We recently had the opportunity to talk with Matt Tuttle, CEO and CIO at Tuttle Tactical Management, about his firm’s unique trend aggregation approach, as well as the importance of perceived versus actual diversification.
ETF Database (ETFdb): What’s Tuttle Tactical’s background?
Matt Tuttle (MT): Tuttle Tactical was formed in 2012 when RIAs began coming to me and asking if I could manage by using the same investment strategies for them that I was using in my wealth management firm.
ETFdb: What motivated you to enter the ETF arena as an issuer?
MT: I became firmly convinced that ETFs are a much better structure for clients than mutual funds or separately managed accounts, so the decision was made to take some of our SMA strategies and convert them into ETFs.
ETFdb: Tell us about Tuttle’s trend aggregation strategies, and how this approach is unique – particularly in the ETF industry.
MT: Most tactical managers fall into one of two categories:
- Partially tactical: This is just traditional asset allocation with the ability to be slightly dynamic. Done well, it is probably better than just traditional asset allocation, but not by much.
- Fully tactical but non-diversified: These are managers who have no fixed allocations to stocks, bonds, or cash, but only use one methodology to make their allocation decisions. The problem with this is that methodologies go in and out of favor, just like investment styles do. When a manager’s methodology is out of favor then it makes things pretty difficult.
Trend aggregation is fully tactical, meaning no fixed allocations, but it uses multiple uncorrelated methodologies to make allocation decisions. Just like strategic allocation allocates among a number of different asset classes, trend aggregation allocates among a number of different tactical methodologies.
ETFdb: Walk us through the idea of perceived versus actual diversification, and why this should be important to ETF investors.
MT: In traditional asset allocation, investors might have a number of different ETFs or funds. They could have large-cap, small-cap, mid-cap, international, growth, value, etc. Over large periods of time these asset classes might be somewhat uncorrelated, so the investor feels diversified. However, in a down market all of these asset classes become completely correlated and go down together, so while the investor feels that he or she has the safety of diversification, when it is really needed, it is not there.
Actual diversification is combining asset classes, or in our case, tactical methodologies, that are uncorrelated on an underwater basis, meaning that when one is in a drawdown another one is typically making money. The basic idea is that your asset classes or methodologies have different “Achilles Heels” so they don’t go down at the same time.
ETFdb: How have you incorporated your trend aggregation-based, tactically managed strategy into your ETF offerings?
MT: We have about 30 different tactical models that we monitor on a daily basis. These models use different metrics to decide how to be allocated. We then go through an optimization process to decide how much money to allocate to each model, if any. This further increases diversification, as one of our inputs into our optimization process is how correlated the models are to each other.
ETFdb: What are some major ETF industry trends you expect will dominate the space in the foreseeable future?
MT: I believe ETFs will ultimately supplant mutual funds; for this to happen there needs to be more investor education on how to trade them, and technology for issuers to get a better handle on who is buying their ETF. I think we will see more active strategies and more smart-beta strategies, as the world doesn’t need another index ETF.
ETFdb: How will Tuttle Tactical Management differentiate itself from the competition?
MT: We will continue to offer differentiated tactical products and combine with selected money managers to offer products that combine other investment themes with our tactical expertise.
The Bottom Line
For those looking for a new twist on core ETFs, Tuttle Tactical Management’s unique trend aggregation approach provides investors with “actual” diversification, as well as optimized access to over 30 different tactical models
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Disclosure: No positions at time of writing.