First Trust overhauls US large cap strategy ETF

Jun 14th, 2017 | By | Category: ETF and Index News

First Trust has announced that the Trustees of the First Trust CBOE S&P 500 VIX Tail Hedge Fund (NYSE Arca: VIXH) have approved changes to the fund’s name, ticker code, underlying index, exchange and investment objective. The changes are due to come into effect on or around 18 August 2017.

First Trust changes fund objective for its S&P 500 VIX tail hedge ETF

The Dorsey Wright relative strength approach seeks to identify and invest in assets with the highest relative momentum.

The fund will change its name to the First Trust Dorsey Wright People’s Portfolio ETF. It will continue to list and trade its shares on NYSE under the ticker symbol VIXH until 18 August 2017, at which time the fund will list and trade its shares on the NASDAQ Exchange under the ticker symbol DWPP.

The change in fund name will reflect that the ETF will subsequently track the Nasdaq Dorsey Wright People’s Portfolio Index which will be developed, maintained and sponsored by Nasdaq.

The new index switches its exposure between the US equity market or T-Bills, based upon the relative strength analysis technique developed by Virginia-based investment advisory firm Dorsey, Wright & Associates.

In the context of the Dorsey Wright strategy, ‘relative strength’ compares the price performance, or momentum, between each asset within the comparable universe. According to the firm, the absolute momentum of the individual asset is not as important as the relative momentum between the assets. The model determines whether an asset’s momentum is increasing relative to another asset and assigns a buy signal if it is. The assets are then ranked in descending order according to their cumulative number of ‘buy’ signals.

If T-Bills have higher relative strength than the US equity market, the index will consist entirely of one to three-month T-Bills. If T-Bills have lower relative strength than the US equity market, then the New Index will consist of whichever index has higher relative strength between the Nasdaq US 500 Large Cap Index or the Nasdaq US 500 Large Cap Equal Weight Index.

The new investment approach is notably different from the strategy of the current fund which combines a long investment in the S&P 500 with a variable amount of long call options on the VIX index. Unlike the upcoming ETF, the current version of the fund is constantly invested in the US equity market, although it does also seek to mitigate the impact of market downturns – by increasing its exposure to long call options on the VIX in periods of perceived heightened volatility.

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