Pacer ETFs modifies Trendpilot strategy with new ‘Extreme Valuation Trigger’

Oct 8th, 2020 | By | Category: Alternatives / Multi-Asset

Pacer is set to roll out a modification to the methodology powering its flagship equity Trendpilot ETFs with the introduction of an ‘Extreme Valuation Trigger’.

Pacer ETFs modifies Trendpilot strategy with new ‘Extreme Valuation Trigger’

Pacer is to introduce an ‘Extreme Valuation Trigger’ for its trend-following Trendpilot ETFs.

The modification will mean that the strategies, which rotate between equity and Treasury exposure according to the trend of the market, will throttle back their equity or Treasury exposure when their underlying reference equity index is in extreme bull or extreme bear mode respectively.

The new trigger works by measuring each strategies’ underlying reference equity index relative to its 200-day simple moving average (SMA). If the index is trading at or more than 20% above or 20% below its 200-day SMA, the strategy will rotate into a 50/50 exposure between its reference equity index and three-month US Treasury bills, as opposed to being fully exposed to either equities or Treasuries.

This new allocation will remain in place until the traditional rules trigger a new exposure change. Thus, in order for the exposure to be nullified the reference equity index would need to close below or above its moving average (depending on whether it was previously above or below its moving average) for five consecutive trading days. This would then revert the strategy to its normal ruleset.

The adjustment will provide the strategies with a degree of protection from excessively heated markets which subsequently correct, while also protecting them against missing out on stock market gains when over-sold markets subsequently bounce back – as was the case in late March, April and May this year when the Trendpilot ETFs missed out on much of the initial market rebound that followed the coronavirus sell-off in February and March (see graphic below).

The methodology modification will be applied to the following funds effective on October 15, 2020:

Pacer Trendpilot US Large Cap ETF (PTLC US)
Pacer Trendpilot US Mid Cap ETF (PTMC US)
Pacer Trendpilot 100 ETF (PTNQ US)
Pacer Trendpilot European Index ETF (PTEU US)
Pacer Trendpilot International ETF (PTIN US)

A statement from Pacer commented: “The Pacer Advisors team, the investment adviser for the funds, has studied this addition to the rules-based methodology and believe it to be a natural evolution of the fund families’ risk mitigation strategy, especially given the extreme volatility global markets have experienced this year.”

The funds’ expense ratios and listings remain unchanged.

Pacer ETFs modifies Trendpilot strategy with new ‘Extreme Valuation Trigger’

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