If imitation truly is the sincerest form of flattery, do not be surprised if today’s ETF Talk reveals a hint of pride as I describe a fund that seems designed to follow the trend-tracking strategy of the Fabian Plan.

Although I have no way of knowing if the Fabian Plan itself was the basis for the creation of the RBS US Large Cap Trendpilot ETN (TRND), I cannot help but admire those at the Royal Bank of Scotland N.V. (RBS) who spearheaded this investment’s launch. As you may well know, the Fabian Plan monitors the market averages to determine when to invest in equities and when to move your money into the safe haven of cash.

The investment that I am featuring today actually is an exchange-traded note (ETN), which invests in unsecured and unsubordinated obligations of RBS. Those obligations are fully and unconditionally guaranteed by RBS Holdings N.V. The RBS ETN is designed to replicate the performance of the RBS US Large Cap Trendpilot Index. This index uses a trend-following strategy, just like the Fabian Plan, which provides exposure to either the S&P 500 Total Return Index or the yield on a hypothetical notional investment in 3-month U.S. Treasury bills (cash rate). The index is designed to provide exposure to the S&P 500 Total Return Index in positive-trending markets, and exposure to the cash rate in falling markets.

Let me briefly compare and contrast ETNs and exchange-traded funds (ETFs). ETNs are fairly recent creations that rise and fall in value, just like ETFs, depending on the underlying indexes that they each track. This particular ETN, TRND, mirrors the performance of debt securities, not the equity securities that ETFs typically model. When you buy an ETN such as TRND, you are buying a pledge from the issuer. When you buy an ETF, you are betting on the rise or fall of a diversified portfolio of stocks.

In the case of TRND, if the closing level of the Trendpilot index is at or above its historical 200-day simple moving average for five consecutive business days, a positive trend is established and it tracks the S&P 500 Total Return Index. If the closing level of the Trendpilot index is below its historical 200-day simple moving average for five consecutive business days, a negative trend is established and it tracks the cash rate. The strategy put forward through this brand-new ETN protects investors from extended bear markets, since it moves toward cash when the markets are unstable. And it is able to get the best of both worlds because it also can participate in extended rallies.

If you’re one of my Successful Investing subscribers, this methodology may sound very familiar. In fact, we’ve been using our own Fabian Plan for 30-plus years. During this time, we’ve beaten the market consistently and kept our subscribers’ assets from harm in bear markets. The Fabian Plan is a proprietary, trend-following approach to stock market investing. Instead of using guesswork, predictions, forecasts, or emotions, we base our investment decisions solely on the established trend of the market.

A strong or rising market is indicated when the current prices of our indicators are higher than their 39-week averages. A weak or falling market is indicated when the current prices are lower than their 39-week averages. This simple comparison -- the current price to the 39-week average -- reveals the current trend of the market and forms the basis of our trading rules.

Simply put, we're in the market when it's going up, and we're out of the market when it's going down. And that seems to be very similar to this week’s featured investment, TRND. However, you should tread carefully, as this ETN only just hit the market in the last month. I typically do not recommend any ETF or ETN until it has an average daily trading volume of at least 100,000 shares. As a result, TRND is not among my current recommendations but I will keep an eye on it.

For advice about which ETFs to buy and to sell, I urge you to sign up for my ETF Trader service. As always, I am pleased to answer any of your questions about ETFs, so don’t hesitate to contact me if you have one. To send a question to me, simply click here. You may just see your question answered in a future ETF Talk.