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Michael Gayed: A New Rotation Emerges


The market shows that investors have been following the wrong narratives for two years.

The most important thing people did for me was to expose me to new things.
-Temple Grandin

For the better part of two years, US markets have dominated investor interest on the belief that the Federal Reserve finally got it right with Quantitative Easing 3. T

he economy was about to hit escape velocity, economic growth would decouple from the rest of the world, and all would be well as we normalized interest rates. 

Of course, the world is finally coming around to the idea that none of these narratives seems to be holding true, as US large-caps finally begin to falter and other areas of the investable landscape go down less in this environment.

And what the other narrative that didn't pan out? 

An emerging market crisis that caused those stock markets to collapse on the taper tantrum of 2013. It was argued that a rising rate environment in the US would result in emerging markets being toast. We never got the rising rate environment everyone was convinced would break those economies. 

Now clearly, their economic growth is weak, but this has been known for some time and pessimism has dominated investor flows. 

Yet, into the most recent period of stock market volatility, emerging markets seem to have held up well. 

Our alternative ATAC Inflation Rotation Fund (ATACX) has the ability to position aggressively into emerging markets out of Treasuries once this period passes, given a subtle rotation into the volatility that seems to be happening.

Take a look below at the price ratio of the iShares MSCI Emerging Markets ETF (EEM) relative to the MSCI ACWI Index Fund ETF (ACWI). 

A rising price ratio means the numerator/EEM is outperforming (up more/down less) the denominator/ACWI. Note the recent strength on the far right, and the ratio making higher lows recently into the Fall Epiphany where investors have suddenly begun to refresh the fear.

Click to enlarge

Emerging markets outperforming does not necessarily mean the secular bull market will continue. Rather, after a prolonged period of negativity around those countries' economic activity, it is now repricing of prolonged period of optimism in developed markets that has caused them to outperform. 

I believe commodities likely need to stabilize and the US Dollar likely needs to fall for a real period of absolute price gains to take place, but the crisis talk may change from emerging markets to developed ones. 

That alone is a substantial new theme which could last years to come.

Twitter: @pensionpartners

The Fund's investment objectives, risks, charges, expenses and other information are described in the statutory prospectus, which must be read and considered carefully before investing.  You may download the statutory or summary prospectus or obtain a hard copy by calling 855-ATACFUND or visiting  Please read the Prospectuses carefully before you invest.

Mutual fund investing involves risk. Principal loss is possible.  Because the Funds invest primarily in ETFs, they may invest a greater percentage of its assets in the securities of a single issuer and therefore is considered non-diversified.  If a Fund invests a greater percentage of its assets in the securities of a single issuer, its value may decline to a greater degree than if the fund held were a more diversified mutual fund.  The Funds are expected to have a high portfolio turnover ratio which has the potential to result in the realization by the Fund and distribution to shareholders of a greater amount of capital gains.  This means that investors will be likely to have a higher tax liability.  Because the Funds invest in Underlying ETFs an investor will indirectly bear the principal risks of the Underlying ETFs, including but not limited to, risks associated with investments in ETFs, large and smaller companies, real estate investment trusts, foreign securities, non-diversification, high yield bonds, fixed income investments, derivatives, leverage, short sales and commodities.  The Fund will bear its share of the fees and expenses of the underlying funds.  Shareholders will pay higher expenses than would be the case if making direct investments in the underlying funds. 

All investing involves risks. 

The fund as of 10/20/2014 does not invest in any of the following investments: EEM, and ACWI.  Fund holdings are subject to change and are not recommendations to buy or sell any security.  Current and future holdings are subject to risk.

MA(4) = 4 week moving average

References to other securities should not to be interpreted as an offer of these securities.

ATAC Inflation Rotation Fund is distributed by Quasar Distributors, LLC.  No other products mentioned are distributed by Quasar Distributors, LLC.
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No positions in stocks mentioned.

This writing is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer to provide advisory or other services by Pension Partners, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Pension Partners, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.

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