In the latest ETF 360, VettaFi’s Kirsten Change interviewed THOR Funds founding principal and CIO Brad Roth. They discussed two index-based strategies calibrated to manage downside risk. Accordingly, downside protection and risk management are top of mind in today’s unusual market environment.
Valuations and Concentration Risks Manifest
“We’ve had very lofty valuations. We’ve had very high expectations for earnings for a long time,” Roth noted. “We have a market that’s been dominated predominately by a handful of news over the last couple of years.”
He suggested that recent market volatility has caused investors to take a look at their portfolios and rethink diversification. Roth anticipates this earnings season will reveal even more about where the market is heading. “I’m keeping a heavy eye on guidance, even though we’re not getting as much of it as I would like.”
Why THOR Believes Some Equal Weight Funds Still Struggle With Concentration Risk
Asked why equal weight products aren’t enough to solve concentration risks, Roth noted that they can help and can be useful, but there are still concentration risks. “It can get heavy by sector. Equal weight in stock, but not in sector.”
The THOR Equal Weight Low Volatility ETF (THLV) approaches equal weighting by sector instead of stock. “It’s going to help us diversify across all sectors of the S&P 500,” Roth said. “We think that helps a little more with broadening that exposure.”
THOR Looks at Risk-Off Signals
“We have been utilizing these signals for a very long time,” Roth said. These signals have been deployed in THOR Funds SMA business and model delivery business. “At all points in time we’re bringing every single tick of data. We’re really looking at components of momentum but also that velocity of price and overall cycle of each sector to be able to pull things out of that portfolio that we may not want to be invested in for short and even long periods of time.”
Their recently launched fund, the THOR Index Rotation ETF (THIR) deploys a similar strategy, but keeps it simpler, tilting away from factors that are underperforming. “Thankfully for us, we’ve had a really good experience with this particular strategy.”
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