For the two and half years after the inflation rate in the United States surpassed the 9% mark, the economy has been beset with risks, but none have been able to break it. The Fed was forced to tighten conditions, but there were also far more job openings than there were workers to fill them. That kept the labor market tight, wage growth soaring and consumers spending. Worries about persistently high inflation and a real estate crisis in China took a back seat to the fact that the economy was still in good shape and recession was nowhere in sight.
As a result, investors have seen little reason for concern about lower-rated corporate debt either. Sure, credit delinquencies were rising and there have been steady signs that a good chunk of the American population was having trouble making ends meet. But with liquidity plentiful and corporations generating solid earnings growth, there was little to fear in their minds.
Credit spreads, which measure the amount of yield investors are demanding above the risk-free rate, continued to push towards historic lows.
I have been very public about how frustrating this credit cycle has been, given that I launched the ATAC Credit Rotation ETF (Ticker: JOJO) in the middle of 2021, just as the worst bear market for Treasuries started to accelerate. JOJO is a bond ETF that either goes all into high yield bond ETFs, or long duration Treasury ETFs, based on the behavior of the Utilities sector relative to the S&P 500. The idea here is that historically, when Utilities outperform the broader stock market (as they did PRIOR to this most recent correction in equities), historically volatility in risk assets rise AFTERWARDS. There is a direct link between volatility in stocks and credit spreads. You can see this when looking at the VIX Index relative to credit spreads. Notice the huge divergence on the far right.
So I launched JOJO at arguably the exact wrong time. But if you haven’t noticed, the flight-to-safety path behavior in Treasuries is actually re-asserting, and JOJO got it right. The interesting thing is that credit spreads are only now just starting to widen, and if credit spreads widen substantially, the alpha potential from JOJO becomes meaningful as it (hopefully) avoids what could be a major sell-off in junk debt, causing Treasuries to do well during that credit-off cycle, to then ultimately go back into high yield bond ETFs at much higher yields. That is the path I built the fund for – that is the credit rotation mentioned in the name.
I mention this because I really do believe my hell is over. I believe the cycle that was horrendous for the strategy (and bonds in general) has changed. To be clear, JOJO is managed entirely separate from my own thoughts on markets (it’s rules-based), and is not affiliated with my research and content that you see from me under my company Lead-Lag Publishing, LLC. But I have the audience here, and I want to get traction in the fund because I believe the strategy is due to outperform.
So I ask you to consider buying JOJO. Even a small amount across your portfolios. It's a small fund, but because it’s trading around very large and liquid underlying ETFs, it’s basically just a pass-through so volume really shouldn’t be a concern (best to do a limit order). I do my best to be open and communicate to anybody and everybody that I meet. I don’t want anyone to buy JOJO as a favor to me. I want them to buy it because it’s not about me, but rather about the cycle.
There are no gurus, only cycles. I think the cycle is here for JOJO, and I ask you to consider it.
Why? Because things are starting to change.
An intensifying global trade war and a wave of government employee layoffs have finally managed to damage investor sentiment. The possibility of a slowing U.S. economy and even a recession later this year have caused investors to abandon anything that’s a) expensive and/or b) risky.
It’s the first time we’ve seen genuine risk-off behavior since the yen carry trade started unwinding in August of last year and maybe the longest extended stretch since 2022. In the chart above, it’s clear that high yield spreads have begun widening again, a sign that investors are perceiving greater risk in the bond market, although there’s clearly much further that it can go, historically speaking.
That’s why the time might finally have arrived for the ATAC Credit Rotation ETF (Ticker: JOJO).
JOJO is a bond ETF that rotates offensively or defensively based on an historically proven leading indicator of volatility, with the goal of taking less risk at the right time. The ETF rotates around high yield debt (risk-on) and Treasuries (risk-off) based on utilities relative to the broad stock market as a risk trigger.
Utilities has traditionally been a sector that can outperform the S&P 500 in the lead-up to broader risk-off periods. Even though junk bonds have only recently begun moving lower, utilities have been indicating this for several weeks. JOJO may be well-positioned to take advantage of a reversal in the bond market where credit risk increasingly gets priced in.
With credit spreads beginning to widen, fears of a broad economic slowdown permeating and a global trade war in the background that threatens to both lift inflation and slow growth, JOJO may be uniquely positioned to take advantage of the current flight to safety trade and the downside risk that could come as a result of deteriorating conditions.
I ask you to keep and open mind and consider it. I wouldn’t have kept the fund open as long as I have if I didn’t believe in the methodology. This has simply been about waiting for the light to change.
I believe it has.
Michael A. Gayed, CFA
Junk debt, also known as high-yield bonds or speculative-grade debt, refers to fixed-income securities issued by companies or governments with lower credit ratings, offering higher interest rates to compensate investors for the elevated risk of default.
The VIX index, often called the "fear gauge" of Wall Street, is a real-time market index that measures the market's expectation of 30-day forward-looking volatility derived from S&P 500 index options prices, serving as a key barometer of investor sentiment and market risk.
The ICE BofA BB US High Yield Index Option-Adjusted Spread measures the yield differential between BB-rated corporate bonds and a spot Treasury curve, quantifying the risk premium for below-investment-grade debt with a BB rating in the US market.
As with all ETFs, Fund shares may be bought and sold in the secondary market at market prices. The market price normally should approximate the Fund’s net asset value per share (NAV), but the market price sometimes may be higher or lower than the NAV. The Fund is new with a limited operating history. There are a limited number of financial institutions authorized to buy and sell shares directly with the Fund, and there may be a limited number of other liquidity providers in the marketplace. There is no assurance that Fund shares will trade at any volume, or at all, on any stock exchange. Low trading activity may result in shares trading at a material discount to NAV.
Because the Fund invests 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, equity securities, growth stocks, large and small capitalization companies, non-diversification, fixed income investments, derivatives and leverage. The prices of fixed income securities may be affected by changes in interest rates, the creditworthiness and financial strength of the issuer and other factors. An increase in prevailing interest rates typically causes the value of existing fixed income securities to fall and often has a greater impact on longer duration and/or higher quality fixed income securities. 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.
Because the Fund expects to change its exposure as frequently as each week based on short-term price performance information, (i) the Fund’s exposure may be affected by significant market movements at or near the end of such short-term periods that are not predictive of such asset’s performance for subsequent periods and (ii) changes to the Fund’s exposure may lag a significant change in an asset’s direction (up or down) if such changes first take effect at or near a weekend. Such lags between an asset’s performance and changes to the Fund’s exposure may result in significant underperformance relative to the broader equity or fixed income market. Because the Adviser determines the exposure for the Fund based on the price movements of gold and lumber, the Fund is exposed to the risk that such assets or their relative price movements fail to accurately predict future performance.
Past performance is no guarantee of future results.
The Fund’s investment objectives, risks, charges, expenses and other information are described in the statutory or summary 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 www.atacfunds.com. Please read the Prospectuses carefully before you invest.
Investing involves risk including the possible loss of principal.
JOJO is distributed by Foreside Fund Services, LLC.
Learn more about $JOJO at https://atacfunds.com/jojo/ Lead-Lag Publishing, LLC is not an affiliate of Tidal/Toroso or ACA/Foreside.