First Trust added to its lineup of fixed income exchange traded funds last week with the debut of the First Trust Low Duration Strategic Focus ETF (NASDAQ: LDSF), an actively managed ETF of ETFs.
The new ETF “seeks to achieve its investment objectives by investing at least 80% of its net assets (including investment borrowings) in a portfolio of U.S.-listed exchange-traded funds (“ETFs”) that principally invest in income-generating securities that provide the Fund with an effective portfolio duration of three years or less,” according to First Trust.
LDSF’s methodology includes both top-down and bottom-up analysis in an effort to find attractive fixed income opportunities with less interest rate risk.
“The process combines these factors with disciplined bottom-up asset level analysis including views on rates, duration, credit, currency and current asset valuation,” said First Trust in a statement. “The relative attractiveness of the various fixed income asset classes is also evaluated in an attempt to best position the fund to take advantage of market trends and investment opportunities.”
LDSF’s roster is comprised exclusively of other First Trust bond ETFs. Those holdings include the First Trust Low Duration Mortgage Opportunities ETF (NasdaqGM: LMBS), First Trust Senior Loan ETF (NasdaqGM: FTSL) and the First Trust Enhanced Short Maturity ETF (FTSM). Those three ETFs combine for over 87% of LDSF’s weight.
LMBS, which is heavy on mortgage-backed securities (MBS), is LDSF’s largest holding at 39.80%.
MBS are created when an entity acquires a bundle of mortgages and then sells the securities. Most MBS are seen as a “pass-through” security where the principal and interest payments are passed through the issuer to the investor.
Most funds typically trade securities taken from the three prominent agencies – Ginnie Mae, Fannie Mae and Freddie Mac. These agency securities usually come with high-quality ratings and are explicitly or somewhat implicitly backed by the U.S. government.
LDSF’s “Investment Committee seeks to construct a portfolio with a target duration of three years or less, while managing both interest rate risk and credit risk. Duration is a mathematical calculation of the average life of a debt security (or a portfolio of debt securities) that serves as a measure of its price risk,” according to First Trust.
The new ETF charges 0.86 per year, or $86 on a $10,000 investment.
For more new ETF launches, visit our New ETFs category.