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Time Tested Trend Following Meets Modern Markets: A Trendpilot Update

Max Chen
·3 min read

This article was originally published on ETFTrends.com.

Volatility is the new normal. Market cycles that used to take years play out in months. So how do you manage risks in the new normal? Knee jerk market timing has never been the answer, but a disciplined, rigorous approach to trend following can be the answer.

In the upcoming webcast, Time Tested Trend Following Meets Modern Markets: A Trendpilot Update, Sean O'Hara, President, Pacer ETFs Distributors, will walk through their Trendpilot approach and recent enhancements to the methodology to make it even more responsive to the modern markets.

For example, Pacer Financial Inc. offers a suite of so-called Pacer Trendpilot ETFs, including the Pacer Trendpilot US Large Cap ETF (BATS: PTLC), Pacer Trendpilot US Mid Cap ETF (BATS: PTMC), and Pacer Trendpilot 100 ETF (BATS: PTNQ).

A trend following strategy could diminish draw downs during bearish market conditions to help improve the overall, long-term investment returns. The Pacer Trendpilot strategy basically tries to participate in the market when it is trending up, pare back market exposure during the short-term market down trends, and prevent extended declines by moving to T-bills during long-term market down trends.

Specifically, the strategy follows strict guideline with three indicators, including an equity indicator, 50/50 indicator, and a T-bill indicator.

The Equity Indicator refers to when the Benchmark Total Return Index closes above its 200-day SMA for five consecutive business days, the exposure will be 100% to the Benchmark Index. From the equity position, the Index will change to the 50/50 position or the T-Bill position depending on the 50/50 Indicator and the T-Bill Indicator.

The Price Signal 50/50 Indicator refers to when the Benchmark Total Return Index closes below its 200-day SMA for five consecutive business days, the exposure will be 50% to the Benchmark Index and 50% to 3-Month US Treasury bills. From the 50/50 position, the Trendpilot Index will return to the equity position or change to the T-Bill position depending on the Equity Indicator or T-Bill Indicator.

In its latest update, Pacer added an Extreme Valuation Trigger where if at close of business the Index is either 20% above or 20% below its 200 Day SMA, the exposure will automatically go to the 50/50 position. The Index will not move to the 100% Equity position or the 100% T-Bill position unless triggered by one of those indicators.

Lastly, the Trend Signal T-Bill Indicator refers to when the Benchmark Total Return Index’s 200-day SMA closes lower than its value from five business days earlier, the exposure will be 100% to 3-Month US Treasury bills. From the T-Bill position, the Trendpilot Index will change to the equity position when the Equity Indicator is triggered. It will not return to its 50/50 position unless the Equity Indicator is first triggered.

Financial advisors who are interested in learning more about a trend following investment strategy can register for the Wednesday, November 4 webcast here.

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