The CEO and CIO of Tuttle Tactical Management, Matt Tuttle, has recently added an existing ETF to his management lineup: the U.S. Equity Rotation Strategy ETF (HUSE ). Below, we’re asking Matt about the motivation, and any further information, on this new addition to Tuttle Tactical Management. This is a follow-up to a previous interview we had with Matt about a year ago where we discussed his company’s other ETFs and strategy.
ETFdb.com (ETFdb): From what I understand, the U.S. Equity Rotation Strategy ETF (HUSE) has been acquired by the Catalyst Mutual Fund Platform. Could you explain the involvement of Tuttle Tactical Management regarding this ETF? Will you be managing the ETF on behalf of the issuer, or are you just helping with the asset allocation strategy?
Matt Tuttle (M.T.): Tuttle Tactical Management has been appointed as the sub advisor for HUSE and will be managing the portfolio going forward.
M.T.: It is a little bit more aggressive in the risk/reward spectrum and it gives us a “partially tactical” alternative. TUTT and TUTI can both move to 100% cash. HUSE will always have some equity exposure, making it potentially a better fit for investors who are willing to adopt some tactical allocation in their portfolios but aren’t willing to be 100% cash.
ETFdb: What are some unique features of the HUSE ETF? Were there any changes to these features or the ETF’s strategy after the shift in management?
M.T.: Yes, once the new prospectus is approved HUSE will, under normal circumstances, have 50% of the portfolio in 25-60 individual equities, chosen quantitatively, using two different quant models. The remaining part of the portfolio will be a tactical overlay that can be opportunistic during market rallies and defensive during declines.
ETFdb: What type of investors do you believe will be interested in this ETF?
M.T.: Investors who are looking for hedged equity exposure, as this will have the ability to go between 50-100% stocks – and during bear markets, we will take it down to 30%. Investors can’t get this type of protection in minimum volatility products and it will have more upside than products that have a constant hedge.
ETFdb: How will the HUSE ETF fit into a portfolio for someone who already owns a broad-based equity ETF?
M.T.: This ETF can replace US equity exposure.
ETFdb: Because you specialize in active ETFs, could you tell us about the advantages of active management versus a passive indexing investment approach?
M.T.: An active tactical approach allows investors to be opportunistic when the market is increasing and defensive when it is going down. If you think about the investor experience in indexed products, they are happy when things are going up, but they want to sell when things are going down; this typically happens near bottoms. Tactical products do this naturally and line up better with what investors actually want.
ETFdb: What current trends are you seeing among ETF products that were quick to gain momentum?
M.T.: Unfortunately, we aren’t seeing any great trends taking shape: It is more of the same with different ways to slice smart beta and non-transparent products that are better than mutual funds but have disadvantages vs. transparent ETFs. What is needed are more tactical options, which we plan to launch, and more in the liquid alts space.
ETFdb: What do you think is the biggest challenge for investors in 2016? And how can a trend aggregation strategy help?
M.T.: We think the market will play pinball between the February lows and the highs, with a bear market on the horizon sometime soon. This will be extremely challenging for investors in traditional strategies who will have a wild ride like we saw in August and January, followed by a 2008-style bear market. Trend aggregation can protect investors from all of this and make money in any environment.
The Bottom Line
There are multiple advantages to an active tactical approach and a trend aggregation strategy as Mr. Tuttle stated above. Investors who wish to potentially enhance returns during different market environments could take full advantage of the three ETFs that are managed by Tuttle Tactical Management. The newly managed HUSE ETF will also use an active tactical approach and the ETF can be used to replace investors’ US equity exposure.