Penn Wealth Publishing

2020.05.17 Penn Wealth Report Vol 8 Issue 03

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14 penn wealth Report voluMe 8 issue 03 17 May 2020 Penn Wealth Report Copyright 2020. All Rights Reserved. investment intelligence A year-to-date look at how PTMC performed compared to its benchmark and a stellar rival. ETF Spotlight e Pacer Trendpilot® US Mid Cap ETF In our constant search for downturn protection, we found a unique trend-following fund which uses equities and T-Bills. The key to success in any market downturn is dis- cipline. More precisely, automated discipline. For all the destruction the Covid-19 virus downturn caused, we did pull something positive from it: we now have a powerful new metric to gauge how investments held up during the most rapid downturn in the mar- ket's history. We discovered the Pacer Trendpilot® US Mid Cap ETF (PTMC $28) while perusing an IBD chart of "Best Performing ETFs of 2020." e fund came in number one, and it wasn't even close. We were intrigued. How was this fund able to buck the hor- rendous downturn that seemed to beat everything else to a pulp? After a little digging, we found management's secret recipe: use a 200-day simple moving average to determine the percentage of exposure to the market at any given time. First, let's consider the benchmark for the fund. e S&P MidCap® 400 Index serves as the barome- ter for the US mid-cap equities sector, following 400 positions between $1.4 billion and $5.9 billion in size. As of 01 April, the index's top three holdings were Domino's Pizza (DPZ), Teledyne Technologies (TDY), and Tyler Technologies (TYL). Mid-caps happen to be our favorite equity style, as these com- panies can provide explosive growth in good times. And when times are good, an investor could expect PTMC to mirror its benchmark. But when the market takes a tumble, the vehicle disconnects from its mother-ship. Its mechanism for doing so is what makes the fund so unique. An objective, rules-based trend-following strategy. PTMC uses its benchmark's 200-day simple moving average to determine allocation. As long as the index has closed above its 200 Day SMA the fund will be fully invested. When, however, the MidCap 400 closes below its 200 Day SMA for five consecutive sessions, the fund cuts its exposure to 50%, placing the other 50% of its assets in 3-month US Treasury Bills for safety. Taken a step further, when the MidCap 400's 200 Day SMA closes lower than its value from five sessions prior, the fund's exposure goes to 100% 3-month US Treasury Bills. It is out of the market completely. It will only return to its 50/50 position when that indicator is hit once again; the same goes for its 100% equity exposure indicator. Not only is this a fascinating rules-based approach that takes all emotions out of the process (and yes, portfolio managers exhibit emotions like the rest of us), investors can also use it as a helpful gauge when determining their own portfolio allocation. When a benchmark breaks through its 200 Day SMA, either going up or going down, it often signifies something major may be happen- ing in the markets. And the same holds for individual securities and their respective 200 Day SMA. As for PTMC in 2020, the proof that its strategy worked can be found in the chart. While its benchmark lost 35%, our core mid-cap holding in the Dynamic Growth Strategy, VLIMX, only lost 21.42%. at's good, but nothing compared to the 7.74% loss by PTMC. As such, we have added this fund as a satellite holding within our Dynamic Growth Strategy. e contents of this report reflect the personal views, opinions, and research of Penn Wealth Publishing. While measures are taken to help assure the accuracy of data, no guar- antees can be made and the firm is not liable for any losses incurred by subscrib- ers. is is not a solicitation to buy. Always consult your investment professional before investing any money. PTMC @ $28

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