First Trust, the Wheaton, Illinois-based provider of exchange-traded products known for its niche strategies, has launched a non US-focused ETF that seeks to provide income sans volatility through a diverse international portfolio of high yielding securities.
The First Trust International Multi-Asset Diversified Income index Fund (YDIV) is the international version of the First Trust Multi-Asset Diversified Income Index Fund (MDIV) that the firm launched about a year ago.
The new fund will compete with similar products by SPDR (SPDR SSgA Income Allocation Fund), iShares (iShares Morningstar Multi-Asset Income Index Fund), Guggenheim (Guggenheim International Multi-Asset Income ETF) and ArrowShares (Arrow Dow Jones Global Yield ETF), and like its predecessor MDIV, will hold real estate investment trusts (REITs), master limited partnerships (MLPs), utilities, ETFs, fixed-income instruments and preferred stocks.
YDIV tracks the NASDAQ International Multi-Asset Diversified Income Index and aims to provide exposure to a single portfolio of diversified asset classes that has inbuilt volatility screens.
Dividend paying equities occupy the top spot in the index (25 percent), followed by REITs (20 percent), preferred securities (20 percent), infrastructure companies (20 percent) and fixed-income ETFs (15 percent). The index is rebalanced quarterly and as of August 8, 2013, the index was comprised of 126 securities.
Though each segment has its own set of criteria based on liquidity, size and yield, limiting volatility is fundamental to multi-asset investing. Hence a maximum volatility cap is used to deal with inconsistent price performance of the constituents although yield remains the main driver behind the index.
Excluding fixed-income instruments, any security that showed volatility of 15 percent or more above its more diversified benchmark universe in the past 12 months, is eliminated.
For example, if the realized volatility of the NASDAQ Global Real Estate Index is 10 percent, any security that has a realized volatility of more than 25 percent in the trailing 12 months, is ineligible for inclusion irrespective of its yield or other factors.
YDIV has an annual expense ratio of 0.70 percent.
Disclosure: No holdings