Rieger Report®: A Passive RO/RO Strategy: PTBD

Passive Risk-Off/Risk-On Fixed Income with an ETF! PTBD

The Rieger Report has initiated coverage of the Pacer TrendPilot® US Bond ETF, symbol PTBD.

What caught my attention to this relatively new ETF is that it is a passive rotation strategy for periods of time that are either risk-off or risk-on. In my view, the Pacer concept is beautifully simple: as investors shift to either risk-on or risk-off positions that in turn can drive performance in specific bond market segments. Shifting exposure to those markets to capture the performance is the goal.

To determine the risk-on/risk-off cycles, the PTBD ETF is based on a Pacer developed index which calculates the Risk Ratio(1) between two broad asset classes, junk bonds and risk-free Treasury bonds.

  • Risk-on is represented by the S&P U.S. High Yield Corporate Bond Index
  • Risk-off is represented by the S&P U.S. Treasury Bond 7-10 Year Index

To alternate exposure, the underlying Pacer index and its Risk Ratio must, over a 5-day consecutive period, trend higher or lower than the 100-day simple moving average.

(1)Risk Ratio is calculated by dividing the S&P U.S. High Yield Corporate Bond Index total return by the S&P U.S. Treasury Bond 7-10 year Index total return.

Source: Paceretfs.com.

Passive Risk-Off/Risk-On Fixed Income with an ETF: PTBD


Sources: Paceretfs.com.

Rieger Report Perspectives on PTBD

Potential benefits of PTBD:

  • Bond exposure that is easy to explain and understand.
  • Rules based passive risk-on/risk-off fixed income strategy.
  • The risk ratio 5-day consecutive trigger and the 100-day simple moving average should help keep transaction costs down while adhering to the overall strategy.
  • Currently, the ETF based on Assets Under Management (AUM) is relatively small and holds 100 securities. This nimble size should be beneficial to the execution of the strategy.

Potential pitfalls of PTBD:

  • When in the risk-on time periods, PTBD invests in corporate junk bond issues. While these tend to be the larger more liquid bond issues there can still be transaction costs associated with buying & selling these bonds as well as periods where liquidity may vary.
  • The passive allocation to a rotation strategy such as this has limited real-life experience. Performance overtime should be telling.

Sources: Paceretfs.com.

Comparing PTBD to SPDR JNK


Sources: Paceretfs.com, Pacer ETFs, SSGA.com and Yahoo.com. Table is provided for illustrative purposes only. Past performance is not a guarantee of future results. Data as 1/31/2020.

Data Resources Used in this Report:

Analyst Disclosure:

  • At the time of this writing, JR Rieger’s fixed income exposure is in individual municipal bonds and a municipal bond fund.
  • JR has not received compensation in any form from Pacer ETFs in the compilation or publication of this report.

Click here for a print friendly copy of this report.

Rieger Report® is registered in the U.S. Patent and Trademark Office.
Copyright © 2020 Rieger Report LLC. All rights reserved. Redistribution in whole or in part is prohibited without written permission of the Rieger Report LLC. All information provided by the Rieger Report LLC is for informational purposes only, impersonal, and not tailored to the needs of any person, entity or group or persons. It should not be considered financial advice. The Rieger Report LLC receives compensation in connection with licensing its research, advertising on its website, speaking and consulting services.
Past performance of any investment product or index referenced in the Rieger Report is not an indication of or guarantee of future results.
The Rieger Report LLC is not an investment advisor, and the Rieger Report LLC makes no representation regarding the advisability of investing in any such investment fund or other investment vehicle. A decision to invest in any such investment fund or other investment vehicle should not be made in reliance on any statements set forth in this document. Prospective investors are advised to make an investment in any such fund or other vehicle only after carefully considering the risks associated with investing in such funds, as detailed in an offering memorandum or similar document that is prepared by or on behalf of the issuer of the investment fund or other investment product or vehicle. A financial advisor should be contacted to determine what may be best for your individual needs. The Rieger Report LLC is not a financial or tax advisor. A tax advisor should be consulted to evaluate the impact of any tax-exempt securities on portfolios and the tax consequences of making any particular investment decision. No legal relationship is created between you and Rieger Report LLC.
The Rieger Report LLC does not act as a fiduciary or investment advisor. While the Rieger Report LLC has obtained information from sources it believes to be reliable, the Rieger Report LLC does not perform any audit or undertake verification of any information it receives.
The Rieger Report Rankings are opinions of relative ranking among the peer group analyzed as of the date expressed and not statements of facts. Rieger Report model portfolios are intended for illustration only. Any opinion or analysis decisions are not to be construed as recommendations to purchase, hold or sell any securities or to make any investment decisions, and do not address the suitability of any security. The Rieger Report LLC does not assume any obligation to update the content in this publication in any form or format.
Your use of any information from this document or presentation is at your own risk and without recourse against Rieger Report LLC, its members, managers, or employees. To the maximum extent permitted by law, Rieger Report LLC disclaims any and all liability in the event any information, commentary, analysis, and/or opinions prove to be inaccurate, incomplete or unreliable, or result in any investment or other losses.