Newfound/ReSolve Robust Momentum ETF (ROMO) tracks a quantitative index that adjusts exposures among regional and Treasury ETFs based on momentum and trend-following signals.

ROMO comes with a total expense ratio of 0.87%, including a 0.49% management fee and a waiver of 0.52%. The fund lists on Cboe Global Markets, the parent company of ETF.com.

“We are trying to provide access to global equities and using a number of different momentum systems to tilt that exposure between either broad U.S. equities, broad foreign developed equities or emerging market equities. And we are applying a diversified set of trend signals on top of that which allows the portfolio to de-risk and shift toward either intermediate- or short-term U.S. Treasuries,” said Corey Hoffman, co-founder and chief investment officer at Newfound Research.

“This is very much a portfolio that seeks to participate in broad equity market growth as well as protect against significant and prolonged drawdowns,” he added.

Methodology

The index covers one to five ETFs that can represent U.S., developed and emerging market equities as well as short- and intermediate-term U.S. Treasury bonds. The ETFs exhibiting the strongest momentum and positive trend-following characteristics relative to Treasury securities are afforded more weight, with the fund able to invest up to 100% of the portfolio in developed market ETFs or U.S. ETFs. However, emerging market ETFs are limited to 25% of the portfolio, according to the prospectus.

“A lot of the tactical models we see in the market are really very binary, or very much like a light switch. At the end of the month they use a single signal to move all in or all out of an allocation. Our underlying philosophy here is that when we took a step back when you look at the ways in which you might measure momentum, there are a number of different signals you can use, all of which have empirical efficacy to them,” Hoffstein said. He noted that the fund can allocate to the categories covered by the fund in a more nuanced way based on the number of signals that indicate the momentum and trend directions.

Weight is shifted to the Treasury ETFs when the momentum and trend-following factors for the equity ETFs are negative relative to Treasury markets, with a weighting of up to 100% in Treasury ETFs possible, the document says.

The index is rebalanced every week and reconstituted on an annual basis, the prospectus notes.

Contact Heather Bell at [email protected]

 

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