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7 First Trust Smart Sector ETFs to Diversify, Manage Risk

editor@etftrends.com (ETF Trends)

First Trust has expanded its line of smart beta exchange traded funds with multi-factor sector plays based on attractive valuations, strong momentum and low volatility to help investors focus on portfolio risk management and improved diversification.

First Trust has come out with seven new smart-beta sector ETFs, including:

  • First Trust Nasdaq Bank ETF (FTXO)
  • First Trust Nasdaq Food & Beverage ETF (FTXG)
  • First Trust Nasdaq Oil & Gas ETF (FTXN)
  • First Trust Nasdaq Pharmaceuticals ETF (FTXH)
  • First Trust Nasdaq Retail ETF (FTXD)
  • First Trust Nasdaq Semiconductor ETF (FTXL)
  • First Trust Nasdaq Transportation ETF (FTXR)

Each of the new funds comes with a 0.60% expense ratio.

The seven funds are based on a group of Nasdaq US Smart Sector Indexes, or modified factor-weighted indices designed to provide exposure to U.S. economic sector based on three factors: 3, 6, 9 and 12-month average price appreciation; cash flow to price; and expected volatility based on 12-month historical stock price fluctuation, according to a prospectus sheet.

“Nasdaq designed the index family to blend three known and powerful investment factors to create a smarter approach to sector investing,” Dave Gedeon, Vice President and Head of Research & Development at Nasdaq Global Indexes, said in a note. “The Smart Sector family was built off our focus on delivering outcome-oriented strategies to investors.”

FTXD and FTXN will hold 50 securities weighted based on their score on the three factors while the other five ETFs hold 30 securities. The underlying indices are reconstituted annually and rebalanced quarterly.

FTXO targets the banking sector with top holdings including Fifth Third Bancorp 8.3%, SunTrust Banks 8.2% and PNC Financial Services Group 8.2%.

FTXG includes 68.6% food products, 22.0% soft drinks, 5.9% distillers & vintners, 1.8% brewers and 1.7% farming, fishing & plantations. Top holdings include PepsiCo 8.3%, Tyson Foods 8.2% and Cocoa-Cola Company 8.1%.

FTXN tracks 49.0% exploration & production, 24.4% integrated oil & gas, 17.1% oil equipment, services & distributors and 9.6% pipelines. Top holdings include Spectra Energy Corp. 9.4%, Chevron Corp. 7.8% and Exxon Mobil 7.6%.

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FTXH focuses on the pharmaceuticals industry, including Eli Lilly and Company 8.1%, Merck & Co 7.9% and Zoetis 7.8% among its top components.

FTXD includes 29.7% specialty retailers, 25.1% apparel retailers, 17.1% broadline retailers, 10.1% food retailers & wholesalers, 7.9% drug retailers, 6.2% home improvement retailers and 3.8% specialized consumer services. Top underlying components include Sysco Cor. 7.8%, Best Buy 7.1% and Dick’s Sporting Goods 6.9%.

FTXL holds semiconductor names, including InterDigital 8.4%, Intel Corp 8.3% and Photronics 8.2% among its top holdings.

Lastly, FTXR follows 20.4% delivery services, 16.3% railroads, 15.6% airlines, 14.9% automobiles, 14.1% auto parts, 10.3% trucking, 6.7% transportation services and 1.7% tires, including a 8.1% tilt toward Expeditors International of Washington, 8.1% United Parcel Service and 7.9% General Motors Co.

“These ETFs provide investment advisors with a new set of tools for investing in important industries, while biasing portfolio exposure toward lower valuations, stronger momentum, and less volatility,” Ryan Issakainen, Senior Vice President, Exchange-Traded Fund Strategist at First Trust, said.

For more information on new fund products, visit our new ETFs category.