Wealth Advisor Magazine September 2024 Edition - 21

zons and then based on the forecast,
we assemble them into a single market
sentiment score, and we adjust our
exposure to the S&P 500. So, if everything
turned out to be about equal, if
the bearish indicators and the bullish
indicators were roughly in balance, we
would be 100% invested in the market.
We know, on average, it's a good idea
to have exposure to the market. There
is equity risk premium, and people get
compensated for being in the market.
That being said, when the bearish indicators
in our signals slightly outweigh
the bullish indicators of the signal,
we are less than a 100% invested. For
example, recently, we were about 50%
invested in the market, and that for us
is a fairly big underweight. Most of the
time, we would be somewhere between
60% and 140% invested in the market
because we do have the option to go to
leverage if we get to a situation where
the bullish indicators outweigh the
bearish indicators.
This sounds like an entire portfolio
replacement! More cash when equity
doesn't look that attractive.
They could, yeah. If an investor likes
the market exposure and likes the
tactical approach to investing and
wants to have a tactical piece of their
exposure, they could absolutely choose
to replace a significant portion of the
portfolio with HTUS. That being said,
us being, on average, 100% invested
in the market, if somebody has an investment
mandate of being more 60/40
or 80/20, we would probably have too
much volatility for them, on average.
So that would suggest they only replace
the equity piece of their portfolio with
HTUS and maintain whatever cash
component they need.
All those models and all those indicators-sounds
like there are classic
algorithms involved or what they
now call " AI. "
Absolutely. Everybody has been talking
about artificial intelligence, and AI is
everywhere. And you would think AI
is such a hot new thing and everybody
uses it, but as an academic discipline,
it is probably older than a lot of people
reading this right now.
We're not typing into ChatGPT.
" Hey, what should our model do today? "
We use machine learning, which is the
study of how to enable machines to
learn to make better-informed decisions
about data.
Let me give you a very simple
real-life example of how this works.
Pretend I live in a home without Internet,
and I'm trying to predict out how
early I need to leave for work to get
there on time. How heavy is traffic today?
I could be just looking outside my
window every morning and counting
how many cars pass in front. Over time,
I will learn: roughly speaking, if I see
five cars, that means it's going to take
me about 20 minutes to get to work. If I
watch for the same amount of time and
see 15, the traffic's going to be heavier.
But if my brain did not have intelligence,
which hopefully it does, I
wouldn't be able to decipher some of
the more nuanced information. One
day, I wake up and I'm looking outside
the window, and I see no cars. If my
brain was only able to do what linear
regression is able to do, it would get
really excited. No traffic, I'll be at work
in no time. A machine that is able to
do more sophisticated inference will
know that here in Chicago, it probably
snowed six feet. The traffic's horrible,
nobody can get through. I'd better put
my boots on and start walking.
Hull Tactical US ETF Offers a Sophisticated
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Exposure to the S&P 500
Equity Risk Premium forecasting indicators proven via academic
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that seeks excess market returns with market volatility. Provides
diversification by serving as a replacement for a portion of S&P 500
exposure with added income generation via risk-reversal and zero-daysto-expiration
option overlays.
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HULL TACTICAL
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Your models have learned to watch the
actual weather and not just received
wisdom about which inflation numbers
are good for the bond market.
Absolutely. There is almost a cliche
saying now: good news is bad news,
bad news is good news. And depending
on what else is going on, having a
good inflation number may be a bullish
signal for us or may be a bearish signal.
And that is another important tool
that we use-looking at interactions of
different signals as opposed to just the
signals in isolation.
I could speak about this for hours,
I would not get bored. But we do
realize people are curious and people
are interested, and we are also
interested in feedback, so we have
published a lot of our findings in peerreviewed
articles. We would be happy
to share if your readers ask. Just go to
hulltactical.com.
CONTINUED ON PAGE 22
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Wealth Advisor Magazine September 2024 Edition

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