Little Harbor Advisors launches S&P 500 volatility-based absolute return ETF

May 20th, 2020 | By | Category: Alternatives / Multi-Asset

Little Harbor Advisors has launched a new actively managed ETF that pursues an absolute return strategy based on volatility expectations within the US large-cap equity universe.

Jeff Landle, Little Harbor Advisors’ chief investment officer

Jeff Landle, Little Harbor Advisors’ chief investment officer.

The LHA Market State Alpha Seeker ETF (MSVX US) has listed on Cboe BZX Exchange. The fund has been seeded with $25 million and comes with an expense ratio of 1.16%.

The ETF is sub-advised by Thompson Capital Management, a US-based investment adviser specializing in risk-responsive portfolio management. Little Harbor Advisors acquired a majority interest in Thompson Capital Management earlier this year.

The fund follows Thompson Capital Management’s flagship investment strategy which the firm has traditionally offered through separately managed accounts.

The approach uses proprietary statistical models to estimate the direction of the US equity market as well as the expected strength of volatility based on the movement of the VIX Index.

Based on these estimates, the ETF will employ a tactical asset allocation that seeks to generate positive returns in all market environments by going long or short the S&P 500 and/or the VIX Index. The fund may utilize cash, ETFs, index futures, or options to gain its required exposure.

The ETF’s goal is to lessen the impact of market down-turns while participating in market rallies. The fund is expected to have a low correlation with equity and fixed income markets, offering the potential for portfolio diversification.

Mike Thompson, co-Founder and Chief Investment Officer, Thompson Capital Management, commented, “We believe that the cyclical dynamics of S&P 500 volatility, as represented by the VIX Index, along with the pricing of VIX futures contracts, offers insights and valuable information as to near-term market direction with an implied confidence factor. This allows us to shape portfolio holdings to determine which side of the market the portfolio will be exposed, how, and to what extent.”

Jeff Landle, Chief Investment Officer at Little Harbor Advisors, added, “We had been aware of Thompson Capital Management’s volatility strategy for some time and believe if ever there was a period to pay attention to volatility it is today. Whether the current market continues its remarkable resilience to bad news or is simply a bubble waiting to burst, the stability or violence exhibited in the volatility cycle, provides insights of which the Thompsons’ strategy seems to take advantage.”

The fund is the second ETF from Little Harbor Advisors and follows the April 2018 launch of the LHA Market State US Tactical ETF (MSUS US). This actively managed fund uses Bayesian statistical techniques to infer the probability of change in price direction of the broad US equity market. It comes with an expense ratio of 0.97%.

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