RBS rolled out its second exchange-traded note on Thursday, adding the U.S. Mid Cap Trendpilot Index ETN (TRNM) to its lineup. The new note will be linked to the performance of the RBS U.S. Mid Cap Trendpilot Index, a dynamic benchmark that shifts exposure between mid cap stocks and low risk Treasuries depending on observable price signals. When the S&P MidCap 400 Index is at or above its 200-day simple moving average, TRNM will be invested in mid cap stocks. If the S&P MidCap 400 closes below its 200-day moving average for five consecutive sessions, exposure will be shifted into 3-month U.S. Treasury bills.
Trend following has been a widely-used investing strategy for decades, and has only gained in popularity after the methodology allowed many investors to watch much of the 2008 bear market from the sidelines. TRNM combines this strategy with the exchange-traded structure, offering a low maintenance product that is governed by an objective set of rules. “The RBS US Mid Cap Trendpilot ETNs enable investors to gain exposure to the S&P 400 Total Return Index utilizing an objective and transparent trend-following strategy,” said Michael Nelskyla, Head of Structured Retail Distribution, Americas at RBS. “This is the second ETN in the Trendpilot series and we are excited about this new offering.”
TRNM addresses some of the potential drawbacks of a trend-following strategy. Those implementing a similar strategy themselves can incur significant transaction costs and capital gains when moving in and out of equity exposure. But TRNM is structured as an exchange-traded note, meaning that is a debt security issued by RBS whose return is linked to the performance of the underlying index. As such there is no underlying portfolio of equities to manage, thereby providing an option for following trends that avoids recurring commissions or undesirable tax consequences [see True Cost Of ETF Investing].
Late last year RBS launched its first U.S.-listed ETN, the U.S. Large Cap Trendpilot ETN (TRND). That exchange-traded note is linked to an index that shifts exposure between the S&P 500 and cash depending on current price levels.
Disclosure: No positions at time of writing.