First Trust, the Wheaton, Ill.-based money management firm known
in part for its successful Internet-focused ETF, filed regulatory
paperwork to market an actively managed long/short exchange-traded
fund focused on high-yield, mostly U.S., corporate debt.
The First Trust High Yield Long/Short ETF will hew to a 130/30
approach to managing its long/short balance, meaning up to 130
percent of the fund's managed assets may be long and the ETF's
short positions can total 30 percent of its managed assets,
according to the prospectus dated Oct. 11.
First Trust said the fund will invest in securities rated below
investment grade at the time of their purchase, including U.S. and
non-U.S. corporate debt obligations, bank loans and convertible
bonds. It said fund managers will consider securities with the
lowest available ratings, and that the ETF will normally invest up
to 10 percent of its assets in non-U.S. securities that aren't
denominated in dollars.
To mitigate the difficulty of finding available securities to
short-sell in relatively illiquid high-yield corporate debt
markets, the company said the pool of securities it will short will
include U.S. Treasurys and corporate debt that can have
investment-grade or noninvestment-grade ratings.
The ETF will use proceeds from its short positions to purchase
high-yield debt securities, thereby creating a form of financial
leverage, according to the filing.
The fund reflects the increasingly creative ways money
management firms are addressing investors' need for income in their
portfolios. With interest rates pinned near zero by the Federal
Reserve since the crash of 2008, conventional income-producing
securities such as aggregate bond funds are shooting off paltry
yields, and investors appear to be open to alternatives, including
For example, the Pimco Total Return ETF (NYSEArca:BOND) managed
by Bill Gross has gathered more than $3 billion in assets in just
seven months, and Gross himself has pitched his ETF as a sensible
alternative to popular core indexed bond funds in the market, such
as the iShares Barclays Aggregate Bond Fund (NYSEArca:AGG) and the
Vanguard Total Bond Market ETF (NYSEArca:BND).
In its paperwork, First Trust didn't include a proposed ticker
for the First Trust High Yield Long/Short ETF, and it didn't say
what the annual expense ratio would be. But the company did leave
open the door to possibly charging 12b-1 fees of up to 0.25 percent
a year to offset costs of marketing the ETF.
First Trust, the No. 9 U.S. ETF firm by assets, has just over $8
billion in exchange-traded fund assets, according to data compiled
by IndexUniverse. One of its most successful ETFs, the First Trust
Dow Jones Internet Fund (NYSEArca:FDN), has $475 million in
Permalink | 'copy; Copyright 2009 IndexUniverse LLC. All rights
Don't forget to check IndexUniverse.com's ETF Data
2012 IndexUniverse LLC
. All Rights Reserved.