VettaFi’s vice chairman Tom Lydon discussed the Pacer Trend Pilot US Large Cap ETF (PTLC) on this week’s “ETF of the Week” podcast with Chuck Jaffe of “Money Life.”
The 200-day moving average is the most widely used signal for technical analysis. “This ETF — and Pacer has a whole suite of this — operates internally on a long-term trend line,” Lydon said. Of course, when following trends, it takes time and energy to monitor and execute the necessary trades. PTLC takes that away, handling it all internally. According to Lydon, “What this organization has done is put a systematic approach in place to in fact, internally, within that ETF, operate it as far as being long when it is above its long-term trend line and then selling it and going into cash or Treasuries when it’s below its long-term trend line.”
Lydon highlighted the tax efficiency of PTLC, noting that even aside from the efficiency found in an ETF wrapper, this product has found a way to play the trends while also generating little to no capital gains. Given that the S&P 500 has recently gone above its 200-day moving average, this product is particularly notable. Lydon said, “If you have some cash on the sidelines and you want to be able to put it to work when a new trend develops, this is an opportunity.” He also said that tax-loss harvesting is another upside to PTLC for investors who took some losses in their large-caps but need a place to park and take advantage of possible up trends without sacrificing those losses.
“It’s got the inherit 200-day moving average in its plumbing,” Lydon said, making PTLC an ideal choice for investors who don’t have the diligence, time, or emotional fortitude to trend follow more broadly.
Asked where the fund fits, Lydon noted that for folks close to retirement, it could be worth having a 20% equity allocation, given the downside protection that is offered by trend following, particularly in extended bear markets. “At the same time, it allows you to have the confidence to put more of your portfolio into the market knowing that there’s some kind of exit strategy in place,” he said.
The risk in PTLC is whipsaws when trends retreat. “I’m a big fan of trend following. I’m a really big fan of trend following, and you don’t have to pay capital gains.”
