Global X ETFs partners with Adaptive Wealth Strategies to launch tactical risk management strategy

Jan 21st, 2021 | By | Category: Alternatives / Multi-Asset

Global X ETFs has augmented its partnership with risk index architects Adaptive Wealth Strategies with the launch of the Global X Adaptive US Risk Management ETF (ONOF US).

Global X ETFs partners with Adaptive Wealth Strategies to launch dynamic risk-on/risk-off strategy

Alex Ashby, Head of Product Development at Global X ETFs.

The fund has listed on NYSE Arca and tracks the Adaptive Wealth Strategies US Risk Management Index. It comes with a net expense ratio of 0.39%.

The strategy seeks to address an emerging dilemma facing many investors: ever-higher-climbing markets coupled with increasing anxiety that a downturn might lie in store.

ONOF aims to confront this challenge with the dual goal of managing risk during adverse market conditions while maintaining broad equity market exposure under normal market conditions.

Specifically, the fund’s underlying reference index is designed to allocate dynamically between either 100% exposure to the Solactive GBS US 500 Index, a generic alternative to the S&P 500 and a proxy for US equity exposure, or 100% exposure to a portfolio of US Treasuries with 1-3 years remaining to maturity.

Asset allocation is controlled by a quantitative model that utilizes four market indicators to determine whether the index should be in a risk-on or risk-off positioning. Those four indicators combine two longer-term measures with two shorter-term measures to avoid the whipsaw effect that can result from relying on a single signal.

The longer-term indicators are 200-day moving average and drawdown. The moving average detects market trends and provides stability by muting day-to-day market shifts. The drawdown indicator measures the market’s absolute decline from the previous market high and serves to potentially identify a more pronounced downward trend.

The shorter-term indicators are moving average convergence/divergence (MACD) and volatility. MACD tracks the relationship between moving averages, capturing both up and down turning points in the market – it is often one of the first technical indicators to recognize when entering a risk-off environment. Volatility, as measured by the
Cboe Volatility Index, or VIX, gauges market uncertainty and often precipitates rising risks.

The index requires confirmation from three of the four indicators in order to exit equity exposure and reallocate to Treasuries. To re-enter the market, it requires confirmation of just two indicators, opting for a higher barrier to exit the market than to enter.

“Throughout the post-2008 bull market, investors have repeatedly seen brief periods of extreme volatility,” said Alex Ashby, Head of Product Development at Global X ETFs. “Many investors, wary of perceived risks, have refrained from entering the market over recent years. Even those who have maintained their positioning through the downturns faced periods of elevated risk, but are hesitant to make tactical changes to adapt to a changing market landscape.

“This strategy is designed to provide tactical risk management amid a backdrop of both immense global uncertainty and upward-trending equity markets.”

ONOF is the second collaboration with Adaptive Wealth Strategies. The first strategy, the Global X Adaptive US Factor ETF (AUSF US), holds $155 million in assets under management.

Tags: , , , , , , , ,

Leave a Comment