Rather than feeling left behind in an ever-changing market environment, investors can opt for an equity trend-following investment strategy that can react to market developments as they occur.
Sean O’Hara, president of Pacer ETFs Distributors, will outline a dynamic trend-based investment strategy that allows financial advisors to follow the price movement of an investment over time using an unbiased approach in the upcoming webcast, How Trend-Following Can Help Your Investment Participate in Positive Trends and Minimize Losses.
Pacer ETFs, in particular, provides a suite of Pacer Trendpilot ETFs, which include the Pacer Trendpilot US Large Cap ETF (BATS: PTLC), Pacer Trendpilot US Mid Cap ETF (BATS: PTMC), and Pacer Trendpilot 100 ETF (BATS: PTNQ).
A trend-following technique may help to reduce drawdowns during negative market situations, hence improving overall long-term investment results. The Pacer Trendpilot method seeks to participate in the market while it is trending up, reduce market exposure during short-term market downtrends, and avoid long-term market falls by switching to T-bills.
“In today’s uncertain and volatile economy, investors may be concerned about the market and how to handle it. Most people are familiar with the early-2000s technological bubble and the recession from 2007 to 2009, but there have been 26 bear markets since the 1929 Great Depression. Investors can be more secure in their decisions when they follow a trend,” according to Pacer ETFs.
The approach adheres to stringent restrictions and employs three indicators: an equity indicator, a 50/50 indicator, and a T-bill indicator.
When the Benchmark Total Return Index closes above its 200-day SMA for five consecutive business days, the exposure to the Benchmark Index is 100%. Depending on the 50/50 Indicator and the T-Bill Indicator, the Index will move from the equity position to the 50/50 position or the T-Bill position.
When the Benchmark Total Return Index closes below its 200-day SMA for five consecutive business days, the exposure will be 50% to the Benchmark Index and 50% to 3-Month US Treasury bills, according to the Price Signal 50/50 Indicator. Depending on the Equity Indicator or T-Bill Indicator, the Trendpilot Index will return to the equity position or change to the T-Bill position from the 50/50 position.
Pacer included an Extreme Valuation Trigger in its most recent version, which means that if the Index is 20% above or 20% below its 200-Day SMA at the conclusion of business, the exposure will instantly switch to the 50/50 position. Unless triggered by one of these indications, the Index will not move to the 100% Equity or 100% T-Bill positions.
Finally, the Trend Signal T-Bill Indicator indicates that if the Benchmark Total Return Index’s 200-day SMA closes lower than its value from five business days ago, the exposure to 3-Month US Treasury bills will be 100%. When the Equities Indicator is triggered, the Trendpilot Index will move from the T-Bill position to the equity position. It will not return to its 50/50 position unless and until the Equity Indicator is triggered.
“Many investors are victims of emotional investing, which causes them to purchase high and sell cheaply. Emotions and speculation are removed from the financial decision-making process using trend-following tactics. The idea is to use an indication to profit from positive trends while avoiding negative ones. The indicator may not be correct all of the time, but the idea is to be correct enough of the time to avoid catastrophic losses,” according to Pacer ETFs.
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