RBS Rolls Out Nasdaq-100 Trendpilot ETN (TNDQ)

by on December 14, 2011 | ETFs Mentioned:

RBS, the well-known financial institution and relative newcomer to the ETF space. introduced its sixth ETN this week. This new ETN, the NASDAQ-100 Trendpilot ETN (TNDQ), will join the issuer’s family of “Trendpilot” ETPs, which offer exposure to a dynamic trading strategy applied across a variety of asset classes. TNDQ is linked to the RBS NASDAQ-100 Trendpilot Index, offering a low maintenance way to implement a trend-following strategy towards the popular tech-heavy stock benchmark [see Examining Dynamic ETFs].

Under The Hood

TNDQ provides investors with exposure to 100 of the largest non-financial securities listed on the NASDAQ exchange–sometimes. Like all other Trendpilot ETNs, the underlying index is rules-based, and employs a dynamic allocation strategy based on a simple historical moving average. TNDQ tracks either the NASDAQ-100 Total Return Index or the yield on a hypothetical notional investment in 3-month U.S. Treasury bills, depending on the relative performance of the underlying equity index; when the NASDAQ-100 Total Return Index is at or above its 100-day simple moving average, TNDQ goes long the underlying securities [see High Tech ETFdb Portfolio]. However, if the same index closes below its 100-day simple moving average for five consecutive sessions, TNDQ automatically shifts exposure into short-term U.S. Treasuries.

In other words, TNDQ is a “hands-free” trend following ETN that shift into cash when the target asset class is deemed to be in a downward trend and moves back into a long position when prices are trending upwards again. The underlying basket of securities is comprised of well-know, large cap tech giants including Apple (14%), Microsoft (8%), Oracle (6%), Google (6%), and Intel (5%) [see TNDQ Fact Sheet]. Investors should note that TNDQ’s price structure is also dynamic; this ETN charges a 1% expense fee when it is tracking the underlying equity index, and the management fees drop to 0.50% when it switches exposure over to 3-month U.S. Treasury bills. Additionally, because TNDQ is an exchange-traded note, investors are exposed to the inherent credit risk of the issuing institution that is associated with this product structure.

Trendpilot Family

RBS Securities currently offers four other ETNs, in addition to the recently launched TNDQ, which follow the Trendpilot strategy:

  • U.S. Large Cap Trendpilot ETN (TRND): Launched in late 2010, TRND is the the oldest and most popular offering from the Trendpilot family, with close to $40 million in assets under management. 
  • U.S. Mid Cap Trendpilot ETN (TRNM): This ETN provides exposure to the lucrative mid cap segment of the U.S. equity market, allowing for investors to capture gains in bull markets, while limiting downside risks in case markets head south. 
  • Gold Trendpilot ETN (TBAR): This ETN provides investors with “safe haven” exposure as it tracks the price of gold, while still maintaining the flexibility to move into Treasury bills in case gold prices enter a downtrend.
  • Oil Trendpilot ETN (TWTI): This ETN allows for investors to jump into the lucrative, although volatile, energy futures market, while still taking advantage of the rules-based Trendpilot strategy.

The sixth member of the RBS lineup is the Global Big Pharma ETN (DRGS), which offers exposure to pharmaceutical companies from around the globe.

The appeal of TNDQ and other Trendpilot strategies lies in the ability to implement a trend following strategy without some of the drawbacks that come along with that approach. Specifically, oscillating between cash and the desired risky asset can result in investors racking up commissions and potentially some short-term capital gains obligations. Because TNDQ is structured as an ETN, there are no underlying assets that are bought and sold as the trend indicator moves; investors will generally only experience a tax event when they sell their shares of the ETN.

Disclosure: No positions at time of writing.