An actively managed strategy seeking to deliver a low volatility portfolio of small and mid-cap stocks
First Trust Advisors L.P. ("First Trust") a leading exchange-traded fund ("ETF") provider and asset manager, announced today that it has launched the First Trust Horizon Managed Volatility Small/Mid ETF (NYSE Arca: HSMV) (the "fund"). The fund seeks to provide capital appreciation while attempting to mitigate volatility using a proprietary quantitative and rules-based investment process with a focus on small and/or mid-capitalization companies. The fund invests primarily in common stocks that the fund’s sub-advisor, Horizon Investments, LLC ("Horizon"), believes exhibit low future expected volatility.
"Recent volatility has underscored the importance of strategies designed for investors weathering turbulent markets," said Robbie Cannon, CEO of Horizon Investments. The investment process focuses on small and/or mid-sized companies that Horizon believes may be less volatile than the broader market. "Our active volatility forecasting experience gives Horizon the opportunity to develop offerings like this that keep an eye on risk and capital appreciation in a variety of market environments," said Cannon.
First Trust believes active portfolio management provides the ability to make the most of the opportunities the market has to offer, such as mispricing resulting from the murky role of volatility as a stock characteristic and the phenomenon known as the low-volatility anomaly. Economic theory would have you believe that those who take on higher risk should be compensated by the potential for higher expected return. The conventional wisdom is that it pays to take chances. However, counterintuitively, history has shown that portfolios of low-beta and low-volatility stocks have produced higher risk-adjusted returns than portfolios of high-beta and high-volatility stocks, in most major markets studied. This phenomenon is known as the low-volatility anomaly. "Our goal at First Trust is to provide high quality tools for investment professionals. We believe this actively-managed ETF, focused on small and mid-cap stocks with defensive characteristics, such as low volatility, is a compelling strategy for pursuing better risk-adjusted returns," said Ryan Issakainen, CFA, Senior Vice President, ETF Strategist at First Trust.
The fund’s portfolio managers include Michael Dickson, PhD; Scott Ladner; and Steven Clark, PhD, of Horizon who share responsibilities for the day-to-day management of the fund’s investment portfolio.
For more information about First Trust, please contact Ryan Issakainen at (630) 765-8689 or RIssakainen@FTAdvisors.com.
About First Trust
First Trust is a federally registered investment advisor and serves as the fund’s investment advisor. First Trust and its affiliate First Trust Portfolios L.P. ("FTP"), a FINRA registered broker-dealer, are privately held companies that provide a variety of investment services. First Trust has collective assets under management or supervision of approximately $138 billion as of February 29, 2020, through unit investment trusts, exchange-traded funds, closed-end funds, mutual funds and separate managed accounts. First Trust is the supervisor of the First Trust unit investment trusts, while FTP is the sponsor. FTP is also a distributor of mutual fund shares and exchange-traded fund creation units. First Trust and FTP are based in Wheaton, Illinois. For more information, visit https://www.ftportfolios.com.
Horizon is a registered investment adviser focused on modern goals-based investment management. Founded in 1995, the firm is based in Charlotte, NC, and works in partnership with financial advisors to deliver investment strategies that align clients’ wealth with their life goals. Horizon implements its global and active investment strategies through model accounts, collective investment funds, mutual funds and ETFs. The firm was recognized in 2018 and 2019 as Asset Manager of the Year (< $25B AUM) by Money Management Institute (MMI) and Barron’s, and 2018 Manager of the Year and Strategist of the Year by Envestnet and Investment Advisor Magazine. The firm has also received numerous other industry commendations for its investment management expertise. For more information, visit https://www.horizoninvestments.com/.
You should consider the fund’s investment objectives, risks, and charges and expenses carefully before investing. Contact First Trust Portfolios L.P. at 1-800-621-1675 or visit www.ftportfolios.com to obtain a prospectus or summary prospectus which contains this and other information about the fund. The prospectus or summary prospectus should be read carefully before investing.
Investors buying or selling fund shares on the secondary market may incur customary brokerage commissions. Market prices may differ to some degree from the net asset value of the shares. Investors who sell fund shares may receive less than the share’s net asset value. Shares may be sold throughout the day on the exchange through any brokerage account. However, unlike mutual funds, shares may only be redeemed directly from a fund by authorized participants, in very large creation/redemption units. If a fund’s authorized participants are unable to proceed with creation/redemption orders and no other authorized participant is able to step forward to create or redeem, fund shares may trade at a discount to a fund’s net asset value and possibly face delisting.
A fund’s shares will change in value and you could lose money by investing in a fund. One of the principal risks of investing in a fund is market risk. Market risk is the risk that a particular security owned by a fund, fund shares or securities in general may fall in value. There can be no assurance that a fund’s investment objectives will be achieved. The outbreak of the respiratory disease designated as COVID-19 in December 2019 has caused significant volatility and declines in global financial markets, which have caused losses for investors. The impact of this COVID-19 pandemic may be short term or may last for an extended period of time, and in either case could result in a substantial economic downturn or recession.
In managing a fund’s investment portfolio, the advisor will apply investment techniques and risk analyses that may not have the desired result.
A fund may be a constituent of one or more indices which could greatly affect a fund’s trading activity, size and volatility.
Securities issued by companies concentrated in a particular industry or sector involves additional risks, including limited diversification. Small capitalization and mid capitalization companies may experience greater price volatility than larger, more established companies.
The value of a fund’s shares will fluctuate with changes in the value of equity securities. Equity securities prices fluctuate for several reasons, including changes in investors’ perceptions of the financial condition of an issuer or the general condition of the relevant stock market.
Small and/or mid capitalization companies may be more vulnerable to adverse general market or economic developments, and their securities may be less liquid and may experience greater price volatility than larger, more established companies as a result of several factors, including limited trading volumes, fewer products or financial resources, management inexperience and less publicly available information. Accordingly, such companies are generally subject to greater market risk than larger, more established companies.
If a fund has lower average daily trading volumes, it may rely on a small number of third-party market makers to provide a market for the purchase and sale of shares. Any trading halt or other problem relating to the trading activity of these market makers could result in a dramatic change in the spread between a fund’s net asset value and the price at which a fund’s shares are trading on NYSE Arca which could result in a decrease in value of a fund’s shares.
Depositary receipts are securities issued by a bank or trust company reflecting ownership of underlying securities issued by a foreign company. Depositary receipts may be less liquid than the underlying shares in their primary trading market.
As the use of Internet technology has become more prevalent in the course of business, a fund has become more susceptible to potential operational risks through breaches in cyber security.
A fund classified as "non-diversified" may invest a relatively high percentage of its assets in a limited number of issuers. As a result, a fund may be more susceptible to a single adverse economic or regulatory occurrence affecting one or more of these issuers, experience increased volatility and be highly concentrated in certain issuers.
Large inflows and outflows may impact a newer fund’s market exposure for limited periods of time.
First Trust Advisors L.P. is the adviser to the fund. First Trust Advisors L.P. is an affiliate of First Trust Portfolios L.P., the fund’s distributor.
The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. By providing this information, First Trust is not undertaking to give advice in any fiduciary capacity within the meaning of ERISA, the Internal Revenue Code or any other regulatory framework. Financial advisors are responsible for evaluating investment risks independently and for exercising independent judgment in determining whether investments are appropriate for their clients.
Please see the fund’s prospectus for a complete list of all the risks of investing in the fund.
Beta is a measure of price variability relative to the market.