If You Invested in Hedgeye Capital Allocation ETF (HECA)

Hedgeye Capital Allocation ETF (HECA) is an actively managed exchange-traded fund launched by Hedgeye Asset Management, LLC ("HAM"), a subsidiary of Hedgeye Risk Management, LLC. The fund trades on the New York Stock Exchange under the symbol HECA and is designed for investors seeking long-term capital appreciation. According to Hedgeye Asset Management, the ETF seeks to maximize total returns across global market cycles while aiming to avoid portfolio drawdowns exceeding 15%.

The ETF is managed by HAM using a rules-based investment process centered on a proprietary algorithm called Hubble. This process ranks securities using Hedgeye's proprietary macroeconomic "Quads" framework and market-derived "Signals" data. Quads refer to the evolving locations of national economies within four-quadrant plots that track rates of change in real gross domestic product and inflation measures. Signals refer to a defined set of security-specific indicators that the manager deems useful in estimating future price trajectories, with weighting schemes embodied in Hubble ranks.

Hedgeye Capital Allocation ETF follows what Hedgeye Asset Management describes as a "go anywhere but not everywhere" approach to asset allocation. In practice, this means the fund may invest across a wide range of assets and geographies, but does not seek exposure to every possible security or market. The ETF primarily invests in passively managed ETFs and seeks to maintain low turnover. It is described by its sponsor as a durable, all-weather allocation solution intended to appeal to fiduciaries and long-term allocators.

The fund is organized as a non-diversified management investment company. As disclosed by Hedgeye Asset Management, this structure allows HECA to invest a large percentage of its assets in a particular issuer, which can increase the impact that the performance of a single investment or a limited number of investments may have on the overall fund. The ETF is also described as recently organized with no operating history, which means prospective investors do not have a long-term performance record to review.

The investment strategy for HECA incorporates quantitative algorithms and models that rely on both proprietary and non-proprietary data. Hedgeye Asset Management notes that such models may contain hidden biases or be exposed to broad structural or sentiment shifts, and there can be no assurance that the use of quantitative models will enable the fund to achieve positive returns or outperform broader markets. The adviser also highlights that, as an actively managed portfolio, the fund’s results depend on the adviser’s investment decisions and that there is no guarantee the strategy will meet its stated investment objective.

According to the fund’s disclosures, HECA may use derivatives in its investment strategy. When derivatives are used, there may be imperfect correlation between the value of the derivative and the underlying instrument, which can affect the fund’s ability to achieve its investment objective. The ETF structure itself also introduces considerations such as the possibility that shares may trade at a premium or discount to net asset value, that an active secondary market may not develop or be maintained, or that trading may be halted by the exchange.

Hedgeye Asset Management also notes that investments in stocks of companies of different capitalizations can involve distinct risks. Large-capitalization companies may be less able than mid- and small-capitalization companies to adapt to changing market conditions, while mid-capitalization stocks may experience more abrupt or erratic market movements. These considerations form part of the broader risk profile described for the Hedgeye Capital Allocation ETF.

The fund’s sponsor emphasizes that investing in HECA involves risks, including the risk of principal loss. The adviser is described as newly formed with no prior ETF management history, and investors are directed in the fund’s disclosures to review the statutory and summary prospectus for details on investment objectives, risks, charges, and expenses before making an investment decision.