VanEck Long/Flat Trend ETF (LFEQ)

VanEck launched a family of systematic trend-following products in the early 2010s, building on academic research into whether markets have predictable momentum. The original insight was simple: assets in uptrends tend to continue upward, and assets in downtrends tend to continue downward, at least for periods spanning weeks to months. A simple rule—buy what is going up, sell what is going down—should exploit this.

The challenge with that rule is the “sell what is going down” part. A traditional short position is risky. An investor borrows shares, sells them, and hopes to buy them back at a lower price. If the price rises instead, losses compound without limit. Margin requirements mean leveraging positions. And broker-dealers charge fees for the borrowing. VanEck chose a different approach: instead of shorting, LFEQ holds cash. When an asset is in a downtrend, the fund sells it and moves into cash equivalents—short-term bonds or money-market instruments. When an asset turns back into an uptrend, the fund buys it back.

This long-only, cash-substitute approach has an important property. In a crash, when all markets fall sharply, a trend-following fund sees the trend turning negative and moves to cash at roughly the moment panic selling begins. The move to cash does not capture the bottom—the fund is already out before the sharpest losses—but it does avoid the worst of the drawdown. In a conventional bull market, the fund stays fully invested and captures most of the gains. In a sideways or choppy market with rapid reversals, the fund whipsaws: it sells at the lows and buys at the highs, destroying returns. The profitability of the strategy depends entirely on the market environment.

The mechanics are mechanical and transparent. The fund defines an uptrend using a moving-average or similar trend indicator—typically, the current price is above its average price over the prior three to twelve months. When an asset is in an uptrend, it holds a full position. When it is not, it holds cash. Rebalancing happens daily or on a fixed schedule (weekly or monthly), allowing the strategy to adapt to changing trend conditions quickly. There is no discretion, no judgment about whether the trend is “real,” no attempt to predict turning points—just mechanical application of the rule.

The expense ratio includes the cost of managing the trend signals and executing the frequent rebalancing. It is higher than a passive buy-and-hold index fund but lower than an actively managed fund with analysts making individual security decisions. The cost is mostly the overhead of the systematic process, not alpha-hunting or advisory expertise.

The strategy’s performance depends critically on market regime. In the 1970s and 1980s, when inflation and energy shocks created strong, persistent trends, trend-following would have been very profitable. In the 1990s and 2000s, when equities trended up for extended periods, the strategy did well. In 2011 through 2019, when markets were choppy with many reversals and few sustained trends, the strategy underperformed. In 2020, when the sharp COVID crash was followed by a swift recovery, trend-following whipsawed—it sold at the lows, missed much of the recovery rally, and underperformed. In 2022, when stocks fell persistently, the strategy was in cash for much of the decline and then missed the recovery.

The fund’s real test case is a major crash with a sustained recovery. In 2008, a trend-following strategy would have sold stocks as the trend turned down, reducing exposure to the worst losses. Then, as the market recovered into 2009 and beyond, it would have moved back to fully invested. A long-term holder would have endured less drawdown in the decline but also captured somewhat less of the recovery. The net effect over a full cycle depends on the exact dates of trend reversals.

The psychological appeal is obvious: the promise of staying in when markets are strong and moving to cash when they are crashing. The reality is that trend reversals are subtle and cannot be predicted precisely. A fund moves to cash when a trend is already declining, not before. So it misses some of the crash (good) but also misses part of the recovery (bad). And in choppy markets, it repeatedly buys high and sells low, destroying returns.

VanEck markets LFEQ primarily to tactical traders and investors with a multi-year horizon who believe the next period will be characterized by strong, persistent trends. Someone who believes volatility will increase and long-range trends will dominate should consider it. Someone expecting mean-reverting choppy markets should avoid it. Someone who simply wants to buy and hold equities should definitely avoid it.

The fund is most useful as a satellite position within a broader portfolio, not as a core holding. An investor with seventy percent in a diversified equity index could allocate ten to twenty percent to LFEQ as a trend-following hedge. In a strong uptrend, LFEQ amplifies the gains. In a crash, LFEQ is in cash, reducing overall portfolio losses while waiting for a new trend to emerge.

Research into the strategy requires understanding trend-following mechanics and reviewing back-tests and forward results over various market environments. The fund’s prospectus and fact sheets lay out the methodology. A potential investor should run scenarios assuming different market regimes—sustained uptrends, sharp crashes with rapid recoveries, sideways choppy markets—and understand that the fund will perform very differently depending on which occurs.