First Trust launches factor based fixed income UCITS ETF
First Trust Global Portfolios (FTGP) has launched its second actively managed, factor based fixed income UCITS ETF. Using Carry and Value risk premia, The First Trust Low Duration Global Government Bond UCITS ETF aims to provide attractive returns over the medium to long term by investing in global sovereign fixed income securities.
The fund's primary objective is to generate income with a secondary objective of capital growth. Being currency hedged, the fund will seek to minimise the effect of underlying currency exposure offering the opportunity of similar returns and diversification but significantly reduced volatility. In addition, by using a low duration active management strategy, the fund will look to target consistent interest rate exposure while still allocating to the most attractive regions and points on each yield curve. The strategy will aim to deliver lower interest rate risk than the traditional benchmarks such as Bloomberg Barclays Global Treasury Index.
Derek Fulton, Chief Executive Officer at First Trust Global Portfolios, says: “This investment grade, currency hedged, global fixed income fund has a low to negative correlation to risky assets. We believe this can be a great diversifier to global equites, as well as offering a solution for asset managers if they want to dial up or dial down their interest rate exposure.
“True innovation in fixed income has, up until now, not been as widely adopted as in the equity ETF market but is undoubtedly gaining momentum. Until recently Investors choices have been limited to the star active manager or the market cap weighted passive benchmark solution. Investors or asset allocators searching for diversification can be hamstrung by the highly concentrated nature of the benchmark, which is often magnified by growing debt weighted schemes that overweight the most indebted countries. The largest two regional allocations (the United States and Japan) currently account for over half of the Bloomberg Barclays Global Treasury Index.”
“By applying the principles of Carry (incremental yield increase per unit of duration) and Value (the difference in yield across curves post currency hedging costs) to select the most attractive countries and most attractive associated yield curve positioning for each country, this ensures the fund targets where investors can potentially be rewarded most for taking duration risk, most commonly in the level and steepness
“In a world of compressed yields, the fund aims to meet the growing demand for innovation and factor-based investment within fixed income. The use of these transparent, robust and repeatable processes, combined into an ETF structure, offers a marrying of two great innovations and an attractive solution for asset allocators looking for diversification in fixed income. We are delighted to be bringing this ground-breaking new product to market”
The fund is aimed at wealth managers, discretionary fund managers, advisers and institutional investors, with a total expense ratio of 0.45, and will available in the EUR share class on the Euronext Amsterdam from the 21st November 2019.