HCMT: This Leveraged Rotational ETF Turns 1, Gets Hold Rating

seekingalpha07-15

The Direxion HCM Tactical Enhanced U.S. Equity Strategy ETF aims to capture up to 200% of the upside while minimizing losses during Bear markets.The fund uses a proprietary quantitative investment ...

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The ETF is actively managed, investing in US equity and fixed income markets.This article reviews the ETF and compares its short historical results against a sample portfolio of its targeted assets. Due to its limited history, it earns a Hold rating.   Suchat longthara/iStock via Getty Images Introduction I'm always looking for the proverbial “better mousetrap” to either add Alpha or reduce volatility in my portfolio. Fund managers, ever eager to bring in more assets (meaning more fees), keep obligating with funds aimed at niches or perceived desires by investors. I just did a four-part series on Buffer ETFs that cap both the gains and losses the investor can experience over the next year as an example of such attempts. The Direxion HCM Tactical Enhanced U.S. Equity Strategy ETF (NYSEARCA:HCMT) uses a proprietary rotation strategy in an effort to capture up to 200% of the upside while attempting to minimize the damage during Bear markets in stocks. While this ETF has outperformed the market since starting, it didn’t avoid the market correction they claim to avoid. With more history needed to prove its potentially high-risk strategy will work, I give it a Hold rating at this time. Direxion HCM Tactical Enhanced U.S. Equity Strategy ETF review Data by YCharts Seeking Alpha describes this ETF as: The Direxion HCM Tactical Enhanced US ETF is co-managed by Rafferty Asset Management, LLC and Howard Capital Management, Inc. It invests in public equity and fixed income markets of the United States. For its equity portion, the fund invests directly and through derivatives in stocks of companies operating across diversified sectors. For its fixed income portion, it invests directly and through other funds in money market securities, deposit accounts with institutions with high quality credit ratings, and/or short-term debt instruments that have terms-to-maturity of less than 397 days and exhibit high quality credit profiles, including U.S. government securities and/or similar securities. The fund employs quantitative analysis to create its portfolio. It employs proprietary research to create its portfolio. The HCMT ETF was formed on June 22, 2023. Source: seekingalpha.com HCMT HCMT has $368m in AUM. The current capped Net fees are 115bps thru 9/1/25, with a listed gross fee of 200bps when including Acquired Fund fees. The TTM yield is just .8%, which is good if the ETF is used for growth, not income. Direxion describes their leveraged ETF as:  The Direxion HCM Tactical Enhanced US ETF is actively managed and seeks to provide enhanced returns across multiple market cycles that are broadly correlated to the U.S. equity markets. The Fund uses a proprietary quantitative investment model based on the HCM-BuyLine® (the “Model”) developed by the Fund’s subadvisor, Howard Capital Management, Inc. (“Subadviser”), to determine if the Fund’s assets are allocated to U.S. equity securities or to cash and cash equivalents (i.e., money market funds, U.S. government securities and/or similar securities). When the Fund is allocated to U.S. equity securities, it will have approximately the following daily exposures: 80% to the S&P 500®, 80% to QQQ, and up to 40% to the Sector Allocation. The Fund will utilize leverage to achieve total exposure of up to 200% of the Fund’s net assets to these allocations. A Sector Allocation of less than 40% may result in the Fund having less than 200% total exposure each day.  Source: direxion.com HCMT Holdings review   direxion.com HCMT holdings Currently, HCMT is Bullish as the weight is 200% via the use of two Swaps, one based on the Invesco QQQ ETF (QQQ) and the other being the Select Sector SPDR ETF (XLK). When you look at what the two ETFs Swaps must hold, the overall weight in HCMT allocated to the Technology sector is slightly over 50%. The held stocks match up with what the SPDR S&P 500 ETF (SPY) hold, so not sure why that ETF is not used instead. The bottom line is HCMT investors better agree that Technology stocks are the place to be right now. With limited history, I couldn’t find how their rotation strategy altered HCMT’s holdings since starting late last year, important data to know which should become available with time. Distributions review seekingalpha.com HCMT DVDs With a TTM yield under 1%, as stated earlier, ETF is designed for growth, thus more appropriate for taxable accounts than IRA-type accounts. Performance comparison If the ETF has achieved its twin goals of outperforming US stocks and doing it with less volatility, both goals are quantifiable. For that, I will compare how HCMT has done versus a portfolio using the ETFs mentioned above, plus a cash allocation that matches today's overall holdings. I realize historical allocations could be different but with less than one year of performance data, it could be somewhat close considering how the markets have behaved since last fall. With those caveats, HCMT has been successful so far, mostly. PortfolioVisualizer.com While the term is not used, HCMT is a levered ETF in its goal of 200% exposure. The downside of that was revealed in April when HMCT dropped twice as fast as the combined portfolio, QQQ, and SPY. XLK was down most of the ETFs. As for reward/risk, HCMT's Sharpe and Sortino ratios were lower than all the ETFs and the combined portfolio. Conclusion Except for April, the markets have been climbing since HMCT started, and they failed to avoid that month's poor performance. The managers did show the following graph, which indicates when their indicator Buyline changed signals. The chart ends about the time the HCMT ETF launched. howardcm.com/index.php/hcm-buyline Unlike some ETFs, I did not find any backdated testing of what HCMT might have done. In real life, how quickly each required strategy change is executed makes all the difference. Based on monthly returns, HCMT failed to avoid the April market correction so while the above chart might be convincing, until the actual HCMT proves itself, it only rates a Hold from this conservative retired investor. Portfolio strategy  For investors that like some excitement in their portfolio, a small allocation to targeted or leveraged funds fits that description. The managers describe the stock market as like riding a roller coaster, with its ups and downs, with sometime sharp directional changes. For those of us who miss the simple wooden coasters of our youth, these types of ETFs are for us; they better reflect the steel, spin-you-around coasters of today. Like HCMT, many are short on history, thus lack sufficient proof they work in all market environments, something investors need to keep in mind before buying that ticket to ride.","kind":null,"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":"4.29.1","shortVersion":"4.29.1","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/2451065645"}