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Nonetheless geopolitical concerns and fears over an earlier-than-expected rate hike are making investors increasingly nervous. Some are even forced to ponder whether we are near the end of the five and a half year bull rally (read: Overweight Equity ETFs on Goldman Bullish View).
In short, investors are confused as to whether they should stay invested to enjoy further upside, if any, in the equity market given the improving economic picture, or should they exit the market given over-valuation concerns and fears over the timing of interest rate hike.
Probably having sensed that, First Trust has launched a new fund that employs a long-short strategy with the potential to profit from both rising and falling market conditions.
The fund trades under the name of First Trust Launch/ Long-Short launch with the ticker symbol of FTLS. Below we have highlighted some of the details about this newly launched product for investors keen to include this type of fund as part of their portfolio:
FTLS in Focus
The new actively managed ETF seeks to provide investors with long-term total returns by building long and short positions in the U.S. as well as in international securities listed in the U.S. markets.
The fund intends to follow Sabrient/Gradient's EQR model ranking to select stocks based on their earnings quality. FTLS builds long exposure in stocks having high earnings quality, while short exposure in those stocks deemed to have low earnings quality (read: QEM: A Higher Quality Emerging Market ETF?).
Moreover, the fund uses fundamental, market-related, technical and statistical attributes to analyze the total return potential of the securities to be included in the portfolio.
As far as the allocation of the long and short securities are concerned, 80% to 100% of the total fund assets will be invested in long positions and 0% to 50% will be invested in short positions (read: PowerShares Launches New Active Multi-Strategy ETF).
This strategy results in the fund holding a basket of 235 stocks, with Wal-Mart, The Home Depot and Simon Property Group being the top three stocks from the ‘long' side of the portfolio. The fund does a good job in diversifying its assets well among individual holdings. None of the individual long holdings form more than 3.3% of total fund assets.
As far as the stocks having short exposure in the fund are concerned, the fund does a good job here in terms of limiting its exposure to any one particular security. Baxter International Inc., M&T Bank Corporation and Hershey Company take the top three spots having a short exposure, with 0.41% allocation in the fund each.
However, the active strategy renders the fund pretty expensive with 99 basis points as annual fees.
How might it fit in a portfolio?
This fund is a good choice for investors seeking safety during turbulent market conditions. The fund has the potential to deliver profits during rising as well as falling markets.
Moreover, the fund is expected to provide higher diversification benefits as the long-strategy is believed to be highly uncorrelated to the traditional asset classes.
ETF Competition
Though the space is not flooded with funds, it is building up assets fast. ProShares RAFI Long/Short ETF (RALS) is expected to be the biggest competitor for the newly launched fund in the long-short space. This passively managed fund has an asset base of $66.3 million and charges 95 basis points as expenses (see all Long-Short ETFs here).
Apart from this, AdvisorShares' Accuvest Global Long Short ETF (AGLS) is another fund that is likely to pose competition to FTLS. Like FTLS, the fund is also actively managed but the fund takes a long-short position only in country-specific ETFs. The fund manages a relatively smaller asset base of $27.1 million and is relatively expensive with 1.5% as expense fee.
Thus it needs to be seen whether the newly launched product, which is slightly more expensive than the passively managed fund – RALS, but quite cheaper than its actively managed counterpart – AGLS, is successful in garnering a sizable asset base. Given its high expense ratio in the space, the success is expected to be a huge factor of the net returns the fund manages to deliver.
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PRO-RAFI L/S (ETF:RALS): ETF Research Reports
ADVSR-ACC GLS (ETF:AGLS): ETF Research Reports
FT-LONG/SHRT EQ (FTLS): ETF Research Reports
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