ETNs For Trend Following Fanatics

Many investors implement some sort of technical analysis in their decision-making process when entering or exiting a position. This may include looking at a chart to spot historical support and resistance points or examining moving averages as key guideposts.  

While mastering technical signals can be difficult, one suite of exchange-traded notes takes the guesswork out of following the trends of the market.  

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The RBS U.S. Large Cap Trendpilot ETN TRND follows a systematic method of being long the S&P 500 Total Return Index when the market is above its 200-day moving average and in three-month U.S.Treasury bills when it is below.  

Simply put, this ETN seeks to avoid large drops in stocks by moving to the safety of cash when the market falls below its long-term moving average for five consecutive days. TRND will then reallocate back to stocks when the market has traded back above this key trend line for another five consecutive days.

The allowance for multiple consecutive days of trading above or below the trend line is likely to help avoid whipsaws or bad pricing data that can negatively impact performance.

Currently, this ETN has more than $340 million in total assets and charges an expense ratio of 1.00 percent. It’s also worth noting that investor fees are reduced to 0.50 percent when the portfolio is tracking cash.

Paying A Premium

Those fees are in stark contrast to the 0.05 percent expense ratio of the Vanguard S&P 500 ETF VOO, which tracks the same underlying index of stocks. However, investors in TRND are paying a premium for the ability to avoid significant draw downs and bear markets that can weigh on total return.

The advantage of the strategy implemented in TRND is that emotions and predictions are removed from the equation. This allows for a seamless transition between cash and stocks that is implemented according to a strict rules-based methodology.

The Trend Is Your Friend

In addition to large-cap stocks, RBS has also implemented a trend following approach for several other key indexes as well. Some examples include: RBS Gold Trendpilot ETN TBAR, RBS NASDAQ-100 Trendpilot ETN TNDQ, and RBS Mid Cap Trendpilot ETN TRNM.

These innovative exchange-traded notes may further popularize the old saying that “the trend is your friend.”