Premise Capital, begun trading a new Multi Asset Tactical ETF, the Premise Capital Frontier Advantage Diversified Tactical ETF (Bats: TCTL) on Friday, October 28, 2016. Here is a synopsis of the new ETF:
FUND INFORMATION:
| Symbol: TCTL | Exchange: BATS |
| Name: Premise Capital Frontier Advantage Diversified Tactical ETF | Net Expense Ratio: 1.06% |
FUND OBJECTIVE:
The Premise Capital Frontier Advantage Diversified Tactical ETF seeks to track the performance, before fees and expenses, of the Premise Capital Frontier Advantage Diversified Tactical Index.
The Fund is a “fund of funds” that employs a “passive management” – or indexing – investment approach designed to track the performance of the Index.
REFERENCE INDEX:
The Premise Capital Frontier Advantage Diversified Tactical Index Index consists of an investible portfolio of ETFs with exposure to major U.S. and non-U.S. asset classes.
The weighting of each Underlying ETF is adjusted to:
(i) reduce exposure to individual asset classes determined to be in a downward trend (Trend Adjustment) and
(ii) reduce overall exposure to equity asset classes
(and increase exposure to fixed income asset classes) as the aggregate size of equity asset classes determined to be in a downward trend grows (Risk Adjustment). The Index universe consists of cash and Underlying ETFs that each principally track the performance of one of the following assets classes:
Fixed Income Asset Classes:
Short Term
Intermediate Term
Long Term
High Yield (Junk Bonds)
Inflation Protected
Equity Asset Classes:
U.S. Large Cap Developed International
U.S. Mid Cap Developed International Small Cap
U.S. Small Cap Emerging Market Real Estate
The Underlying ETFs used by the Index are generally the largest, most liquid ETF tracking the performance of the applicable asset class.
Construction of the Index begins by determining the expected rate of return for each asset class (Market Expected Return) using a mathematical model (Allocation Model) designed to calculate such returns based on the standard deviation of each asset class and correlation of each asset class to the other asset classes over the past 5 years and the current market capitalization of each asset class. In other words, the model uses the amount investors currently have invested in each asset class (as measured by the market capitalizations of the constituents of each asset class), plus the historical performance of each asset class, to calculate the expected return for each asset class, rather than the particular views of the Fund’s investment adviser.
The Index then utilizes a proprietary intermediate trend following algorithm (Trend Algorithm) to determine whether each asset class is in an “upward” or “downward” trend. The Trend Algorithm considers a number of trend-related data points such as the direction of an asset class’ performance, the extent to which any trend in such performance is accelerating or decelerating, and the degree of variability in performance to determine whether an asset class’ performance trend is “upward” or “downward” over an intermediate time frame. The intermediate time frame is generally 1-3 years, however the Trend Algorithm can cause trades more often, even frequently, if market conditions warrant.
The Trend Adjustment is then implemented by optimizing the Index’s weighting of each asset class using the Allocation Model. If the Trend Algorithm determines an asset class is in an upward trend, the Allocation Model assumes the expected rate of return of the asset class is the Market Expected Return. If the Trend Algorithm determines an asset class is in a downward trend, the Allocation Model assumes the expected rate of return of the asset class is 0%, causing the asset class to be underweighted. The Index may weight one or more asset classes at 0% from time to time depending on the outcome of the Trend Adjustment and Allocation Model.
The Risk Adjustment is then implemented based on the aggregate size of the equity asset classes determined to be in a downward trend by the Trend Algorithm. When all equity asset classes are determined to be in an upward trend, the Index’s allocation to equity asset classes will reflect the Index’s most aggressive posture (i.e., maximum allocation to equity asset classes). As one or more equity asset classes is determined to be in a downward trend, the Index’s allocation to equity asset classes will shrink as the aggregate size of the equity asset classes determined to be in a downward trend grows. When all equity asset classes are determined to be in a downward trend, the Index’s allocation to equity asset classes will reflect its most conservative posture (i.e., maximum allocation to fixed income asset classes).
Additionally, the Index’s weighting of certain assets classes is limited such that the following weights will not be exceeded at the time of each rebalance: High Yield Fixed Income (20%), Inflation Protected Fixed Income (20%), U.S. Mid Cap Equity (12.5%), U.S. Small Cap Equity (12.5%), Developed International Equity (35%), Developed International Small Cap Equity (10%), Emerging Markets Equity (15%), and Real Estate (15%). The Allocation Model will determine how to optimally redistribute any amounts exceeding the above constraints to the remaining asset classes.
The Index is rebalanced annually in March and any time the Trend Algorithm determines that the trend for one or more asset classes has changed from upward to downward, or vice versa.
At the time of each rebalance, the Index’s Risk Adjustment will determine the proportion of the Index allocated to equity asset classes and to fixed income asset classes. The weight for each individual asset class is calculated at the time of the annual rebalance based on the expected rate of return for each asset class (i.e., either the Market Expected Return or 0%, depending on the asset class’ trend) and the market capitalization, 5-year standard deviation, and correlation of each asset class to each other asset class. At the time of each rebalance other than the annual rebalance, the weight for each individual asset class is calculated based on the expected rate of return for each asset class (i.e., either the Market Expected Return or 0%, depending on the asset class’ trend) and the market capitalization, fiveyear standard deviation, and correlation of each asset class to each other asset class determined at the time of the annual rebalance.
Asset classes with an upward trend and the largest market capitalizations will generally receive the largest weightings in the Index.
The Index is owned by Premise Capital, LLC, the Fund’s investment adviser (“Premise” or the “Adviser”), and was developed in 2016 for the purpose of launching the Fund.
Fund Top Consituents (10/28/16):
Name |
Symbol |
Weight |
| SPDR S&P 500 ETF TR TR UNIT | SPY | 32.68% |
| ISHARES TR MSCI EAFE ETF | EFA | 24.15% |
| ISHARES INC CORE MSCI EMKT | IEMG | 8.40% |
| ISHARES TR COHEN&STEER REIT | ICF | 6.69% |
| SPDR S&P MIDCAP 400 ETF | MDY | 5.97% |
| SPDR INDEX SHS FDS S&P INTL SMLCP | GWX | 5.58% |
| ISHARES TR IBOXX HI YD ETF | HYG | 5.06% |
| ISHARES TR CORE S&P SCP ETF | IJR | 5.00% |
| ISHARES BARCLAYS TIPS BOND FUND | TIP | 2.86% |
| ISHARES TR 20 YR TR BD ETF | TLT | 1.22% |
| ISHARES TR CORE US AGGBD ETF | AGG | 0.78% |
Useful Links:
TCTL Home Page
Category: Multi Asset> Multi Asset Strategy> Hedge Fund Strategies
ETFtrack Comment:
TCLT is the first ETF launched by Premise Capital. Here is a comment from Jason Rolence Premise’s Co-Founder:
“After a 30-year bull market in bonds and a seven-year bull market in stocks, investors are concerned about volatility increasing and are seeking tactical strategies that may be more sensitive to market declines. TCTL offers investors a product with the ability to adjust a portfolio’s allocation to reflect changing expectations, which is critical in today’s investment climate.”