In the evolving landscape of exchange-traded funds (ETFs), we believe Hull Tactical Asset Allocation stands out for its innovation and strategic thinking. Petra Bakosova, CEO, joined Wealth Advisor Managing Editor Scott Martin to discuss the flagship Hull Tactical U.S. ETF (NYSE: HTUS).
HTUS employs a creative quantitative strategy to help enhance S&P 500 returns without exceeding the index’s volatility, presenting an attractive core replacement for advisors, says Bakosova. The fund is designed to produce long-term gains from the US equity market regardless of the direction the broader market is moving in.
This strategy’s exposure to US equity can range from short 100% to long 200%. These weightings are intended to allow investors to participate in bull markets while attempting to avoid and even potentially benefit from bear markets. Additionally, HTUS attempts to avoid allocations that are either too bullish at market tops or too bearish at market bottoms.
HTUS integrates sophisticated quantitative methods to help optimize market performance. Bakosova explains that the approach involves several market-timing models and option strategies that utilize machine learning and predictive analytics. This multifaceted approach enables HTUS to generate what she refers to as “micro-alphas”—small, consistent advantages that collectively are intended to contribute to significant outperformance.
Although state of the art, the strategy is not opaque, thanks to Hull Tactical’s commitment to transparency and rigorous public data analysis. Bakosova likens their approach to culinary arts: the best chefs use well-known ingredients in innovative ways rather than relying on secret components. Similarly, Hull Tactical’s process combines publicly available quantitative information in smart, effective ways, seeking to ensure that no single element overwhelms the strategy.
The firm’s research process is meticulous. Starting with academic research, they identify indicators with strong economic intuition and proven results across different markets and periods. These indicators are then subjected to extensive back-testing and stress testing to help ensure their robustness. Before any strategy is deployed in HTUS, it undergoes live trading in proprietary accounts, seeking to ensure real-world efficacy and risk management.
Bakosova shares insights into Hull Tactical’s current market predictions. The models indicate a generally bearish outlook driven by a variety of factors. For example, the six-month equity risk premium model signals bearishness primarily because of overvaluation indicators such as price-to-earnings ratios. At the same time, inflation indicators suggest a more bullish stance, reflecting ongoing market uncertainties.
Hull Tactical’s short-term, one-day model also shows bearish signals, influenced by rising household delinquency rates across a range of loan types and negative sentiment indicators. This blend of long-term and short-term perspectives provides a comprehensive market view, allowing Hull Tactical to adjust its strategies dynamically.
Hull Tactical tracks about 30 different indicators, broadly classified into macroeconomic, fundamental, sentiment, and technical/anomalies categories. Rarely do all these indicators align perfectly, but the strength of Hull Tactical’s models lies in their ability to navigate conflicting information. We believe that by incorporating analysis of historical data and patterns, the models generate predictions that balance these diverse inputs effectively.
For advisors, Hull Tactical’s approach seeks to offer several practical benefits. HTUS’s adaptive strategy seeks to ensure that it is not bound by a rigid risk-on or risk-off approach. Instead, it employs a nuanced dial, adjusting exposure based on the prevailing market conditions. This flexibility is particularly valuable in today’s volatile market environment.
Despite the current bearish signals, Hull Tactical’s models advise maintaining a balanced exposure to the market. Typically, the fund stays between 60% and 140% invested, reflecting its confidence in the long-term equity risk premium. Currently, with a 50% market investment, HTUS demonstrates its cautious stance, positioned to leverage more aggressively when bullish signals dominate.
The HTUS strategy includes the potential for leveraged positions, allowing the fund to capitalize on strong bullish signals. Conversely, in bearish times, the fund can reduce its market exposure significantly. This flexibility enables HTUS to act as a comprehensive portfolio solution for advisors seeking tactical market exposure.
The fund is designed not only as a core replacement but also as a stand-alone portfolio option for advisors whose clients are comfortable with the strategy’s tactical approach that seeks to deliver alpha while not exceeding the volatility of the S&P 500.
The Hull Tactical U.S. ETF exemplifies innovation in the ETF space. By combining rigorous quantitative analysis with a flexible investment strategy, it offers a compelling solution for advisors seeking to enhance their clients’ portfolios. HTUS’s ability to dynamically adjust market exposure based on sophisticated predictive models ensures it remains relevant and resilient in varying market conditions.
For advisors, understanding the intricate workings of HTUS and its strategic benefits can provide a valuable edge in portfolio management. As the market continues to evolve, Hull Tactical’s innovative approach positions it as a leading choice for tactical market exposure and potentially enhanced performance.
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Additional Resources
- Contact Hull Tactical Asset Allocation
- Hull Tactical US (HTUS) Summary
- HTUS Factsheet
- HTUS Investment Case
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Disclosures
Carefully consider the Fund’s investment objectives, risk factors, charges, and expenses before investing. This and additional information can be found in the Fund’s prospectus, which may be obtained by visiting www.hulltacticalfunds.com or calling toll-free 1-844-484-2484. Read the prospectus carefully before investing.
There is no guarantee that the investment objectives will be achieved. Moreover, past performance is not a guarantee or indicator of future results.
HTAA, LLC serves as the investment advisor. The Fund is distributed by Northern Lights Distributors, LLC (225 Pictoria Drive, Suite 450, Cincinnati, OH 45246), which is not affiliated with HTAA, LLC.
About the Hull Tactical US ETF (HTUS) Investment Strategy
HTUS is an actively managed exchange traded fund (ETF) driven by various proprietary analytical investment models that examine current and historical market data to attempt to predict the performance of the S&P 500® Index (the “S&P 500®”), a widely recognized benchmark of U.S. stock market performance that is composed primarily of large-capitalization U.S. issuers. The models deliver investment signals that the Adviser uses to make investment decisions for the Fund. The investment models used are to anticipate forward market movements and position the Fund to take advantage of these movements. Currently, signals are combined into an ‘ensemble’ array that spans statistical, behavior-sentimental, technical, fundamental, and economic data sources. This combined signal is generated each trading day towards the close of the market and dictates whether the Fund is long/short and the magnitude of position sizing. The Adviser routinely evaluates the performance and impact of each model on the Fund with the goal of realizing a risk/return profile that is superior to that of a buy and hold strategy.
The use of derivative instruments involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments. These risks include (i) the risk that the counterparty to a derivative transaction may not fulfill its contractual obligations; (ii) risk of mispricing or improper valuation; and (iii) the risk that changes in the value of the derivative may not correlate perfectly with the underlying asset, rate, or index. Derivative prices are highly volatile and may fluctuate substantially during a short period of time. The use of leverage by the Fund, such as borrowing money to purchase securities or the use of options, will cause the Fund to incur additional expenses and magnify the Fund’s gains or losses. The Fund’s investment in fixed income securities is subject to credit risk (the debtor may default) and prepayment risk (an obligation paid early) which could cause its share price and total return to be reduced. Typically, as interest rates rise the value of bond prices will decline and the fund could lose value.
While the option overlay is intended to improve the Fund’s performance, there is no guarantee that it will do so. Utilizing an option overlay strategy involves the risk that as the buyer of a put or call option, the Fund risks losing the entire premium invested in the option if the Fund does not exercise the option. Also, securities and options traded in over-the-counter markets may trade less frequently and in limited volumes and thus exhibit more volatility and liquidity risk.
The thoughts and opinions expressed in the article are solely those of the author. The discussion of individual companies should not be considered a recommendation of such companies by the Fund’s investment adviser. The discussion is designed to provide a reader with an understanding of how the Fund’s investment adviser manages the Fund’s portfolio.
