TACK: the Tactical ETF
A systemic approach to technical analysis focused on leveraging inputs such as momentum, overbought / oversold readings, and relative strength.
In this post, I’m introducing a newly-launched ETF that leverages inputs such as momentum, overbought / oversold readings, and relative strength to go “risk-on” or “risk-off” for their investors.
Overall, the fund’s strategy is designed to benefit from sector leadership during uptrends while minimizing downside risk during downtrends.
TACK: the Secret Sauce
Before we jump into the nitty gritty, I think it’s important to show you exactly what I’m talking about when I say this fund implements a “risk-on” or “risk-off” strategy.
The TACK ETF made its public debut on March 23, 2022 at $25 / share. Today, it’s trading at $24.32 / share, which means it’s down about -2% over the two month period.
What makes this observation particularly interesting is the fact that this fund is “equally” invested into the 11 economic sectors of the US via other ETFs, mimicking the S&P 500.
So now you’re probably asking yourself.. if this fund is invested into the 11 economic sectors of the US just like the S&P 500, it should perform like the S&P 500 — right?
Not exactly. Which is where the “risk-on” and “risk-off” strategy comes into play.
It’s no secret that the markets have been extremely volatile this year, as we further explained why in this post. However, Katie Stockton has been sharing with us her anticipation for heightened volatility — for several months now. She’s a wizard at using technical analysis to predict near-term price movement, and this ETF leverages all of her expertise.
By doing this, the ETF substantially minimizes risk during stock market drawdowns.
Since March 23, 2022, the S&P 500 has declined more than -9%. This is a -7% deeper drawdown than TACK’s -2% decline over the same period of time.
Below is an image of the performance of TACK vs. the S&P 500 since inception.
Well, it’s pretty simple — but if you want all of the details click this link.
The simple answer is.. it’s everything the S&P 500 holds. This ETF holds other ETFs that hold companies inside of the S&P 500 broken out by specific economic sectors.
Think about it like this — we all know an ETF is easily explained as “a basket of stocks,” so think of this ETF instead as “a basket of other baskets.” Specifically, the 11 economic sectors that make up the stock market:
The Communication Services Sector (XLC)
The Consumer Discretionary Sector (XLY)
The Consumer Staples Sector (XLP)
The Energy Select (XLE)
The Financials Sector (XLF)
The Health Care Sector (XLV)
The Industrial Sector (XLI)
The Materials Sector(XLB)
The Real Estate Sector(XLRE)
The Technology Sector (XLK)
The Utilities Sector (XLU)
Theoretically, by holding everything the S&P 500 holds — you’ll perform in a very similar fashion over a long period of time.
However, when Katie’s team of technical analysis wizards identify a soft spot in the markets they go “risk-off” and flip to the following:
SPDR® Gold Trust (GLD)
SPDR® Portfolio Long Term Treasury ETF (SPTL)
SPDR® Portfolio Short Term Treasury ETF (SPTS)
Here’s a well-written breakdown of the ETF:
“Fairlead Tactical Sector ETF (the “Fund”) seeks capital appreciation with limited drawdowns. A drawdown is the amount of investment value lost during a significant market decline, here related to the equity market, measured from peak to trough. The Fund seeks to limit drawdowns to preserve capital, such that a greater amount can be reinvested once the market has bottomed.
Our methodology attempts to proactively identify market declines. When successful, this process should position the Fund into more defensive sectors and assets before market declines become worse, thereby limiting drawdowns.”
What I’m Doing About It
Including this in my portfolio seems like a no brainer. As mentioned before, I currently have a ~20% cash position. This position is continually added to on a monthly basis as I continue my “pile cash until the market begins to bottom, then DCA accordingly” strategy.
As shared with the Founding Members on Sunday, the 200 week EMA (yellow line) is a moving average that has historically shown to be either the “bottom” or close to it.
If we’re headed lower, according to this historically accurate indicator we probably have another -8% to go at least. As we can see, in 2001 and 2008 the S&P 500 traded below it for quite some time.
Here’s my idea —
I went ahead and opened a very small position in my Public portfolio, just to kick things off:
Considering the TACK ETF should theoretically see returns very similar to the S&P 500 over a long period of time, when the S&P 500 touches the 3,620 level I’m going to deploy substantial funds to TACK — not only to begin seriously investing in the S&P 500, but to also hedge against further downside risk given economic and geopolitical uncertainty.
Considering that the forward P/E ratio for the S&P 500 is ~16.7X, we likely have some additional downside ahead of us when compared to historical bottoms (2002, 2009, 2018, 2020).
If you’re starting your investing journey or want to change to a cleaner, social-focused investing platform, consider visiting Public.com.
Disclaimer: This is not financial advice or recommendation for any investment. The content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.