SUMMARY
- TAA strategies can reduce risk, but also underperform significantly
- Typically these are tailored for bear markets, not for crashes
- Using valuations for risk management is ineffective
INTRODUCTION
Pacer’s Trendpilot US Large Cap ETF (PTLC) is arguably one of the simplest tactical asset allocation (“TAA”) funds in the market. The strategy invests 100% in U.S. large-cap stocks under normal conditions, but adjusts exposure based on a trend-following rule tied to the S&P 500’s 200-day moving average. Specifically:
- If the index closes above its 200-day moving average for five consecutive business days, the fund allocates a 100% to equities
- If the index closes below its 200-day moving average for five consecutive business days, the fund shifts to a 50/50 allocation between equities and U.S. T-Bills