First Trust, the Wheaton, Illinois-based issuer of exchange traded funds known for its niche offering, has launched a novel product that targets the managed futures market, giving retail investors access to a niche that was hitherto the domain of hedge funds, high net-worth individuals and institutional investors.
The First Trust Morningstar Managed Futures Strategy ETF (FMF) gives investors access to managed futures strategy and is actively managed to provide investors total returns that exceeds the performance of the Morningstar Diversified Futures Index, the fund’s underlying benchmark.
The benchmark seeks to reflect the trends in the equity, commodity or currency futures markets and is fully collateralized which includes exchange-traded and highly liquid contracts in the above mentioned asset classes. FMF should attract investors who are seeking exposure in alternative assets that could potentially add to their investments irrespective of market conditions. However, given its low volatility and uncorrelated investment strategy, the fund is less likely to provide oversized returns, particularly in bull market conditions.
Managed futures are an alternative asset class that seeks to benefit from both rising and falling markets and have historically displayed lower correlation to equities, fixed-income and other asset classes. Since FMF is an actively managed fund, it will not track the benchmark, but will hold instruments that are similar to those included in the index. It will hold long and short positions in futures contracts for domestic and foreign stock indexes, currencies and commodities.
The portfolio is constituted of 34 different futures positions that include nine equity index futures, 19 different commodities futures and six currency futures. The commodities include agricultural products, precious metals and copper while currencies include six of the most traded units in the world including the euro, the Japanese yen, the Canadian dollar, the British pound, the Swiss franc and the Australian dollar.
The equity index futures include some of the most widely-traded benchmarks such as the S&P 500, the German DAX, the French CAC 40, the British FTSE 100, the Canadian TSX and Asia Pacific benchmarks such as the ASX and the Nikkei.
FMF has an annual expense ratio of 0.95 percent.
Disclosure: No holdings