Pinnacle debuts risk-managed US equity factor ETF

Jan 11th, 2023 | By | Category: Equities

Missouri-based Pinnacle Family Advisors has debuted an ETF providing risk-managed, high-conviction exposure to US equities selected using a factor-based approach.

Pinnacle debuts US equity factor ETF

The fund seeks to mitigate risk by partially shifting into safe-haven assets during periods of market stress.

The Pinnacle Focused Opportunities ETF (FCUS US) has been listed on NYSE Arca with an expense ratio of 0.81%.

While the ETF is actively managed, its process is based primarily on a systematic investment strategy.

The fund selects its constituents from an initial universe comprising the largest 1,000 US equities, harnessing Pinnacle’s monthly stock selection model to identify just 30 stocks for portfolio inclusion.

The model utilizes an equally weighted mix of three investment factors: share price momentum, relative strength (a stock’s recent price change and rate of change, or velocity, compared to its peers), and earnings revisions (whether stock analysts have recently revised their estimates of a company’s earnings).

The 30 companies with the highest aggregate scores across the three factors are included in the ETF’s portfolio. Each of the top ten stocks by model score receives a 4.25% weight in the portfolio, each of the next ten stocks by model score receives a 3.25% weight, and each of the final ten stocks receives a weight of 2.5%.

Once the ETF’s stock selection is set, the fund also utilizes a systematic risk-management overlay that aims to reduce drawdowns in challenging market conditions by shifting a portion of the portfolio into safe-haven assets such as US Treasuries, cash, or cash equivalents.

Pinnacle uses two separate market risk algorithms that identify whether there are positive or negative market signals. The first algorithm analyzes changes in moving averages of US equity indices while the second compares the relative strength of US equity indices with cash equivalents.

If both market signals are positive, the ETF will be 100% exposed to its equity portfolio; if one market signal is positive (and the other is negative), the ETF will be 75% exposed to its equity portfolio and 25% exposed to safe-haven assets; and if both market signals are negative, the ETF will be 50% exposed to its equity portfolio and 50% exposed to safe-haven assets.

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