Some of the most successful actively managed ETF launches have come to fruition in the fixed-income space, and First Trust is attempting to take that model one step farther.
Well-known funds that have amassed more than $1 billion in assets include the PIMCO Total Return ETF (NYSE: BOND) and AdvisorShares Peritus High Yield ETF (NYSE: HYLD).
Each of these ETFs competes against a plethora of established passive indexes with a unique risk management approach. Typically this is implemented through duration and asset allocation flexibility that the manager believes will produce superior results.
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With a similar goal in mind, the First Trust Strategic Income ETF (NASDAQ: FDIV) was launched on Thursday as an actively managed multi-strategy fund. The primary objective of this ETF is to seek risk-adjusted income, with a secondary objective of capital appreciation.
The fund will be co-managed by six sub-advisers who will select tactical income opportunities for the portion of the portfolio that they control. This allows for investments that span the entire income spectrum from high-yield bonds to dividend-paying equities.
FDIV will compete against an already established passive strategy in the First Trust Multi-Asset Diversified Income ETF (NASDAQ: MDIV), which has more than $740 million in assets. The advantage of this new ETF is the flexibility to change its holdings in response to the current interest rate environment, as well as seek out value opportunities in select income-generating sectors.
In addition, FDIV will allow for international exposure in both fixed-income and dividend-paying equities to provide further diversification. This could potentially lead to a higher level of portfolio yield and capital appreciation.
The First Trust investment committee will be the determining body over the strategic and tactical asset allocation strategy implemented by the sub-advisers in FDIV. A team of experts will provide daily oversight of the fund and comprehensive analysis of the securities with the highest expected return.
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The active management component in FDIV will come with a marginally higher expense ratio of 0.87 percent versus the 0.60 percent management fee for MDIV.
This ETF will certainly be one to watch over the coming months as investors take note of the looming changes in Federal policy that will be sure to impact income-generating securities.
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