Three new actively managed ETFs launched Wednesday on NYSE that set out to harness First Trust’s expertise to target exposure to rewarded factor premiums, while also attempting to mitigate unintended biases and manage overall portfolio risk.
The trio of funds are the First Trust Active Factor Large Cap ETF (NYSE Arca: AFLG), the First Trust Active Factor Mid Cap ETF (NYSE Arca: AFMC), and the First Trust Active Factor Small Cap ETF (NYSE Arca: AFSM).
The funds seek to provide capital appreciation by investing at least 80% of their net assets (including investment borrowings) in equity securities. The funds will principally invest in the common stocks of U.S. companies that are listed and traded on a U.S. national securities exchange.
The portfolios combine both a multi-factor quantitative methodology to identify attractive stocks and an active risk overlay to manage factor and risk exposures to construct a portfolio of securities exhibiting exposure to one or more investing factors including value, momentum, quality, and low volatility.
“Factor-based investing has gained popularity among investment advisors over the past several years, and First Trust has been a leading provider of factor ETFs for well over a decade. One of the challenges that advisors face in utilizing factor ETFs is determining how to combine these factors, especially as valuations and other attributes evolve over time,” said Ryan Issakainen, CFA, Senior Vice President, ETF Strategist at First Trust.
How the New Funds Maintain Exposure
The funds’ active risk management allows the investment advisor to maintain exposure to desired factors while controlling exposure to industries/sectors, single stock risk, and other risks. The active strategy gives it the flexibility to alter the investing factors used in the construction of the funds’ portfolios in response to changes in market conditions, emergent academic research or other considerations.
“These actively-managed ETFs harness First Trust’s expertise to target exposure to rewarded factor premiums, while also attempting to mitigate unintended biases and manage overall portfolio risk,” said Issakainen.
AFLG, AFMC, and AFSM are managed by First Trust Advisors L.P., with selection and portfolio decisions made by an Investment Committee. The Investment Committee manages the selection of the securities by leveraging the knowledge of First Trust’s research and portfolio management teams who understand the factors that drive risk-adjusted returns.