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First Trust Adds 3 Multi-Factor ETFs Emphasizing Forward Momentum

This article was originally published on ETFTrends.com.

First Trust Advisors LP launched three more smart beta ETFs with a focus on the momentum theme as a way to potentially enhance the returns of traditionally conservative equity factor plays.

First Trust rolled out the First Trust Dorsey Wright Momentum & Dividend ETF (Nasdaq: DDIV) , First Trust Dorsey Wright Momentum & Value ETF (Nasdaq: DVLU) and First Trust Dorsey Wright Momentum & Low Volatility ETF (Nasdaq: DVOL) , which each have a 0.60% expense ratio.

The three new ETFs try to reflect the performance of Dorsey Wright Momentum Plus Indexes, or rules-based equity indices that select securities based on individual stock momentum using Dorsey, Wright & Associates' (DWA) proprietary relative strength methodology, along with another fundamental factor - value, dividend yield or volatility.

DDIV's underlying index uses each security’s dividend yield to assign weights where securities with higher dividend yields are assigned correspondingly higher weights.

DVLU's underlying index ranks companies on four “value” metrics, including price-to-sales ratio, price-to-book ratio, price-to-earnings ratio and price-to-cash flow ratio. Securities with higher value scores are assigned correspondingly higher weights.

DVOL's underlying index utilizes the inverse of each security’s one-year trailing volatility to assign weights where securities exhibiting lower volatility are assigned correspondingly higher weights.

“In our view, the First Trust Dorsey Wright Momentum Plus ETFs are effective tools for investment advisors looking to target exposure to a combination of relative strength—or momentum—with other well-known fundamental factors, including value, dividend yield, and low volatility,” Ryan Issakainen, Senior Vice President, Exchange-Traded Fund Strategist at First Trust, said in a note.

Relative strength tries to measure a security’s price momentum relative to its peers. By combining relative strength with a factor-based investing strategy, DWA argued that they may hone in on a desirable characteristic of a stock, such as value, low volatility or dividends, and combine it with the potential for more attractive excess returns, through the momentum tilt. Consequently, investors can potentially gain exposure to a combined strategy that performs better than the individual strategies may achieve separately from one another.

“Dorsey Wright’s research on relative strength is widely followed and we are pleased to offer these funds which incorporate their insights,” Issakainen added.

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

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