Everything Is About To Change
The Most Excited I've Been In My Career
The Achilles heel for an active and tactical strategy is an environment of pure risk-on, and pure large-cap momentum.
Why?
How can it be that an active strategy has a hard time performing in an environment that otherwise looks bullish?
Because in those environments, the false positives increase.
Part of being an active strategy is actively trying to manage risk either by lowering beta if equity-only, or positioning into defensive assets like Treasuries for a moment in time. Active strategies will naturally have junctures where the weight of the evidence says to play defense, but the stock market keeps going higher. You slow down entering the storm, and never have the accident. This results in you getting to your destination later in time because, with hindsight, you should have never slowed down even though conditions were dangerous.
Pure risk-on environments are difficult because you get whipsawed around playing defense. You lag, you underperform, and it looks like that active strategy is broken. It’s not about the strategy, but rather the cycle it’s operating in.
This brings me to pure large-cap driven environments. What’s the problem with that? Put simply, you can’t beat the S&P 500 when it’s the only game in town. Don’t believe me? Ask any active tactical manager that has suffered the death by a thousand cuts of small-cap and international stock market momentum that just doesn’t want to stick. This is asset allocation 101 at its core. You can only brute force “beat” the market in equities by either tilting smaller (mid-caps small-caps) or by tilting overseas. Neither of those have worked for a decade+.
Make sense? Because if it does, then you should be considering the ATAC US Rotation ETF (Ticker: RORO) precisely because the cycle of pure risk-on, pure large-cap momentum which has been a headwind for the strategy may be about to change, as more volatility, risk-off defensive junctures, and momentum outside of large-cap technology takes place. Better cycle, less false signals, more chance for outperformance.
The Case for RORO's Success in 2024:
Responsive Investment Approach: RORO's investment philosophy is anchored in a responsive risk-on, risk-off strategy, designed to harness the ebb and flow of market volatility. As investor sentiments sway, RORO tactically alternates its holdings between the growth potential of higher-risk equities and the stabilizing influence of U.S. Treasuries as credit spreads widen.
Robust Signal Positioning: Amidst the market turbulence of 2023, characterized by interest rate hikes and compressed credit spreads, RORO adeptly charted its course.
Central Bank Policy Influence: Global central bank initiatives often catalyze risk-on market attitudes, propelling equities upward. Conversely, RORO is designed to seek refuge in risk-off assets, such as long-duration U.S. Treasury securities, during periods of economic restraint or uncertainty.
RORO's Tactical Edge:
Risk-On Allocation: When market indicators lean towards a risk-on sentiment, RORO proactively positions into a diversified portfolio of U.S. small-cap and large-cap growth ETFs, leveraging those positions to amplify potential gains.
Risk-Off Positioning: In contrast, RORO adopts a defensive stance during risk-off phases, focusing on long-duration U.S. Treasury securities, to mitigate the impact of market downturns. This was a problem in the fastest rate hike cycle in history as credit spreads narrowed. This is unlikely to be a problem again as the cycle changes with Treasuries as the expression of defense.
Investor-Centric Commitment:
At Tidal Financial Group, we are steadfast in our mission to deliver inventive investment solutions. The ATAC US Rotation ETF (RORO) embodies our commitment to crafting offerings that are versatile across an array of market scenarios, with the objective of achieving total return throughout a full market cycle.
As economic landscapes evolve, an investment fund that can deftly adjust its strategy in tandem with market momentum can be an invaluable component of a diverse investment portfolio. RORO represents an attractive avenue for investors looking to capitalize on both the ups and downs of market trends.
For detailed insights into RORO, encompassing its investment objectives, risks, charges, and expenses, we invite you to visit our website at www.atacfunds.com or reach out to us at 855-ATACFUND. We urge you to peruse the prospectus with due diligence prior to making an investment decision.
If you’d like to learn more, I’m happy to discuss how the strategy works over a one-on-one call. Simply use my Calendly link to book a meeting by clicking HERE.
With Warm Regards,
Michael A. Gayed, CFA
Portfolio Manager of the ATAC Rotation Funds
Why The ATAC Rotation Funds?
Highly active strategies designed to help investors mitigate investment volatility.
Seeks to provide a differentiated return stream relative to passive strategies.
Rotates tactically offensively and defensively using historically proven leading indicators.
Beta is a measure of the volatility—or systematic risk—of a security or portfolio compared to the market as a whole (usually the S&P 500). Stocks with betas higher than 1.0 can be interpreted as more volatile than the S&P 500.
The Standard and Poor's 500, or simply the S&P 500, is a stock market index tracking the stock performance of 500 of the largest companies listed on stock exchanges in the United States.
Past performance is no guarantee of future results.
The Fund’s investment objectives, risks, charges, expenses and other information are described in the statutory or summary prospectus, which must be read and considered carefully before investing. You may download the statutory or summary prospectus or obtain a hard copy by calling 855-ATACFUND or visiting www.atacfunds.com. Please read the Prospectuses carefully before you invest.
Investing involves risk including the possible loss of principal.
RORO and JOJO Are distributed by Foreside Fund Services, LLC.
ATACX is distributed by Quasar Distributors, LLC.