Two New Active ETFs to Manage Volatility in Developed Markets

First Trust Advisors expanded its line of actively managed exchange traded fund strategies with two new options that seeks to generate alpha while mitigating expected volatility in both domestic and developed international markets.

The new actively managed First Trust Horizon Managed Volatility Domestic ETF (NYSEArca: HUSV) and the First Trust Horizon Managed Volatility Developed International ETF (NYSEArca: HDMV) began trading Thursday, August 25. HUSV has a 0.70% expense ratio and HDMV has a 0.80% expense ratio.

The two funds will try to provide capital appreciation while diminishing volatility using a proprietary quantitative and rules-based investment process. Securities selected will include those believed to exhibit low future expected volatility.

The portfolio managers will try to capitalize on the so-called low-volatility anomaly.

“Economic theory would have you believe that those who take on higher risk should be compensated by the potential for higher expected return. The conventional wisdom is that it pays to take chances. However, counterintuitively, history has shown that portfolios of low-beta and low-volatility stocks have produced higher risk-adjusted returns than portfolios of high-beta and high-volatility stocks, in most major markets studied. This phenomenon is known as the low-volatility anomaly,” according to First Trust.

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Horizon Investments will act as the fund’s sub-advisor. HUSV and HDMV will be managed by Horizon Portfolio Managers, including Michael Dickson, Scott Ladner and Steven Clark. Horizon is crafting the strategy around the idea that those in the retirement phase are looking for more conservative plays.