Focus on Risk Management with this Active ETF
Smart investors aim to preserve their capital while making as much money as possible. These two goals are complementary because large losses may result in dramatic long-term underperformance vs. the stock market. For example, a portfolio that falls 50% needs to rise by 100% just to break even. To address this dilemma, Summit Global Investments (SGI) employs a proprietary Managed Risk ApproachTM as the hallmark of its investment process.
Introducing SGI Dynamic Tactical ETF
This ETF is different from traditional ETFs. Traditional ETFs tell the public what assets they hold each day. This ETF will not. This may create additional risks for your investment. For example, you may have to pay more money to trade an ETF’s shares. This ETF will provide less information to traders, who tend to charge more for trades when they have less information. The price you pay to buy ETF shares on an exchange may not match the value of the ETF’s portfolio. The same is true when you sell shares. These price differences may be greater for this ETF compared to other ETFs because this ETF provides less information to traders. These additional risks may be even greater in bad or uncertain market conditions. The SGI Dynamic Tactical ETF will publish on its website each day a “Proxy Portfolio” designed to help trading in shares of the ETF. While the Proxy Portfolio includes some of the ETF’s holdings, it is not the ETF’s actual portfolio. The differences between this ETF and other ETFs may also have advantages. By keeping certain information about an ETF portfolio secret, this ETF may face less risk that other traders can predict or copy its investment strategy. This may improve the ETF’s performance. If other traders are able to copy or predict an ETF’s investment strategy, however, this may hurt the ETF’s performance. For additional information regarding the unique attributes and risks of this ETF, see the prospectus.
SGI Dynamic Tactical ETF (NASD: DYTA) is an innovative ETF comprised of underlying equity funds holding companies of all sizes. We believe not losing money should be an investor’s number one priority. That’s why DYTA’s portfolio management team starts by assessing the potential risk of an investment. SGI’s proprietary software sources data from multiple providers, running a variety of scenarios in an attempt to predict how each underlying fund may perform in various market environments. Next, the possible return of each fund is analyzed, focusing on factors that have historically predicted past performance. In the third step, optimization, the team looks at how the different funds and asset classes they represent might interact with each other in the portfolio. They are looking for a combination of funds with the highest potential for the best return with the lowest volatility.
Rounding out SGI’s process is its continual search for what it refers to as “dry powder”— these are idiosyncratic risks that are “sitting in the corner and could catch fire,” leading to sharp declines in the price of an investment. These risks may include pending litigation, SEC investigations, or the sudden resignation of a Chief Financial Officer, issues that may balloon into big problems for companies and significantly impact their share prices. When the DYTA team spots dry powder, they get out — no emotion, no questions asked.
Actively Managed – Managing Risk with Tactical Moves
As an actively-managed ETF, DYTA isn’t completely at the whim of the market—the fund’s managers are ready to make tactical moves designed to lower the overall volatility of the portfolio. This can be particularly beneficial in times of investor panic as well as during times of heightened levels of exuberance.
Like traditional ETFs, DYTA comes with low expenses, tax efficiency, and daily liquidity. But it also sports another key attribute: DYTA is part of a newer class of semi-transparent ETFs. A semi-transparent ETF publishes its full list of holdings every quarter, and while it discloses what it owns daily, it will not reveal the exact quantities or percent of the portfolio. In this way, the manager can seek to generate alpha (i.e., the excess return of an investment relative to the return of its benchmark index) for investors by keeping its daily buy/sell decisions from other market participants; this makes it more difficult for competitors to replicate or trade against their strategy, which could potentially harm DYTA’s investors.
For investors who seek solid long-term returns, it’s imperative to manage the long-term as well as the short-term risks that arise along the way. To echo a famous Warren Buffett quote, there are two rules in investing. Rule number 1: Try not to lose money. Rule number two: Never forget rule number 1. That’s the essence of the strategy behind DYTA: Risk management first, followed by a keen eye for the outsized opportunities that the market sometimes offers to investors.
Important Risk Information
Carefully consider the Fund’s investment objectives, risk factors, charges, and expenses before investing. This and additional information can be found in The SGI Dynamic Tactical ETF’s prospectus. Read the prospectus carefully before investing.
Diversification does not eliminate the risk of experiencing investment loss.
Investing involves risk, including possible loss of principal. The Fund is a newly organized, diversified management investment company with no operating history. To the extent the Fund invests in Underlying Funds that invest in fixed income securities, the Fund will be subject to fixed income securities risks. While fixed income securities normally fluctuate less in price than stocks, there have been extended periods of increases in interest rates that have caused significant declines in fixed income securities prices. To the extent that a Fund invests in Underlying Funds that invest in high-yield securities and unrated securities of similar credit quality (commonly known as “junk bonds”), the Fund may be subject to greater levels of interest rate and credit risk than funds that do not invest in such securities. Small-cap companies that the Underlying Funds may invest in may be more volatile than, and not as readily marketable as, those of larger companies. Small companies may also have limited product lines, markets or financial resources and may be dependent on relatively small or inexperienced management groups. Underlying Funds that invest in foreign securities may be subject to special risks, including, but not limited to, currency exchange rate volatility, political, social or economic instability, less publicly available information, less stringent investor protections and differences in taxation, auditing and other financial practices. Investments in emerging market securities by Underlying Funds are subject to higher risks than those in developed countries because there is greater uncertainty in less established markets and economies. To the extent the Fund invests in Underlying Funds that focus their investments in a particular industry or sector, the Fund’s shares may be more volatile and fluctuate more than shares of a fund investing in a broader range of securities.
ESG investing risk is the risk stemming from the ESG factors that some Underlying Funds may apply in selecting securities. Some Underlying Funds may screen out particular companies that do not meet their ESG criteria. This may affect the Underlying Funds’ and the Fund’s exposure to certain companies or industries and cause the Underlying Funds to forego certain investment opportunities. The Underlying Funds’ results may be lower than other funds that do not use ESG ratings and/or screen out certain companies or industries. Certain Underlying Funds may screen out companies that they believe may have higher downside risk and lower ESG ratings, but investors may differ in their views of ESG characteristics. As a result, the Underlying Funds may invest in companies that do not reflect the beliefs and values of any particular investor.
Distributed by Quasar Distributors, LLC.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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