Exchange-traded funds (ETFs) continue to be a dynamic space in the evolving landscape of investment strategies. One company at the forefront of this innovation is Hull Tactical Asset Allocation, led by CEO Petra Bakosova. Wealth Advisor Managing Editor Scott Martin sat down with Bakosova to discuss the unique features of the Hull Tactical U.S. ETF (NYSE: HTUS) and its potential benefits for various investor profiles.
Bakosova presents a compelling case for Hull Tactical US’s appeal for advisors looking to optimize their clients’ portfolios. HTUS is an actively managed ETF with a track record spanning more than nine years. Its primary objective is to outperform the S&P 500 while maintaining a volatility level comparable to that of the index.
This approach provides investors with the potential for higher returns without taking on additional risk. HTUS seeks to achieve this goal through a tactical investment strategy that dynamically adjusts market exposure based on a comprehensive quantitative methodology.
This quant approach is the core of HTUS’s strategy. The fund collects approximately 30 market indicators, which are then integrated into four distinct quantitative models. These models generate a combined market sentiment score that guides the fund’s investment decisions. Depending on whether the aggregate score is bullish or bearish, HTUS can adjust its market exposure, ranging from 100% short to 200% long.
This dynamic adjustment is not merely about risk-on or risk-off scenarios; it involves leveraging and inverse leveraging based on market signals. However, extreme positions are rare. Most of the time, HTUS maintains an exposure between 60% and 140% long. This measured process ensures that the fund adapts to market conditions without taking on excessive risk.
HTUS caters to a diverse range of investors, Bakosova notes, each with specific needs and objectives. Broadly, these investors fall into three categories:
Core Replacement. Many investors use HTUS as a core replacement within their portfolios. For instance, those with a 60/40 or an 80/20 strategy may replace a portion of their long market large-cap exposure with HTUS to enhance returns. This strategy allows for greater flexibility and potential upside compared to traditional core holdings.
Income Generation. A segment of investors appreciates HTUS for its income-generating potential. As an actively managed fund, HTUS distributes capital gains in the form of dividends, making it an attractive option for income-focused investors, especially those within tax-sheltered vehicles.
Hedge Fund Replacement. Because of its quantitative nature, HTUS appeals to some investors as a cost-effective alternative to hedge funds. The fund’s transparency and research-backed models offer a hedge fund–like experience without the high fees typically associated with hedge fund investments.
Commitment to transparency is one of Hull Tactical’s standout features. As Bakosova explains, her firm provides extensive information about its research and models. Advisors and investors can access a daily market sentiment score on the fund’s website, along with a breakdown of the indicators driving this score.
Additionally, Hull Tactical publishes detailed reports and peer-reviewed papers that explain the models used in managing the fund. This level of transparency allows advisors and their clients to understand the underlying mechanisms driving their investments.
Recently, HTUS has maintained a fairly neutral market sentiment. Earlier in the year, the fund’s exposure was consistently above 100%. However, it has dipped to about 87%, indicating a slightly cautious stance driven by long-term indicators such as inflation and unemployment. This balanced approach reflects the fund’s adaptability to changing market conditions while prioritizing risk management.
To capture different market horizons, HTUS employs multiple timing models, Bakosova says. Initially, the fund relied on a six-month model, but it has since expanded to include models that predict short-term and long-term market movements. These models range from one-day horizons to six-month horizons, each suited to different types of indicators. For example, short-term models capture more fleeting sentiment changes and anomalies such as the turn-of-the-month effect, while longer-term economic indicators inform the six-month model.
Despite its sophisticated approach, HTUS offers a cost-effective alternative to traditional hedge funds. The ETF wrapper provides transparency and lower fees compared to the typical two and 20 fee structure of hedge funds. This cost efficiency makes HTUS an appealing option for investors seeking hedge fund–like strategies without the associated high costs.
Hull Tactical’s HTUS represents a significant innovation in the ETF space. Its quantitative, tactical approach provides a versatile investment tool for advisors and broker-dealers. Whether used as a core replacement, an income-generating vehicle, or a hedge fund alternative, HTUS offers a range of benefits tailored to different investor needs. With its commitment to transparency and research, Hull Tactical stands out as a leader in delivering sophisticated investment strategies in an accessible and cost-effective manner.
As the investment landscape continues to evolve, funds such as HTUS will play a crucial role in helping advisors meet their clients’ diverse and changing needs. By leveraging advanced quantitative models and maintaining a dynamic, tactical approach, HTUS can provide a valuable addition to any investment portfolio.
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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.
