Bridges Capital debuts US equity ETF guided by monetary policy

May 18th, 2023 | By | Category: Equities

Florida-based investment advisor Bridges Capital has made its ETF debut with the launch of a core US equity fund that incorporates dynamic risk management based on monetary policy and macroeconomic analysis.

Bridges Capital debuts US equity ETF guided by monetary policy

The ETF incorporates dynamic risk management guided by monetary policy analysis.

The Bridges Capital Tactical ETF (BDGS US) has been listed on Nasdaq, coming to market via white-label ETF provider Alpha Architect.

The fund consists of an approximate 20% allocation to a high-conviction portfolio of mega-cap securities that have been selected based on Bridges’ proprietary valuation and volatility analysis. The ETF will typically remain invested in these mega-cap companies at all times with little to no rebalancing expected in any given year.

The remaining 80% of the ETF’s assets are allocated to either a broad US stock market exposure, delivered through index-linked large-cap, mid-cap, and small-cap equity ETFs, or to cash and cash equivalents. The fund dynamically shifts between equity and cash exposure based on a proprietary analysis of short-term equity market volatility and market breadth (the proportion of companies contributing to the market’s current trend).

Bridges also maintains an overall ‘macro-thesis’, either risk-on or risk-off, which is derived from the firm’s analysis of monetary policy and macroeconomic conditions.  Changes to the macro thesis are rare, occurring less than annually, and are determined by multiple quarters of fundamental data indicating that conditions exist to support the change.

Examples of macro events that could affect the thesis include the Federal Reserve changing its posture on interest rates, changes to quantitative easing or tightening, trends of growing or shrinking earnings, revisions of earnings, and significant hiring or layoffs within mega-cap companies.

During risk-on periods, the ETF is expected to be fully invested in equities for longer and will rebalance less often, typically six times per year on average. In periods of risk-aversion, meanwhile, the ETF is expected to be invested in cash for longer and will rebalance more often, typically twice per month.

The ETF comes with an expense ratio of 0.78%.

Commenting on the launch, Raymond Bridges, Managing Director and Portfolio Manager at Bridges Capital, said: “There’s an overwhelming demand for active management that goes well beyond plain vanilla ‘buy and hold’ strategies that, we believe, fall short of protecting investors from downside volatility, especially in the current high-inflation, high-rate environment. Our hands-on approach is rooted in opportunism when conditions are right and the ability to play defense during periods of stress through capital preservation.”

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