Alternative Investments: A New ETF Invests Tactically Based On “Relative Sentiment”

The actively managed ETF invests in equities, bonds, and gold.

Relative Sentiment Technologies LLC has launched the Relative Sentiment Tactical Allocation ETF (NYSEARCA: MOOD) on the New York Stock Exchange. The ETF seeks to generate long term capital appreciation by tactically investing in other ETFs that invest in equity, bond, and gold based on “relative sentiment” factors. (ETF Trends)

Relative sentiment measures the difference in sentiment between institutional and retail investors.

Relative Sentiment Tactical Allocation ETF (NYSEARCA: MOOD)

Relative Sentiment Technologies LLC focuses on the research and development of relative-sentiment-based tactical asset allocation strategies. The firm is led by President Raymond Micaletti, Ph.D. who previously had stints at Fortress Investment Group, Barclays Capital, and Columbus Macro.

Investments in the new ETF will be tactically allocated among passively-managed U.S. and foreign, developed market equity ETFs, bond ETFs, and, in some instances, gold exchange-traded products (ETPs).

Equity Allocation Determination

In general, Relative Sentiment determines the Fund’s equity allocation by taking the average of the following four indicators, each of which can range from 0% (extreme relative bearishness) to 100% (extreme relative bullishness):

· A positions-based relative sentiment indicator derived from the Commitments of Traders Report

· A survey-based relative sentiment indicator derived from Sentix sentiment indices

· A cross-asset relative sentiment indicator derived from non-equity components of the Commitments of Traders Report

· A retail macro sentiment indicator derived from the Daily Sentiment Index

Bond and Gold Allocations

Once Relative Sentiment has determined the Fund’s equity allocation, the Sub-Adviser will recommend that the Fund allocate the remainder of its portfolio to broad-based or inflation-protected bond ETFs and, in some instances, to gold exchange-traded products (ETPs).

In particular, Relative Sentiment will allocate between gold, broad-based bonds, and inflation-protected bonds based on the following indicators:

· U.S. dollar relative sentiment (derived from the Commitments of Traders Report)

· Federal Reserve policy sentiment (derived from data on real interest rates)

· Retail macro sentiment (derived from the Daily Sentiment Index)

For example, if U.S. dollar relative sentiment is bearish and real rates are declining, the Fund will generally allocate the Fund’s non-equity holdings evenly between bond ETFs and gold ETPs. Whereas with respect to intra-bond allocations, the level of retail macro sentiment will determine how bond allocations are apportioned between broad-based and inflation-protected bonds.

The ETF has an expense ratio of 0.71%.

Related Story: As [60:40] Crumbles, Simplify Launches Macro Strategy ETF

Image Credit: Asset allocation by Nick Youngson CC BY-SA 3.0 Pix4free

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