An actively managed ETF that has the potential to profit from both rising and falling markets….
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First Trust Advisors L.P. has launched a new actively-managed exchange-traded fund , the First Trust Long/Short Equity ETF (NYSE Arca: FTLS). The fund seeks to provide investors with long-term total return and began trading on September 9, 2014.
The fund’s investment process involves constructing both a long and short portfolio consisting of at least 80% in U.S. exchange-listed equity securities of U.S. and foreign companies such as common stocks and ETFs. “Long” and “short” are investment terms used to describe ownership of securities. To buy securities is to “go long” as opposed to “selling short,” which is an advanced trading strategy that involves selling a borrowed security. Short selling is a technique used by the fund to try and profit if the price of the security goes down.
Earnings quality is a central component of security selection for the fund using Sabrient Systems’ and Gradient Analytics’ Earnings Quality Rank (EQR). EQR is a proprietary forensic accounting methodology that measures the aggressiveness of accounting for each company.
Research by Sabrient Systems and Gradient Analytics has shown that aggressive accounting practices (low quality earnings) are associated with lower future stock returns compared to those companies with more conservative accounting practices (higher quality earnings). The methodology seeks to identify those companies that have potential to outperform or underperform the market. There can be no assurance that the fund’s investment objective will be achieved.
The fund seeks to systematically provide “long” exposure to high quality earnings stocks and “short” exposure to lower quality earnings stocks. The overall portfolio, under normal market conditions, will be 80 to 100% invested in long positions and 0% to 50% invested in short positions. “Long-short offers the opportunity to profit from both the long positions as well as the short positions,” said John Gambla, CFA, FRM, PRM, Senior Portfolio Manager at First Trust, who serves as one of the fund’s Portfolio Managers. “A further potential benefit is that the long and short exposures may serve to offset one another and thereby have the total portfolio be less dependent on market direction than a long only fund.”
The portfolio is overseen by the First Trust Advisors, L.P. Investment Committee. Along with Mr. Gambla, Rob A. Guttschow, CFA, Senior Portfolio Manager at First Trust, serves as portfolio manager of the fund. The two are responsible for day-to-day management decisions for the fund’s portfolio.
Source: ETFWorld.com
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