First Trust debuts multi-strategy alternatives ETF

Feb 6th, 2023 | By | Category: Alternatives / Multi-Asset

First Trust has launched a new actively managed ETF-of-ETFs providing diversified exposure to alternative asset categories and strategies.

Ryan Issakainen, Senior Vice President and ETF Strategist at First Trust

Ryan Issakainen, Senior Vice President and ETF Strategist at First Trust.

The First Trust Multi-Strategy Alternative ETF (LALT US) has been listed on NYSE Arca with an expense ratio of 1.23%.

The ETF’s expense ratio includes 1.03% in acquired fund fees and expenses.

LALT will typically invest in other First Trust ETFs targeting the following alternative investment strategies: hedged equity, long/short, event-driven, managed futures, commodities, real estate, opportunistic fixed income, relative value, currencies, and global macro.

LALT constructs its portfolio by considering each strategy’s risk and return profile, as well as its correlation to other alternative strategies and to typical equity and fixed income markets. The ETF is designed to enhance traditional equity/fixed income portfolios by boosting total returns and helping to diversify overall risk.

Ryan Issakainen, Senior Vice President and ETF Strategist at First Trust, said: “After a difficult year for both stocks and bonds, it’s no surprise that demand for alternatives has grown stronger. We believe this ETF may be an effective tool for investment professionals seeking to diversify client portfolios while also potentially generating returns from multiple alternative risk premiums in the years ahead.”

A brief description of each alternative strategy is outlined below:

Hedged equity: a strategy that seeks to participate in the upside of equities while maintaining a hedge to reduce losses in downwards-trending markets.

Long/short: a strategy that seeks to gain exposure (both long and short) to an asset class, seeking to profit by the long positions rising (falling) by more (less) than the short securities.

Event-driven: a strategy that seeks to exploit pricing inefficiencies that may occur before or after a corporate event such as a merger, acquisition, or bankruptcy.

Managed futures: a strategy that uses an actively managed portfolio of long and short futures contracts that seeks to benefit from trends in various asset classes including commodities, currencies, US and global equity indices, US and global bonds, and US and global interest rates.

Commodities: a strategy that seeks to benefit from changes in the value of physical commodities by investing in commodity-related futures contracts.

Real estate: a non-traditional asset class composed of securities that provide exposure to the real estate market.

Opportunistic fixed income: a strategy that seeks to benefit from investments in non-traditional fixed income markets such as convertible securities, mortgage-related securities, high yield bonds, long/short fixed income, credit opportunities, and asset-backed securities.

Relative value: a strategy that seeks to exploit valuation discrepancies in the relationship between multiple securities by buying and selling different securities, sometimes simultaneously.

Currencies: a strategy that provides investors exposure to the relative value of a currency or basket of currencies.

Global macro: a strategy that focuses on opportunities driven by top-down themes, trends, or dislocations often driven by economics, monetary policy, and fiscal or political policies that impact capital markets in general as opposed to individual securities.

As of 1 February, LALT was invested in eight underlying funds including the First Trust Alternative Absolute Return Strategy ETF (21.4%), First Trust Managed Futures Strategy Fund (21.2%), First Trust Merger Arbitrage ETF (11.9%), First Trust Long/Short Equity ETF (10.3%), First Trust TCW Unconstrained Plus Bond ETF (10.2%), First Trust Low Duration Opportunities ETF (10.1%), First Trust Global Tactical Commodity Strategy Fund (9.9%), and Invesco CurrencyShares Swiss Franc Trust (5.1%).

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