Hundreds of new exchange traded products come to market every year. Some take the long road to asset-gathering proficiency while others gain investors’ affinity in a matter of months. Then there is the rare breed that finds success right out of the gate.
The First Trust Dorsey Wright Focus 5 ETF (NasdaqGM: FV) is in that category. FV debuted in March 2014 and today it is a $3.55 billion fund, easily making it one of the most successful ETFs to debut last year. Impressively, FV needed less than nine months of work to top $1 billion in assets and has needed just seven months to more than triple in size from there. [Another Good Year for New ETFs]
“What causes a fund to collect $3 billion in about one year? 1) a great marketing organization – First Trust, the Focus Five sponsor, grew 68% last year and has total assets in excess of $100 billion with a 100-plus person nationwide sales team, 2) an easy to explain story, 3) convenience and 4) performance,” according to Morningstar.
FV makes a Dorsey Wright strategy used by advisors and institutional investors accessible to a broader audience. FV tracks the Dorsey Wright Focus Five Index which is comprised of “five First Trust sector and industry based ETFs identified by DWA’s index methodology to offer the greatest potential to outperform the other ETFs in the selection universe,” according to First Trust.
As Morningstar notes, a large part of FV’s performance success (the ETF is up 23.6% since debuting) is attributable to its biotech exposure. FV’s largest holding is a 26% weight to the First Trust NYSE Arca Biotechnology Index Fund (NYSEArca: FBT), one of the top-performing ETFs since the March 2009 market bottom. FV’s second-largest holding is the $3.75 billion First Trust Health Care AlphaDEX Fund (NYSEArca: FXH), an ETF with a biotech allocation of almost 20%. [Behind the Rise of a Strategic Beta Healthcare ETF]
The drawback there is FV would be left vulnerable to a significant pullback by biotech stocks.
“The attractive part of the Focus Five is a concentrated portfolio of the best performing sectors of an up market, which should deliver better than benchmark results during bullish cycles. The negative is what might happen to a concentrated sector portfolio in a bear market. Actually, we saw a preview of this during the first month Focus Five traded. The ETF lost about 13% of its value compared to the S&P 500 index loss of about 3%, thanks to its high exposure to biotechnology,” according to Morningstar.
Still, it is impossible to refute FV’s success. In fact, the fund has been so successful that First Trust followed it up with an international equivalent, the First Trust Dorsey Wright International Focus 5 ETF (NasdaqGM: IFV). IFV has needed just 11 months to amass $856 million in assets under management.
First Trust Dorsey Wright Focus 5 ETF