In an industry saturated with attempts at tactical investing, the Hull Tactical U.S. ETF (ticker: HTUS) stands out for its innovative approach to the complex dance of U.S. equities. Seeking to outperform the S&P 500 while maintaining the same level of volatility, HTUS has captured the attention of financial advisors seeking a powerful yet manageable alternative for core equity exposure.
In conversation with The Wealth Advisor’s Scott Martin, Euan Sinclair, the firm’s Senior Financial Engineer, discussed the intricacies of HTUS’s strategy and the tactical precision that makes the fund a compelling choice for those looking to go beyond the simple market “random walk.” Sinclair explains how Hull Tactical achieves a delicate balance of complexity and transparency, providing advisors with an innovative, accessible product.
The Power of Multi-Signal Market Timing
HTUS’s strategy rests on a tactical model built from a suite of 40 signals, each one targeting the direction of the S&P 500 on a daily scale. Rather than relying on a single indicator, Sinclair emphasizes that the HTUS approach is a sophisticated blend of “micro alphas.”
“The problem is people are looking for that magic bullet. They want this one magic signal, and that doesn’t exist,” Sinclair says. “But if you’ve got a good way of combining 40 weak signals, or micro alphas as we call them, you can come up with something that is tradeable.”
For advisors and clients concerned about complex proprietary data, Sinclair notes that all the signals HTUS uses are publicly available, and Hull shares details about them openly on its blog. “We literally tell you about it,” he says.
Integrating Public Transparency into a Tactical Model
One of HTUS’s defining characteristics is its commitment to transparency in an industry where proprietary data often conceals the finer details of a fund’s strategy. Rather than leaving clients guessing, Hull openly shares information about its 40 signals on its blog, allowing investors to fully understand the fund’s mechanics. The firm recently published an academic article, Micro Alphas, showing that even weak signals, when effectively aggregated, can provide significant predictive power.
“We literally tell you about it,” Sinclair says. “If you spend all the time and money to put it together, maybe you could replicate it.”
By bringing transparency to tactical investing, HTUS makes advanced strategies accessible, saving advisors the complexity and resources required to build a similar model. As Sinclair puts it, “There are people who build their own cars in their garage, but that doesn’t mean it’s going to be as good as a Ferrari.”
Options Overlays and the VIX: Expanding the Tool Kit
A distinctive aspect of HTUS’s tactical approach is its use of options overlays, including the addition of CBOE Volatility Index, or VIX, trading. “We’ve been trading volatility for a long time in the form of S&P options,” Sinclair explains, describing the VIX as a complementary element that allows HTUS to manage “implied volatility as expressed through, in this case, VIX futures.”
Sinclair continues, “An option can be seen as a relative volatility bet between the implied volatility on the option, which is the price of the option, and the subsequent realized volatility of the S&P, whereas the VIX is purely an implied volatility play. It’s basically saying we don’t care what the underlying is doing; we just care about the direction of implied volatility.”
This addition to the HTUS tool kit, Sinclair notes, helps diversify the portfolio, potentially boosting returns without increasing risk. He compares the use of the VIX in HTUS to “any other” diversifying tool. “It’s a diversifying instrument, and it’s also a diversifying strategy,” he adds. With these strategies, HTUS aims to maintain stable risk while potentially delivering enhanced returns across market cycles.
Predicting the Unpredictable: Volatility’s Role in HTUS
Despite common perceptions of volatility as unpredictable, Sinclair argues that it’s one of the more forecastable market instruments. “The prediction for the VIX tomorrow is whatever it is today; the prediction for the VIX in 20 years is what it’s been over the last 20 years, which is about 19,” he notes. For HTUS, this insight allows the team to target a predictable aspect of market behavior while carefully navigating the inherent risks in volatility trading.
As Sinclair explains, “It’s hard to trade and it’s hard to manage, but it’s relatively easy to predict. The S&P is difficult to predict, but once you’ve made your prediction, it’s easy to trade. You just buy Spiders, you buy futures. Volatility is the opposite problem. It’s not the prediction that’s hard, it’s the implementation that’s hard.”
With a firm grasp on volatility’s predictability, HTUS leverages this singular insight to optimize returns, adding a layer of reliability for advisors and clients who are navigating volatile market conditions.
A Strategic Partnership
For advisors seeking an alternative to traditional large-cap exposure, HTUS is an attractive option as a core replacement, especially for clients looking to go beyond a “random walk” approach. “We’re not trying to triple the returns of the market,” Sinclair admits. “I don’t think that’s possible, but we’re pretty sure that we can continue to deliver the outperformance that we have.”
Ultimately, Sinclair sees HTUS as a partnership with advisors, aimed at taking on the market-timing aspect of portfolio management so that advisors can focus on broader client needs. “An advisor’s not the same as a fund manager. They have their things to do, and I think we can take that market timing element from them, and they can take all the credit they like with their clients for putting the money in with us,” Sinclair says.
A Tactical Alternative for Advisors
HTUS stands out in the ETF landscape for its strategic blend of transparency, multi-signal analysis, and volatility management, offering advisors an elevated tool for tackling U.S. equity exposure. By combining accessible, public data with quantitative modeling and sophisticated overlays, HTUS provides advisors with a powerful alternative—an ETF designed to optimize core equity exposure while allowing them to leverage Hull Tactical’s market insights without taking on the complexity themselves. For those looking to move beyond market averages, HTUS embodies a tactical edge that we believe is as accessible as it is ambitious.
__________________________
Additional Resources
- Contact Hull Tactical Asset Allocation
- Hull Tactical US (HTUS) Summary
- HTUS Factsheet
- HTUS Investment Case
__________________________
Disclosures
The Chicago Board of Options Exchange Volatility Index (the “VIX Index”) seeks to measure the market’s current expectation of 30-day volatility of the S&P 500 Index as reflected by the prices of near-term S&P 500 Index options.
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.
