With the U.S. equity bull market more than six years old, stocks if not expensive are not cheaply valued either. With every new high hit by the U.S. equity market indices, there is also widespread fear among investors about whether the market has hit a top.
In such times, it’s prudent for investors to follow a proper trading methodology rather than making any emotional decision. With that in mind, Tuttle Tactical Management has recently launched its debut product in the U.S. markets.
Tuttle Tactical Management U.S. Core ETF (TUTT)
The passively managed fund seeks long-term capital appreciation by investing in the U.S. equity market. TUTT functions like a “fund of funds” and combines multiple, uncorrelated tactical methodologies. Moreover, the fund removes emotional decision making by following a rules-based approach to market exposure.
The fund uses three types of indicators, viz. Intermediate-term momentum, Short-term countertrend and Earnings to determine whether portfolios should have zero market exposure, be partially or fully invested, or use leverage to achieve greater market exposure.
With this approach, the fund seeks to provide relative returns during market uptrends. However, during market downtrends, the fund seeks capital preservation and absolute returns. ALPS Sector Dividend Dogs (NYSE:SDOG), Direxion Daily Large Cap Bull 3X Shares (ARCA:SPXL), FirstTrust IPOX-100 (NYSE:FPX) and iShares Barclays (LONDON:BARC) 7-10 Year Treasury Bond (ARCA:IEF) are some of the top ETF holdings of TUTT (read: Inside AdvisorShares' New Floating Rate Corporate Bond ETF).
As far as sectoral allocation is concerned, the fund only allocates to sectors with a positive momentum. However, in case none of the sectors witness positive momentum, the fund allocates its funds to money market and/or bond funds. Being a fund of funds, TUTT charges a high expense fee of 1.34%.
How Does it Fit in a Portfolio?
The fund is a good choice for investors seeking long-term capital appreciation, while at the same time looking to protect their portfolios from market downturns. TUTT’s use of rules-based approach ensures that the fund doesn’t become a victim of whimsical trading.
The product primarily invests in large-cap equities ETFs to enjoy market uptrends and invests in government bond funds and money market funds during market downturns. This ensures that the downside risk is limited for the product.
ETF Competition
There are very few “fund of funds” listed in the U.S. equity markets and as such there is very little completion in this space. CAMBRIA GLOBAL TACTICAL (NYSE:GTAA) with a small asset base of $12.6 million is one such fund. The actively managed fund seeks to preserve and grow capital from investments in the U.S. and foreign equity, fixed income, commodity and currency markets, independent of market direction.
The fund charges 1.61% as fees and has returned 1.7% in the past one year (read: 3 ETFs Surging at Start of 2015).
Arrow DWA Tactical ETF is another such fund with an asset base of $7.5 million. The actively managed fund uses a proprietary Relative Strength (RS) Global Macro model by Dorsey Wright & Associates to achieve long-term capital appreciation. DWAT charges 1.52% as fees (read: Enjoy Gundlach's Skill in SPDR's New Active Bond ETF).
Thus, with very little competition in the actively managed fund of funds space, TUTT has a good chance of making a name for itself and garnering sizable assets. However, the high fee structure of the fund is a matter of concern. Nonetheless, if the fund does manage to generate decent after-tax returns, it has a fair chance of gaining popularity.