First Trust expands ETF lineup with active factor funds
First Trust Advisors (First Trust) has launched three actively managed ETFs: the First Trust Active Factor Large Cap ETF (AFLG), the First Trust Active Factor Mid Cap ETF (AFMC) and the First Trust Active Factor Small Cap ETF (AFSM).
The funds seek to provide capital appreciation by investing at least 80% of their net assets (including investment borrowings) in equity securities. The funds will principally invest in the common stocks of US companies that are listed and traded on a US national securities exchange.
The portfolios combine both a multi-factor quantitative methodology to identify attractive stocks and an active risk overlay to manage factor and risk exposures to construct a portfolio of securities exhibiting exposure to one or more investing factors including value, momentum, quality and low volatility.
“Factor-based investing has gained popularity among investment advisors over the past several years, and First Trust has been a leading provider of factor ETFs for well over a decade. One of the challenges that advisors face in utilising factor ETFs is determining how to combine these factors, especially as valuations and other attributes evolve over time,” says Ryan Issakainen, CFA, Senior Vice President, ETF Strategist at First Trust.
The funds’ active risk management allows the investment advisor to maintain exposure to desired factors while controlling exposure to industries/sectors, single stock risk and other risks. The active strategy gives it the flexibility to alter the investing factors used in the construction of the funds’ portfolios in response to changes in market conditions, emergent academic research or other considerations.
“These actively managed ETFs harness First Trust’s expertise to target exposure to rewarded factor premiums, while also attempting to mitigate unintended biases and manage overall portfolio risk,” says Issakainen.
The funds are managed by First Trust Advisors, with selection and portfolio decisions made by an Investment Committee. The Investment Committee manages the selection of the securities by leveraging the knowledge of First Trust’s research and portfolio management teams who understand the factors that drive risk-adjusted returns.