Large investors are flocking to a popular Dorsey, Wright & Associates sector-rotation exchange traded fund strategy, betting on hot areas of the market to push higher.
The First Trust Dorsey Wright Focus 5 ETF (NasdaqGM: FV) has gathered $4.2 billion in assets under management in a little more than a year and a half. The ETF has been gather billions despite its above average 0.94% expense ratio, reports Eric Balchunas for Bloomberg.
In contrast, the average ETF comes with a 0.61% expense ratio and the average asset-weighted ETF has a 0.30% expense ratio.
Balchunas points out that convenience is helping FV attract heavy inflows as the ETF essentially acts as a popular sector rotation strategy that Dorsey, Wright & Associates provides for its clients and subscribers.
At the recent BNY Mellon 2015 ETF Symposium, First Trust explained that FV has been attracting heavy interest among financial advisors that subscribe to Dorsey Wright’s guided model portfolios. Consequently, the heavy inflows into FV may reflect investor’s interest in a one-stop ETF that provides a convenient way to access Dorsey Wright’s rotation strategy.
The ETF follows DWA’s relative strength ranking system where sector ETFs are compared to each other to measure price momentum relative to other ETFs in the universe and the top five ranking ETFs are included in the underlying index. The momentum strategy basically bets that hot movers will continue to rise, so investors would buy high and sell even higher. The relative strength analysis is conducted on a weekly basis.
Currently, FV includes a 23.2% position in First Trust NYSE Arca Biotechnology Index Fund (NYSEArca: FBT), 21.0% in First Trust Dow Jones Internet Index Fund (NYSEArca: FDN), 19.1% in First Trust Consumer Staples AlphaDEX Fund (NYSEArca: FXG), 19.0% in First Trust Health Care AlphaDEX Fund (NYSEArca: FXH) and 17.6% in First Trust Consumer Discretionary AlphaDEX Fund (NYSEArca: FXD). These sectors have been among the top movers in the markets.
While the individual ETFs come with expense ratios that range from 0.54% to 0.70%, FV incurs an additional fee toward paying for licensing the strategy, fund operations and profit for First Trust.
FV has gained 2.0% year-to-date.
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Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.