Pacer ETFs has partnered with Lunt Capital Management on a trio of US equity ETFs that rotate between factor exposures based on Lunt’s proprietary relative strength methodology.
Sean O’Hara, President of Pacer ETFs.
The Pacer Lunt Large Cap Alternator ETF (ALTL US) shifts between high-beta and low-volatility stocks within the S&P 500.
The Pacer Lunt Large Cap Multi-Factor Alternator ETF (PALC US) rotates among value, quality, volatility, and momentum stocks within the S&P 500.
And the Pacer Lunt MidCap Multi-Factor Alternator ETF (PAMC US) rotates among value, quality, volatility, and momentum stocks within the S&P MidCap 400.
Each fund comes with an expense ratio of 0.60% and has listed on NYSE Arca. Collectively, they form the ‘Pacer Lunt Alternator ETF Series’.
Methodology
Relative strength compares the price performance, or momentum, between securities.
The Pacer Lunt Large Cap Alternator ETF is linked to the Lunt Capital US Large Cap Equity Rotation Index. On a monthly basis, the index allocates to either the S&P 500 High Beta Index or the S&P 500 Low Volatility Index, depending on which sub-index has the superior relative strength. The sub-indices consist of the 100 S&P 500 stocks with the highest beta or lowest volatility, weighted by their factor exposure.
The Pacer Lunt Large Cap Multi-Factor Alternator ETF and Pacer Lunt MidCap Multi-Factor Alternator ETF are linked to the Lunt Capital US Large Cap Multi-Factor Rotation Index and Lunt Capital US MidCap Multi-Factor Rotation Index, respectively.
The index construction process for these indices monitors the relative strength of eight single-factor sub-indices that represent the highest or lowest quintile of stocks when ranked by value, quality, volatility, or momentum characteristics. Each sub-index is weighted using a combination of market capitalization and factor exposure.
On a monthly basis, the methodology will allocate equally to the two sub-indices that are displaying the strongest relative strength. It will not, however, allocate to both the high and low exposure sub-indices of the same factor. In such a scenario, the index will allocate to the first and third sub-indices ranked by relative strength.
Navigating uncertainty
Sean O’Hara, President of Pacer ETFs, commented, “Given the increased market volatility seen in 2020, it is now more important than ever to incorporate investment solutions that can rely on strategy and timeliness to navigate market uncertainty. The introduction of the Pacer Lunt Alternator ETF Series seeks to give investors just that — potential to circumvent volatility and focus on the factors that make an investment most attractive.”
The new series complements Pacer’s existing TrendPilot ETFs which also use trend-following signals in a bid to participate in an asset class’s upside potential while managing risk by shifting into safe-haven assets during periods of market stress.
The TrendPilot suite has been instrumental in the success of Pacer ETFs which has accumulated $5.3bn in assets under management over the firm’s five years in existence.
Joe Thomson, Founder and President of Pacer Financial, said, “Our growth this year and over the last five years is directly correlated with the integrity of our products and the resiliency of our strategies. As investors, we are faced with market fluctuations and uncertainty. By consistently improving and expanding our offerings of rules-based ETFs, we can best deliver an investment product that takes into account potential downturns and forthcoming opportunities. It is our ingenuity that has allowed us to grow in the past and will enable us to continue growing in the years ahead.”