It's a first for First Trust Advisors
First Trust announced it plans to launch its first alternative strategy ETF, First Trust Morningstar Managed Futures Strategy Fund
. The fund provides exposure to commodities and equities through a long, short or flat futures strategy, through a wholly-owned Cayman-Islands subsidiary.
The ETF is built to achieve positive returns not directly correlated to the broad market equity or fixed income returns. First Trust launched a mixed component ETF but this is the firm's first true alternative strategy ETF. Ryan Issakainen, senior vice president and ETF strategist at First Trust, said there is a growing appetite for alternative strategy ETFs, especially on the part of smaller investors, who haven't been as exposed to alts as institutional investors.
In an interview with MFWire, Issakainen said the ETF could play in important role in lessening portfolio volatility because it has a low correlation with stocks and bonds.
"It has a relatively low standard deviation. It doesn't perform well when stocks perform well so it can have an inverse or flat correlation. Our strategy takes a short and long position so you can perform well in a variety of markets," Issakainen said.
Though bonds are known as low-risk, it can't hurt for investors to be careful in a rising rate environment, Issakainen explained.
"Managed futures strategies tend to have lower volatility than equities, and bonds have a range of volatility over the long term. They have the lowest deviation but bonds also have duration risk and especially in this environment, you can see volatility outside of what we've seen in the bond market in the past two decades," Issakainen said.
Company Press Release
WHEATON, IL – (BUSINESS WIRE) – August 1, 2013 – First Trust Advisors L.P. (“First Trust”), known for its more than 200 investment products that offer transparency and tax efficiency, expects to launch a new actively managed exchange-traded fund (“ETF”) on August 2, 2013.
The First Trust Morningstar Managed Futures Strategy Fund (NYSE Arca: FMF) (the “fund”) is an actively managed ETF that seeks to provide investors with positive returns as its investment objective. The First Trust investment team has the flexibility to manage the contract selection to seek to exceed the performance of the Morningstar® Diversified Futures IndexSM (the “benchmark”). The benchmark currently contains 34 different futures positions consisting of 19 commodities, 9 equity indexes, and 6 currencies.
Managed futures are an alternative asset class that may benefit from both rising and falling price trends. Managed futures have been successfully implemented by institutional investors for nearly three decades, but have been typically offered in hedge funds or private accounts until recently. Exchanged-traded funds like FMF make these strategies available to all investors.
“Managed futures strategies have historically had low correlation to stocks, bonds, and other investment strategies, moderate volatility, lower drawdowns than equities and positive returns in a variety of economic environments,” said John Gambla, CFA and Senior Portfolio Manager of the fund. “Consequently, managed futures can be a potentially powerful diversifier to an investment portfolio.” However, alternative investments may employ complex strategies and have unique investment and risk characteristics. It is important to note that diversification does not guarantee profit or protect against loss and the fund itself is non-diversified.
The fund provides exposure, through a wholly-owned Cayman Islands subsidiary, to commodities, currencies, and equities through a long, short or flat futures strategy. The fund seeks to achieve positive returns that are not directly correlated to broad market equity or fixed income returns. “We are excited that First Trust licensed our diversified futures index for an exchange-traded fund,” said Sanjay Arya, senior vice president of Morningstar Indexes. “Since launching our first futures-based indexes in 2007, we have seen growing investor demand for liquid, transparent, rules-based strategies. Designed to take both long and short positions, the Morningstar Diversified Futures Index provides the flexibility to potentially capture both upward and downward movements in price.”
There are two basic futures positions—“long” and “short.” The long position holds or agrees to buy a specific quantity of a an asset when the contract expires for a price set at the time of the contract and stands to profit if the underlying asset price goes up. The short position agrees to sell a specific quantity of an asset when the contract expires for a price set at the time of the contract and stands to profit as long as the underlying asset price goes down. The fund will lose value if the security or instrument that is the subject of a short sale increases in value.
Additionally, short selling creates special risks which could result in increased volatility of returns and may result in greater gains or greater losses. Conversely, the fund will be adversely affected if it holds a long position in a security that decreases in value.
In addition to Mr. Gambla, Rob A. Guttschow, CFA, will also serve as Senior Portfolio Manager. The two will primarily be responsible for daily investment decisions under the direction of an Investment Committee which includes six other individuals with extensive investment experience. The ETF structure makes the strategy more accessible to investors, providing a cost- effective way to invest in managed futures in addition to offering daily liquidity and full transparency to holdings and pricing.
About First Trust
First Trust Advisors L.P., along with its affiliate First Trust Portfolios L.P., are privately-held companies which provide a variety of investment services, including asset management and financial advisory services, with collective assets under management or supervision of approximately $70 billion as of June 30, 2013 through unit investment trusts, exchange-traded funds, closed-end funds, mutual funds and separate managed accounts. First Trust is based in Wheaton, Illinois. For more information, visit http://www.ftportfolios.com.
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