Fairlead Strategies launched its first investable product on the NYSE today, offering advisors a new approach to gaining strategic U.S. large-cap equity exposure backed by technical analysis.
The Fairlead Tactical Sector ETF (TACK) is advised by Cary Street Partners Asset Management and will be actively managed by Katie Stockton, who founded the independent research firm Fairlead Strategies in 2018 and has spent most of her 25-year career on Wall Street publishing technical strategy research, the basis for TACK’s methodology. TACK carries an expense ratio of 70 basis points.
“Our perspective, most directly put, is that we have experienced great results for our clients by surrounding ourselves with the smartest people we can partner with,” said Tom Herrick, CIO at Cary Street Partners. “In this instance, after working with Katie on the research side for several years, we jumped at the opportunity to partner with her and launch an investable strategy.”
“Cary Street will provide all the infrastructure support (trading, compliance, marketing) to the ETF as advisor, freeing up Fairlead to focus on portfolio management as sub-advisor. This business arrangement is not common in our space as an independent RIA,” Herrick continued.
The primary goal of the ETF is to leverage momentum and sector rotation while minimizing drawdowns through the ability to move into Treasuries, gold, and cash equivalents when the equity market loses momentum.
“We believe the conservative nature of TACK’s strategy makes it a high-quality, low-risk investment for anyone interested in participating in the U.S. equity market,” Stockton said.
TACK is well-positioned to navigate markets that have lost upside momentum for any number of reasons, whether geopolitical, macro-oriented, or fundamental.
“Simulated back-tested results suggest that the risk-off element of TACK (i.e., its ability to move into Treasuries, gold, and cash equivalents) helps protect capital during times of stress for the equity market, reflected by corrective phases or bear markets,” Stockton said.
Actively managed funds like TACK incorporate risk management as a primary differentiator from most passive strategies. TACK is unique in that it also follows trends and momentum as a way to discover and take advantage of leading sectors in the U.S. equity market. Simulated back-tested results also suggest that this will allow TACK to outperform long-term returns offered by a passive long-term buy-and-hold S&P 500 strategy, while still minimizing drawdowns in a proactive manner, Stockton said.
Fairlead’s technical model systematically identifies long-term shifts in trends on the sector level using a combination of momentum indicators and overbought/oversold measures, with a quantitative ranking system as an additional momentum filter.
TACK’s investable universe will consist of the sectors of the S&P 500, as defined by the State Street series of SPDR ETFs. When fewer than eight of the 11 sector ETFs evaluated for the strategy pass through the filters, then the SPDR Portfolio Long Term Treasury ETF (SPTL ), the SPDR Gold Shares ETF (GLD ), and the SPDR Portfolio Short Term Treasury ETF (SPTS ) will be considered for inclusion.
The shift to a more defensive posture is likely to be gradual, based on historical studies, dependent on the market environment. The model will be continually monitored and adapted as needed when the market’s behavior dictates it, according to Stockton.
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