Trend: ETFs/ETNs that implement a trend-following strategy of avoiding big losses while capturing upside moves are becoming available for a variety of indexes.
Michael Johnson at ETF Database describes the latest entry to the TrendPilot series below.
Link: RBS Launches Crude Oil Trendpilot ETN
The RBS Oil Trendpilot ETN (TWTI) is linked to the RBS Trendpilot Index, a dynamic benchmark that oscillates between oil futures and cash depending on recent price trends. When the RBS 12-Month Oil Total Return Index is above its 100-business day simple moving average for five consecutive days, the note will track the performance of that benchmark. If the index closes below its moving average for five straight days, the note will pivot its exposure into cash. According to the RBS Web site, TWTI is currently tracking the cash rate.
The underlying index is comprised of 12 futures contracts on light sweet crude oil (WTI) traded on the NYMEX, including the contract scheduled to expire in the next calendar month and the contracts scheduled to expire in each of the 11 months following. That allocation is similar to the exposure offered by the United States 12-Month Oil Fund (USL), which has about $200 million in assets. So it’s important to note that the exposure offered is determined not by the price of spot crude, but rather by movements in an index comprised of futures contracts linked to the important energy commodity. In other words, the slope of the oil futures curve will have an impact both on the timing of switches between the two types of exposure and the returns generated when TWTI is “switched” to the oil futures index.