Little Harbor Advisors has launched a new actively managed ETF providing risk-managed exposure to the US large-cap equity market.
The fund’s strategy relies on proprietary statistical analysis of the VIX Index.
The LHA Market State Tactical Beta ETF (MSTB US) has listed on Cboe BZX Exchange and comes with an expense ratio of 1.16%. It has been seeded with $25 million.
The fund’s strategy relies on a proprietary statistical analysis of the Cboe Volatility Index, also known as the VIX Index, conducted by LHA’s affiliate Thompson Capital Management.
The VIX represents the implied volatility of US equities derived from option pricing on the S&P 500. It is a measure of the market’s expectation of stock market volatility over a specific time frame.
Thompson Capital Management seeks to estimate the direction and magnitude of US equity market volatility by comparing volatility expectations across short-term and long-term periods, as expressed by 30-day and 90-day VIX indices.
Under normal circumstances, the ETF is expected to be at least 90% allocated to the S&P 500 Index. When the model indicates that short-term volatility is increasing, the fund will shift to assets that are uncorrelated with the S&P 500 to mitigate the impact of any downturn.
According to the prospectus, the ETF may use options, futures, index-based ETFs, or actively managed ETFs providing long or short exposure to the S&P 500, US Treasuries, or the VIX Index to gain its required exposure.
Michael Thompson, Co-founder of Thompson Capital Management, said: “We believe that the cyclical dynamics of S&P 500 volatility, as represented by the VIX Index, along with the pricing of VIX futures contracts, offers insights and valuable information as to near-term market direction with an implied confidence factor. This allows us to shape portfolio holdings to determine which side of the market the portfolio will be exposed, how, and to what extent.”
LHA also offers another active volatility-driven ETF sub-advised by Thomson Capital Management. The LHA Market State Alpha Seeker ETF (MSVX US) houses $25m in assets under management and also comes with an expense ratio of 1.16%.