A Long-Term ETF Strategy For Buy-And-Hold Investors

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Includes: LFEQ
by: Tom Lydon
Summary

Day traders are having a rough time finding inefficiencies in the market as fast-pace computer algorithms become more prevalent.

Nevertheless, long-term investors can still look to exchange traded fund strategies that limit risks and capture upside potential.

The VanEck Vectors NDR CMG Long/Flat Allocation ETF can provide investors with an investment solution that offers a systematic approach to preserve capital by increasing cash when the market health is weak and participating in uptrends with a full allocation to equities when the markets are strong.

LFEQ's current portfolio positions include about a fully invested position in the S&P 500.

Day traders are having a rough time finding inefficiencies in the market as fast-pace computer algorithms become more prevalent. Nevertheless, long-term investors can still look to exchange traded fund strategies that limit risks and capture upside potential.

Ned Davis, the founder of his namesake research firm, was a successful day trader for about three decades, but he wouldn't even try it now, CNBC reports.

"I wouldn't touch it with a 10-foot pole now," Davis said, highlighting "algos" - short for algorithms - contributed to the shift in preferences.

Algorithms or computerized trading where computers execute trades in fractions of a second if certain conditions are met have greatly reduced the human response time in reacting to short-term events, pushing out many traditional day traders from the market.

Computer programs are a faster and much more cost-effective way of trading, and the automated element has also made it nearly impossible for humans to find an edge to exploit, with Davis adding that "the algos have taken all of the inefficiencies out of the market."

"They say you can't make money day trading. I did it for 30, 33 years," Davis said. But "they've taken the short-term [opportunities] out of the market. I've just gotten more and more long term."

For example, Ned Davis has partnered up with VanEck to launch a long-term dynamic investment strategy driven by institutional-level expertise from Ned Davis Research that could help investors enhance long-term investing and better manage downside risks.

The VanEck Vectors NDR CMG Long/Flat Allocation ETF (NYSEARCA:LFEQ) can provide investors with an investment solution that offers a systematic approach to preserve capital by increasing cash when the market health is weak and participating in uptrends with a full allocation to equities when the markets are strong.

LFEQ tries to reflect the performance of the Ned Davis Research CMG US Large Cap Long/Flat Index, which follows trade signals that dictate the portfolio's equity allocation ranging from 100% fully invested or "long" S&P 500 exposure to 100% in cash or "flat" Solactive 13-week U.S. T-bills.

The index's model follows a two-step process. The first step measures trend following and mean reversion within the S&P 500 industry groupings to determine a bullish or bearish market environment. Additionally, the model applies a risk filter process to ensure that all of the price-based industry level indicators are effective over time.

The second step calculates the scores taken from the first phase to produce the equity allocations of the index. When the index is not completely long or flat, either 80% or 40% of the portfolio will be allocated to the S&P 500, with the remainder allocated to the Solactive 13-week U.S. T-bill index.

LFEQ's current portfolio positions include about a fully invested position in the S&P 500.

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