7 First Trust 'Smart Sector' ETFs to Diversify, Manage Risk

First Trust has expanded its line of smart beta exchange traded funds with multi-factor sector plays based on attractive valuations, strong momentum and low volatility to help investors focus on portfolio risk management and improved diversification.

First Trust has come out with seven new smart-beta sector ETFs, including:

  • First Trust Nasdaq Bank ETF (NasdaqGM: FTXO)
  • First Trust Nasdaq Food & Beverage ETF (NasdaqGM: FTXG)
  • First Trust Nasdaq Oil & Gas ETF (NasdaqGM: FTXN)
  • First Trust Nasdaq Pharmaceuticals ETF (NasdaqGM: FTXH)
  • First Trust Nasdaq Retail ETF (NasdaqGM: FTXD)
  • First Trust Nasdaq Semiconductor ETF (NasdaqGM: FTXL)
  • First Trust Nasdaq Transportation ETF (NasdaqGM: FTXR)

Each of the new funds comes with a 0.60% expense ratio.

The seven funds are based on a group of Nasdaq US Smart Sector Indexes, or modified factor-weighted indices designed to provide exposure to U.S. economic sector based on three factors: 3, 6, 9 and 12-month average price appreciation; cash flow to price; and expected volatility based on 12-month historical stock price fluctuation, according to a prospectus sheet.

“Nasdaq designed the index family to blend three known and powerful investment factors to create a smarter approach to sector investing,” Dave Gedeon, Vice President and Head of Research & Development at Nasdaq Global Indexes, said in a note. “The Smart Sector family was built off our focus on delivering outcome-oriented strategies to investors.”

FTXD and FTXN will hold 50 securities weighted based on their score on the three factors while the other five ETFs hold 30 securities. The underlying indices are reconstituted annually and rebalanced quarterly.

FTXO targets the banking sector with top holdings including Fifth Third Bancorp 8.3%, SunTrust Banks 8.2% and PNC Financial Services Group 8.2%.

FTXG includes 68.6% food products, 22.0% soft drinks, 5.9% distillers & vintners, 1.8% brewers and 1.7% farming, fishing & plantations. Top holdings include PepsiCo 8.3%, Tyson Foods 8.2% and Cocoa-Cola Company 8.1%.