In the ETF space, it’s not easy to find a supporter of the idea that trying to time the market is anything but a fool’s errand. But Hull Tactical, the firm behind the new-to-market Hull Tactical US ETF (HTUS) is working to change that perception.
Steve McCarten, chief operating officer of Hull Tactical, tells us why the time is ripe to dispel old notions about market timing and embrace the art of making calculated bets through a systematic approach.
ETF.com: In the world of ETFs, the concept of market timing gets a bad rep. Does it deserve that negative connotation?
Steve McCarten: Historically speaking, I agree it has had a negative connotation. But a lot of things have changed, especially recently. Look at how data is analyzed today, how it’s gathered, how it’s mined across various industries.
Data is king, and there's never been a time prior to now where the data was available more than it is now to do research, nor has there been the ability to take such large amounts of data and analyze it multiple ways. Financial markets are just one industry to benefit from that.
ETF.com: So you think it's really possible to buy and sell at the right time? Anyone in behavioral finance would argue that people do just the opposite because emotions get the best of them.
McCarten: That's a great question, because people have been market-timing for a long time, and the negative connotation has always been there, and people continue to market-time anyway.
They just do it wrong. Their emotions get in the way and they buy at the top and sell at the bottom. And that just further increases the volatility or the price fluctuation.
The key is to have a systematic, disciplined approach; that’s based on data and on analyzing that data to remove emotion.
ETF.com: What’s the biggest misconception people have about market timing?
McCarten: The idea of market timing in general is very polarizing. Historically, people felt it doesn't work. And I’d agree that for the last 30 years, it may have been irresponsible to market-time. But we feel that going forward to the next 30 years, it would be irresponsible not to try to market-time.
The time is right now. The data is available. The ability to analyze that data is here. We see numbers come out daily that are acted on by the markets. We know those numbers influence markets. We put together a model that represents that and captures a best-bet alpha. It can be done.
ETF.com: Is there a time when it's more appropriate to time the market—a certain market environment, a certain market cycle?
McCarten: If you're looking at a systematic, disciplined approach, we don't really look at any one time as better than another. We research continuously. We're constantly updating our model. We're continually making changes. We look at variables that go into the model that academic papers have been published about. We have some proprietary variables we look at.