Little Harbor Advisors launches its first ETF, based on Bayesian probability

Apr 5th, 2018 | By | Category: Equities

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Little Harbor Advisors has become the latest investment firm to launch an ETF with the introduction of the LHA Market State US Tactical ETF (MSUS US) on Cboe ETF Marketplace.

Jeff Landle, Little Harbor Advisors’ chief investment officer

Jeff Landle, Little Harbor Advisors’ chief investment officer.

The actively managed fund uses Bayesian statistical techniques to infer the probability of change in price direction of the broad US equity market.

This inferred probability is used to manage the net-long exposure of the fund ranging between zero (uninvested) and 160%.

In essence, the fund seeks to reduce net exposure to the US equity market in order to minimize losses in market downdrafts and to enhance net exposure and returns during market rallies.

Jeff Landle, Little Harbor Advisors’ chief investment officer, commented, “Investors seeking long-term exposure to the US equity market generally have a choice between 100% long 100% of the time, or a systematic approach to exposure management in an effort to deliver better risk-adjusted returns by attempting to avoid unfavourable market conditions while taking advantage of more favourable times. To maximize returns investors want to not only generate gains when the market goes up, but, importantly, to lessen losses when the market goes down.”

The statistical techniques employed look at the changing distribution of price movements in the S&P 500 as described by the four moments of a distribution. The fund seeks to take advantage of statistical indications of growing left-tail risk and increasing volatility by trimming net exposure in a timely fashion. This will generally be achieved through short exposure to S&P 500 future contracts.

Alternatively, the fund may look to take advantage of statistical indications of positive skew to enhance returns by opportunistically increasing net exposure to greater than 100% through long exposure to futures contracts.

MSUS will seek to provide better risk-adjusted returns compared to the broader US equity market, a goal it will need to achieve in order to justify its relatively high expense ratio of 1.25%.

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