Trend Aggregation ETFs Debut

May 08, 2020

On Friday, May 8, boutique ETF issuer Tuttle Tactical Management launched four actively managed “trend aggregation” ETFs.

The Trend Aggregation U.S. ETF (TAEQ) and the Trend Aggregation ESG ETF (TEGS) will trade on the Cboe Exchange, parent company of ETF.com, while the Trend Aggregation Aggressive Growth ETF (TAAG) and the Trend Aggregation Dividend Stock ETF (TADS) will trade on the NYSE Arca.

The firm's new funds don't come cheap: Each charges a total expense ratio of 1.87%, though according to the firm's statement of additional information, a fee waiver is in place until February 2021 that limits total annual expenses to 1.60%.

 

These are the first four ETFs to launch from a suite of funds first registered back in February. A fifth fund, the Trend Aggregation Managed Futures Strategy ETF (TAMF), has not yet come to market.

What Is Trend Aggregation?

Trend aggregation is a subset of tactical asset allocation designed to protect investors from market slides while still participating in market rises.

As the name suggests, trend aggregation blends together analysis of trends, countertrends and fundamentals in order to identify when to buy, sell and hold given securities. (Countertrend investing is a contrarian strategy of buying stocks on bearish price action and selling during bullish moves, in the hopes of capitalizing on a price correction.)

Typically, in a bull market, trend aggregation strategies tend to allocate fully or nearly fully to equities. In a bear market, they swing the opposite way, investing in fixed income or cash instruments, while also taking advantage of countertrend opportunities.

Choppy markets, meanwhile, are where trend aggregation sets itself apart, through the use of countertrend and fundamental investing, wherein managers attempt to capitalize on market overreactions.

Trend Aggregation In US Stocks

Each of the four ETFs uses Tuttle's proprietary quantitative process to suss out potential investment picks.

Using multiple trend aggregation models, TAEQ invests in U.S. stocks and stock ETFs of any size or sector, with an emphasis on those exhibiting strong price momentum or holding companies that might be oversold. If the market trend turns negative, TAEQ switches tactics, investing in money markets and cash and cash equivalents. The fund can also exploit short-term weaknesses and strengths via countertrend investing.

Though TAEQ targets U.S. equities, the fund has broad leeway to invest in other instruments as well, including Treasury bond ETFs, volatility ETPs, and leveraged and inverse ETFs.

TAAQ is structured much the same as TAEQ, except with a slant toward aggressive growth. The funds' prospectus also includes a clause indicating that in the case of TAAQ, volatility ETPs and leveraged and inverse ETPs may be used specifically as a hedge.

Trend Aggregation Comes To ESG

Meanwhile, TEGS is an ESG fund designed to invest primarily in the securities of well-known ESG indexes, such as those from MSCI and Russell. (Up to 20% of its holdings can be invested in cash or cash equivalents.)

The fund may also apply its own ESG screens to winnow the investment universe, and in fact may rotate among ESG screens without limitation. While none of these screens are made explicit in the prospectus, Tuttle does specify some of the evaluation criteria it will use to evaluate stocks, including common environmental risk factors like energy use, waste and natural resource conversation, as well as business relationships and governance practices.

Like TAEQ, TEGS doesn't limit investment by region or capitalization, or, in the case of bonds, by credit quality. TEGS can also invest in cash, Treasuries, bonds, volatility ETFs/ETNs and leveraged/inverse ETFs/ETNs.

Using Trend Aggregation For Dividends

The fourth fund, TADS, is a dividend ETF that seeks to invest in income-producing equities and equity ETFs. To choose prospective holdings, TADS' managers look at companies' dividend growth, liquidity, sector diversity and potential for near-term capital appreciation.

TADS also implements a fair bit of sector analysis, evaluating sectors for countertrends and divergences between sectors that usually move together, which could signal market turning points.

Unlike the above ETFs, TADS will usually be invested in large cap companies with capitalizations above $5 billion, though the fund's managers reserve the right to invest in companies of any size.

Like the other ETFs, TADS can invest in volatility ETPs, leveraged and inverse ETFs and Treasury bond ETFs.

Trend Aggregation ETFs Won't Come Cheap

This isn't Tuttle's first rodeo in the ETF industry. In 2017, the firm shuttered two tactical ETFs, the Tuttle Tactical Management U.S. Core ETF (TUTT) and the Tuttle Tactical Management Multi-Strategy Income ETF (TUTI).

The firm currently subadvises an ETF for Belpointe Asset Management, the Tactical Income ETF (TBND).

Contact Lara Crigger at [email protected]

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