TACK: Underperformance Due To Strategy Lag

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Kenishirotie/iStock via Getty Images About a year ago, I wrote an initiating article reviewing the Fairlead Tactical Sector ETF (NYSEARCA:TACK). I was cautious regarding the fund's strategy, as TACK's...

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I was cautious regarding the fund's strategy, as TACK's...</p>\n\n<a href=\"https://seekingalpha.com/article/4696140-tack-etf-underperformamvce-due-strategy-lag-maintain-hold\">Source Link</a>\n\n</div>\n","source":"seekingalpha_fund","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>TACK: Underperformance Due To Strategy Lag</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nTACK: Underperformance Due To Strategy Lag\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-05-29 14:57 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4696140-tack-etf-underperformamvce-due-strategy-lag-maintain-hold><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Kenishirotie/iStock via Getty Images About a year ago, I wrote an initiating article reviewing the Fairlead Tactical Sector ETF (NYSEARCA:TACK). I was cautious regarding the fund's strategy, as TACK's...</p>\n\n<a href=\"https://seekingalpha.com/article/4696140-tack-etf-underperformamvce-due-strategy-lag-maintain-hold\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"BK4534","symbol_name":"瑞士信贷持仓","start_time":0,"source_url":"https://seekingalpha.com/article/4696140-tack-etf-underperformamvce-due-strategy-lag-maintain-hold","article_id":"2439597125","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/824575152/image_824575152.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2439597125","pubTimestamp":1716965838,"columns":[],"sourceInfo":{"source_id":"seekingalpha_fund","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Kenishirotie/iStock via Getty Images About a year ago, I wrote an initiating article reviewing the Fairlead Tactical Sector ETF (NYSEARCA:TACK). I was cautious regarding the fund's strategy, as TACK's","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"BK4534":"瑞士信贷持仓","XLB":"材料ETF","XLC":"Communication Services Select Sector SPDR Fund","XLE":"SPDR能源指数ETF","BK4535":"淡马锡持仓","BK4559":"巴菲特持仓","FDN":"First Trust Dow Jones Internet I","EQL":"ALPS Equal Sector Weight ETF","BK4550":"红杉资本持仓","BK4588":"碎股","TACK":"Fairlead Tactical Sector ETF","SH":"标普500反向ETF","IVV":"标普500指数ETF","BK4561":"索罗斯持仓","UPRO":"三倍做多标普500ETF","VOO":"Vanguard标普500ETF","RSP":"平均加权指数ETF-Rydex S&P","HELO":"JPMorgan Hedged Equity Laddered Overlay ETF","SPY.AU":"SPDR® S&P 500® ETF Trust","BK4581":"高盛持仓","SSO":"两倍做多标普500ETF","BK4504":"桥水持仓","GLDM":"SPDR Gold MiniShares Trust","OEX":"标普100",".SPX":"S&P 500 Index","XLU":"公共事业指数ETF-SPDR","SPXU":"三倍做空标普500ETF","SPTL":"SPDR Portfolio Long Term Treasury ETF","SPY":"标普500ETF","OEF":"标普100指数ETF-iShares","BK4570":"地缘局势概念股","SDS":"两倍做空标普500ETF","BK4585":"ETF&股票定投概念"},"translate_title":"策略：战略滞后导致表现不佳","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"SPY":1,"RSP":1,"SPTL":1,"HELO":1,"GLDM":1,"EQL":1,"SPY.AU":1,"TACK":1,"XLB":1,"XLC":1,"XLE":1,"XLU":1,"VOO":0.9,"FDN":0.9,"SSO":0.6,"UPRO":0.6,"OEF":0.6,"SPXU":0.6,"SH":0.6,"SDS":0.6,"OEX":0.6,".SPX":0.6,"IVV":0.6,"ESmain":0.6},"content_text":"Kenishirotie/iStock via Getty Images About a year ago, I wrote an initiating article reviewing the Fairlead Tactical Sector ETF (NYSEARCA:TACK). I was cautious regarding the fund's strategy, as TACK's \"systematic technical model\" is novel and untested. With a year gone by, let us review TACK's performance and see whether my cautious stance was appropriate. Looking at returns since inception, the TACK ETF does a good job of limiting major drawdowns. However, when it comes to upside participation, the TACK ETF has significantly lagged the S&P 500 Index as its models may be too slow to adjust. For investors seeking a low drawdown fund with decent upside participation, I suggest they look elsewhere. Brief Fund Overview The Fairlead Tactical Sector ETF uses a systematic technical analysis approach to manage a fund-of-funds portfolio of sector ETFs and alternative assets like bonds and gold. The TACK ETF is managed by Katie Stockton, a frequent market commentator and guest on CNBC. She was formerly the Chief Technical Strategist for BTIG and Chief Market Technician at MKM Partners. The TACK ETF uses a systematic 'trend-following' filter to assess 14 ETFs for inclusion/exclusion in the fund (Figure 1). When markets are considered 'risk-on', the TACK ETF will allocate to the risk-on ETFs like the Materials Select Sector SPDR Fund (XLB) and the Communication Services Select Sector SPDR Fund (XLC). When markets are 'risk-off', the TACK ETF will allocate to defensive sectors like the Utilities Select Sector SPDR Fund (XLU) or alternative assets like SPDR Gold Minishares ETF (GLDM). Figure 1 - TACK strategy overview (fairleadfunds.com) Currently, we can see TACK's portfolio is fairly 'risk-on', as it has allocations to all of the 'offensive' ETFs with the exception of the Energy Select Sector SPDR Fund (XLE) (Figure 2). Defensive holdings are also at a minimum, with only 12% of the portfolio allocated. Figure 2 - TACK portfolio holdings (fairleadfunds.com) The purpose of TACK's investment strategy is to take advantage of sector leadership while protecting the portfolio against large drawdowns through active asset allocation. Weaknesses Of Strategy In my prior article, I noted two concerns I could foresee with TACK's strategy. First, TACK's 'risk-off' allocation makes the implicit assumption that alternative assets like long-term treasury bonds, as represented by the S&P Portfolio Long Term Treasury ETF (SPTL) will provide a hedge against market drawdowns. This relies on a negative correlation between equities and treasury bonds that has been applied since the early 2000s (Figure 3). Figure 3 - Correlation between treasury bonds and equities (Investment & Pensions Europe) However, the correlation between bonds and equities is not constant. As we saw in 2022, SPTL and the SPDR S&P 500 ETF Trust (SPY) both suffered significant losses as the Fed raised interest rates, causing a repricing on bonds and equities (Figure 4). When the correlation is positive, the effectiveness of TACK's hedges is reduced. Figure 4 - SPTL and SPY both declined in 2022 (Seeking Alpha) Another concern I had with the TACK ETF was that its 'systematic trend-following' filter appears to have a significant lag, such that even though many sectors had broken out to new uptrends in 2022, the TACK ETF was still very defensively positioned when I reviewed the fund. TACK Has Underperformed Since Inception Ultimately, these two weaknesses have caused the TACK ETF to significantly lag the SPY ETF since inception, with the TACK ETF returning 6.7% compared to 23.1% for the SPY ETF, 10.9% for the Invesco S&P 500 Equal Weight ETF (RSP) and 14.6% for the ALPS Equal Sector Weight ETF (EQL) (Figure 5). Figure 5 - TACK has underperformed SPY (Seeking Alpha) Good Defence But Not Enough Offence Looking at the two weaknesses mentioned above, it appears the main driver of TACK's underperformance is a lack of offence. For example, from TACK's inception (03/23/22) to January 25th, 2023, when the 50 DMA crossed above the 200 DMA on the SPY ETF (50 DMA below the 200 DMA is typically associated with a bear market), the TACK ETF delivered on its promise of reducing drawdowns, declining by 1.1% compared to the SPY ETF's 8.6% (Figure 6). Figure 6 - TACK reduced drawdowns during bear markets (Seeking Alpha) However, since January 25th 2023, the SPY has left TACK in the dust, returning 34.7% compared to TACK's 7.9% (Figure 7). Figure 7 - TACK was too slow to turn risk-on (Seeking Alpha) While trend-following strategies are expected to underperform over the long term as the model needs time to switch from 'risk-off' to 'risk-on', this level of underperformance may be untenable for a core holding in any investor's portfolio. Consider Other Methods To Reduce Drawdowns For investors worried about market drawdowns, I suggest they consider other investment strategies rather than the 'systematic trend following' employed by the TACK ETF. For example, investors can consider the JPMorgan Hedged Equity Fund (JHEQX) which employs a 'put-spread-collar' strategy. The 'put-spread-collar' strategy owns a 5%-20% put spread on the S&P 500 Index that is financed by selling out of the money (\"OTM\") calls on the index (Figure 8). By owning the put spread, the JHEQX fund is protected from medium drawdowns of 5-20% on the S&P 500 Index, although large market crashes in a short period like the COVID-19 crash can still cause drawdowns greater than 5%. Figure 8 - Illustrative put-spread-collar strategy (swanglobalinvestments.com) When measured from TACK's inception, JHEQX has matched TACK's drawdowns of ~1% but has performed much better since markets entered a new 'bull market' (Figure 9). Overall, JHEQX has returned 19.5% since March 23, 2022, compared to 6.7% for TACK and 23.1% for the SPY ETF. Figure 9 - JHEQX vs. SPY and TACK (Seeking Alpha) Although the JHEQX has a high investment hurdle of $1 million minimum investment, JPMorgan has recently launched an ETF based on the similar strategy, the JPMorgan Hedged Equity Laddered Overlay ETF (HELO), that does not have the same stringent minimum investments. I last wrote about the HELO ETF here. Conclusion The TACK ETF is a fund-of-funds ETF that systematically allocates to sector ETFs depending on their trend-following characteristics. Unfortunately, my initial worries are playing out as the TACK ETF has significantly lagged behind the S&P 500 Index, particularly in the current uptrend, as its strategy lacks offensive firepower. For investors looking for funds that can limit drawdowns while still offering decent upside participation, I suggest investors consider the HELO ETF that employs a 'put-spread-collar' to protect investors from large drawdowns.  I rate the TACK ETF an avoid or hold.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.3","shortVersion":"4.29.3","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2439597125"}