First Trust, the Illinois-based fund company known for niche strategies, today is launching the First Trust Morningstar Managed Futures Strategy Fund (FMF), an actively managed ETF that will compete with one other ETF that also aims to profit in all markets through futures investing.
Managed futures originated a generation ago as a systematic way to diversify investment returns via long or short strategies in a wide variety of futures contracts. They have been run by so-called commodity trading advisors, and putting such strategies into an ETF wrapper is a relatively recent development.
First Trust’s FMF will go head-to-head with the WisdomTree Managed Futures Strategy Fund (WDTI). WisdomTree’s “WDTI” launched more than two years ago and has almost $140 million in assets. Also, Maryland-based ProShares put three separate managed futures ETF strategies into registration at the end of 2011, but has yet to bring any of the proposed funds to market.
Notably, the world of managed futures lost one conspicuous competitor in June, with the shuttering of the actively managed iShares Diversified Alternatives Trust (ALT).
First Trust’s FMF will have an annual expense ratio of 0.95 percent a year according to the fund’s latest prospectus , or $95 for each $10,000 invested, while the WisdomTree fund—an active strategy developed by Alpha Financial Technologies and its founder, Victor “Trader Vic” Sperandeo—costs 0.96 percent, according to information posted on WisdomTree’s website .
The First Trust fund will invest in a portfolio of commodity, currency and equity futures based generally on the constituents of the Morningstar Diversified Futures Index. Since FMF is actively managed, its holdings won’t directly reflect those of its benchmark index, and it holds no obligation to rely on the benchmark for weightings.
The fund’s active strategy will access the futures markets through a subsidiary. That First Trust unit will put long or short calls on futures, with the option to go “flat,” or move to cash. Therefore, FMF could potentially hold a portion of cash in its portfolio.
FMF will be weighted to about 50 percent commodity futures; 25 percent equity futures; and 25 percent currency futures, in currencies including the euro, yen, British pound, Swiss franc, and both the Australian and Canadian dollars.
The fund will rebalance quarterly to generally maintain these weightings, according to the ETF’s latest prospectus.
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