First Trust launches actively managed low duration ETF

Jan 5th, 2019 | By | Category: Fixed Income

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First Trust Advisors has launched the First Trust Low Duration Strategic Focus ETF (LDSF US) on Nasdaq Exchange.

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

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

The fund aims to help investors navigate a rising interest rate environment by offering an actively managed fixed income portfolio with low duration – the managers will target a duration profile of three years or less.

“At this point in the cycle, we believe risk management is critical for fixed income investors,” said Ryan Issakainen, Senior Vice President, ETF Strategist at First Trust. “This ETF harnesses the best of First Trust’s intellectual capital to provide investment advisors with an efficient tool to help manage their clients’ fixed income needs.”

The ETF, which seeks to generate current income with a secondary objective of preservation of capital, will allocate its assets primarily among First Trust’s stable of fixed income ETFs. This includes ETFs providing exposure to corporate bonds, floating rate loans, senior loans, mortgage-backed securities, hybrid income securities (including convertible, contingent convertible, and preferred securities), and government debt.

In evaluating the relative attractiveness of these asset classes, First Trust combines a top-down review of macroeconomic factors including monetary and fiscal policies, growth forecasts, trade and tax policies, global market views, and current market valuations, with bottom-up asset level analysis including views on rates, duration, credit, currency, and current asset valuations.

The fund may invest up to 40% of its assets in ETFs providing exposure to senior loans or US corporate high yield securities, up to 20% of its assets in ETFs targeting bonds issued by non-US government or corporate issuers, up to 10% of its assets in emerging market debt ETFs, up to 10% of its assets in preferred ETFs, and up to 10% of its assets in convertible bond ETFs.

The largest current holdings in the ETF are the First Trust Low Duration Opportunities ETF (39.8%), First Trust Senior Loan Fund (25.2%), First Trust Enhanced Short Maturity ETF (22.4%), First Trust Tactical High Yield ETF (5.0%), and First Trust TCW Opportunistic Fixed Income ETF (5.0%).

The fund comes with an expense ratio of 0.86%, consisting of a management fee of 0.20% and acquired fund fees and expenses of 0.66%.

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