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Don't Look, Don't Trade.

March 24, 2020

The spread of the coronavirus around the world with its resulting economic impact has resulted in large losses and increased volatility in the equity market. Investors may be looking at their portfolios and wondering what their next course of action should be. An article from Morningstar[1] recommends that investors look at their portfolios less frequently and stay the course. We agree. We believe that individuals should invest for the long-term in a strategy that is firmly rooted in financial and economic theory.

Thinking Fast and Slow
In his book Thinking Fast and Slow, economist Daniel Kahnenman[1] summarized the two speeds in which people process information. System 1, or fast speed, allows us to respond quickly to external stimuli – think fight or flight. System 2, or slow speed, is slower and thoughtful.

How does this affect investment decisions?

Equities for the Long-Term
Before answering that question, it is helpful to understand the long-term performance of equities. Citing Ibbotson data, Morningstar notes that one dollar invested in US large-cap stocks in 1926 would have grown to $7,353 by the end of 2017, versus $21 if invested in US Treasury bills. In other words, stocks outperformed over time.

Loss Aversion
Research has highlighted a concept known as loss aversion.[2] Again, drawing on Kahneman’s research, investors feel more pain when they lose money than they do pleasure when they make money. As a result, they demand high compensation for taking chances. Since equities are riskier than Treasuries, they have historically enjoyed higher returns.

But, loss aversion can cause investors to check their portfolios often.

Tying It All Together
Additional research[3] highlighted that investors who checked on their portfolios once each year tended to behave as though they had a planning horizon of one year. The research also highlights that the odds of losing money in risky assets with positive returns, like stocks, declines with time. Investors’ perception of risk, according to the research, increases as they check on their portfolio more frequently.

Therefore, Morningstar argues, the further we remove ourselves from the day-to-day gyrations of the market, the less risky we will perceive our investments to be. This should help investors to stay invested and reap the potential long-term rewards of investing in equities.

Don’t Look, Don’t Trade
To summarize, the more frequently investors look at their portfolio, the riskier they will likely perceive it to be. This may result in more frequent trading and make it more likely that they will make the wrong decision at the wrong time.

Instead, investors should focus on an investing strategy with a sound financial and economic underpinning and stick to it, regardless of the day-to-day market movements.

The Armor US Equity Index ETF (ARMR)
The Armor US Equity Index ETF (ARMR) seeks to provide investment returns that, before fees and expenses, correspond generally to the total return performance of the Armor US Equity Index. The index is designed to provide exposure to the sectors of the US equity market that the fund’s index provider believes are most likely to generate positive returns while providing downside protection and experiencing lower volatility relative to the US equity market.

The index which serves as the basis for ARMR uses sector momentum, which looks to invest in sectors that have been experiencing positive performance, in an aim to achieve its goal.

Past performance does not guarantee future results


[1] Johnson, Ben, It’s Tough to Tune Out, But It Might Be Best, Morningstar, 3/13/20
[2] Kahneman, Daniel, Thinking, Fast and Slow, 2011
[3] Kahneman, Daniel & Tversky, Amos, Prospect Theory: An Analysis of Decision Making Under Risk, 1979
[4] Benartzi, S,, & Thaler, R., Myopic Loss Aversion and the Equity Premium Puzzle, 1993

Carefully consider the Fund’s investment objectives, risk factors, charges and expenses before investing. This and additional information can be found in the Fund’s prospectus and Summary Prospectus, which may be obtained by visiting https://armoretfs.com/documents. Read the prospectus and Summary Prospectus carefully before investing.

Foreside Fund Services, LLC, distributor.

Investing involves risk, including possible loss of principal. The Fund’s return may not match or achieve a high degree of correlation with the return of the Index. To the extent the Fund’s investments are concentrated in or have significant exposure to a particular issuer, industry or group of industries, or asset class, the Fund may be more vulnerable to adverse events affecting such issuer, industry or group of industries, or asset class than if the Fund’s investments were more broadly diversified. Issuer-specific events, including changes in the financial condition of an issuer, can have a negative impact on the value of the Fund.

A new or smaller fund is subject to the risk that its performance may not represent how the fund is expected to or may perform in the long term. In addition, new funds have limited operating histories for investors to evaluate and new and smaller funds may not attract sufficient assets to achieve investment and trading efficiencies.

Shares are bought and sold at market price (closing price) not net asset value (NAV) and are not individually redeemed from the Fund. Market price returns are based on the midpoint of the bid/ask spread at 4:00pm Eastern Time (when NAV is normally determined) and do not represent the return you would receive if you traded at other times.