CP HIGH YIELD TREND INDEX
A rules-based quantitative index that uses a blend of allocations to US high yield corporate bond ETFs and US 3-7 year treasuries.
HYTREND seeks to provide exposure to the US high yield corporate bond market while reducing risk in times of market turbulence. The index uses a blend of trend-following and time-series momentum methodologies. It draws from a wide range of parameters to reduce model risk from parameter mis-specification, reflecting a robust method of allocating to US High Yield Corporate ETFs while attempting to reduce unnecessary portfolio turnover.
The Index’s components are weighted using quantitative models to determine allocations to the two asset classes when the Index is rebalanced, which can occur daily. The Index is composed, in 20% increments (e.g., 0%, 20%, 40%, 60%, 80% or 100%), of U.S. high yield corporate bonds ETFs with the remainder in U.S. Treasury ETFs.
The first model determines a recommended allocation to U.S. high yield corporate bonds by evaluating the current market price against the dividend-adjusted moving average price data for the entire range of 100-200 day periods of the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) and the historical momentum returns of the HYG for the same periods. The second model adjusts this recommended allocation by rounding the allocation to the nearest 20% increment, but only allows the final allocation to U.S. high yield corporate bonds to move by a 20% increment day-over-day. The final allocation remains unchanged if the rounded allocation from the second model varies by more than 5% from the recommended allocation of the first model.
As demonstrated above, the model evaluates the total percentage of today dividend-adjusted price of HYG ETF above many moving averages (each one, from 100-day to 200-day) as the dashed-black line, and likewise the percentage of momentum signals (lookback price-changes above zero percent, from 100-day to 200-day lookbacks) as the dotted-green line. This signal is aggregated into the raw score, or the red line. This is the first model.
The second model adjusts the actual portfolio allocation, displayed in solid blue, by rounding the raw score to the nearest 20% increment, but only allows day-over-day changes in allocation to High Yield Bond ETFs by 20% increments. A final adjustment is performed to keep the allocation unchanged day-over-day in the event the absolute change to the rounded allocation from earlier in the process varies by more than 5% the absolute change of the first model (the red line). This step exists to lower turnover and reduce the impact of signal noise on the actual allocation.
| Effective Portfolio Date: 2020-07-10 |
| Effective Portfolio Date: 2020-07-13 |
The index methodology is designed to determine day-ahead index position as of the day prior to index rebalance.
Investments cannot be made in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges. Past performance is no guarantee of future results.
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Important Risk Information
Investments in the CP High Yield Trend Fund involves risk including possible loss of principal and may not be suitable for all investors. The Fund is new with a limited history of operations. There is no assurance that the Fund’s strategy for allocating assets will achieve its investment objectives. The extent that Authorized Participants (AP) exit the business or are unable to proceed with creation or redemption orders, Fund shares may be more likely to trade at a premium or discount to net asset value and possibly face trading halts or delisting. Issuers of a security and other instruments may not be able to make principal and interest payments when due. Fluctuation in the value of equity securities held by the Fund causes the net asset value of the Fund to fluctuate.
The Fund is structured as an ETF and is subject to risks including, market price variance, trading issues and not being individually redeemable. ETF investments involve advisory and other expenses which will be indirectly paid by the Fund. The Fund’s investments may include ETFs with foreign securities, which are subject to risks beyond those associated with investing in domestic securities. Growth stocks may react differently to market events and are subject to more abrupt market movements. The Fund’s income may decline when yields fall and an increase in rates may cause the value of securities held by the Fund to decline. High yield or ‘junk’ bonds present greater risk than bonds of higher quality. There is no assurance that the Index Provider will compile, compose or calculate the index accurately and the Fund’s performance may diverge from that of the index.
ETF shares are not redeemable with the issuing fund other than in large Creation Unit aggregations. Instead, investors must buy or sell ETF Shares in the secondary market with the assistance of a stockbroker. In doing so, the investor may incur brokerage commissions and may pay more than net asset value when buying and receive less than net asset value when selling. The NAV of the Fund’s shares is calculated each day the national securities exchanges are open for trading as of the close of regular trading on the New York Stock Exchange (“NYSE”), normally 4:00 p.m. Eastern time (the “NAV Calculation Time”). Shares are bought and sold at market price (closing price) not NAV. Market price returns are based on the midpoint of the bid/ask spread at 4:00 pm Eastern Time (when NAV is normally determined).
An active secondary market for the Fund’s shares may not exist. Although the Fund’s shares will be listed on an exchange, subject to notice of issuance, it is possible that an active trading market may not develop or be maintained. There is no guarantee that distributions will be paid.
Investors should carefully consider the investment objectives, risks, charges and expenses of the CP High Yield Trend Fund. This and other important information about the Fund is contained in the prospectus, which can be obtained at www.cpetfs.com or by calling 844-509-2775. The prospectus should be read carefully before investing. The CP High Yield Trend Fund is distributed by Northern Lights Distributors, LLC, member FINRA/SIPC.
3052-NLD-1/14/2020