Day Hagan and Ned Davis Research Launch First Joint ETF Smart Sector™ With Catastrophic Stop
Ned Davis Research (NDR), a global provider of independent investment research insights, tools and solutions, in partnership with Day Hagan Asset Management (Day Hagan), today announced the launch of their first co-developed ETF, Smart Sector™ With Catastrophic Stop (NYSE: SSUS), which takes advantage of NDR’s proprietary sector and U.S. Stock Market models.
The Smart Sector™ With Catastrophic Stop strategy is designed to enhance returns over a buy-and-hold, equity benchmark by overweighting and underweighting 11 U.S. large-cap sectors based on NDR’s sector models. Each of the models utilizes sector specific, weight of the evidence composites of technical, fundamental, economic, and behavior-based indicators to determine each sector’s probability of outperforming.
The strategy also seeks to mitigate the effects of major market declines by reducing equity market exposure through the use of NDR’s Catastrophic Stop model. As soon as the Catastrophic Stop model moves back to levels indicating risks have subsided, the strategy immediately moves back to a fully invested equity allocation.
“We’re excited to partner with Ned Davis Research to launch the first of many ETFs,” said Arthur Day, partner, co-founder and senior portfolio manager at Day Hagan. “While our clients have benefited from NDR’s Smart Sector™ models in our separately managed accounts, we’ve seen strong demand for a similar strategy in an ETF wrapper. We expect to bring to market additional co-developed funds later this year.”
“Many tactical allocation models rely on just one type of analysis for their allocation and timing decisions, which could increase the risk of losses during different market regimes,” said Brian Sanborn, vice president of investment solutions at NDR. “There are over 100 diverse indicators in our sector models, which we think provides a more holistic approach. As we face an increasingly aging bull market, we think a strategy like SSUS could make a lot of sense for investors.”
To determine each sector’s probability of outperforming, the Smart Sector™ model combines sector-specific fundamental, technical, economic and behavioral indicators. This provides another layer to risk management by overweighting sectors with the highest probability of success based on sector-specific composite models, while underweighting sectors with little or no support from the model.
At the same time, the Catastrophic Stop identifies periods of high risk in the U.S. equity market when a diverse group of established indicators conclusively turn negative. When the Catastrophic Stop is triggered, the equity-invested position in the strategy is reduced to 50% until the model moves back to being bullish again.