Active Stock ETF Strategies to Manage Downside Risk

First Trust has partnered up with EquityCompass to help investors achieve long-term capital appreciation in an extended bull market environment through two new actively managed exchange traded funds.

First Trust recently launched the actively managed First Trust EquityCompass Risk Manager ETF (NYSEArca: ERM) and the First Trust EquityCompass Tactical Risk Manager ETF (NYSEArca: TERM). Both come with a 0.65% expense ratio.

The two active ETFs will be managed by Timothy M. McCann, Senior Portfolio Manager at EquityCompass Strategies, and Bernard J. Kavanagh, III, Portfolio Manager at EquityCompass Strategies. The portfolio managers employ an investment strategy that seeks to avoid large, prolonged market losses and diminish volatility.

EquityCompass argues that avoiding the worst drawdowns is meaningfully more beneficial than missing the best up days as severe losses cut future earnings power due to a smaller capital base. Consequently, gains required to recover from a steep loss will be greater than the original loss.