First Trust launches currency-hedged versions of active FX ETF

Dec 5th, 2017 | By | Category: Alternatives / Multi-Asset

First Trust Global Portfolios (FTGP) has launched euro- and pounds sterling-hedged share classes of the First Trust FactorFX UCITS ETF (FTFX LN). The euro-hedged version will trade on Euronext Amsterdam (ticker: FXEU NA) and the pounds sterling-hedged version will trade on London Stock Exchange (ticker: FXGB LN).

Derek Fulton, CEO of First Trust Global Portfolios

Derek Fulton, CEO of First Trust Global Portfolios

Launched in July this year, the ETF is the first actively managed ETF listed in Europe to provide investors with exposure to a foreign exchange carry strategy. A carry trade typically involves borrowing money in (or short-selling the currency of) a country with a low interest rate and investing it in (or going long the currency of) a country with a higher interest rate.

To implement this strategy, the fund will hold a basket of between 20 and 30 currency pairs including developed and emerging markets by holdings forward FX contracts, futures, money market instruments and short-dated sovereign debt denominated in local currencies.

The fund uses a proprietary rules-based strategy utilising carry, value and momentum factors to generate stable total returns from a diversified portfolio of USD and non-USD currency exposures. The process takes advantage of the low cross-correlation of the three factors and combines them in an efficient way to maximise returns while reducing risk through diversification.

Derek Fulton, CEO of FTGP, said: “These new hedged share classes allow euro and sterling denominated investors to access the strategy while controlling their exchange rate volatility against the fund’s USD base currency. Our fund offers a way to capture international yield differentials while managing currency volatility without taking on credit or duration risk.”

Leonardo DaCosta, portfolio manager, FTGP, added: “Currency is an asset class and an extremely liquid one. By focusing on the yield differentials of currency pairs, the fund can generate total returns in a world of compressed yields. The addition of hedged share classes allows a broader investors base to add the strategy to their portfolio construction toolkit.”

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