First Trust, the Wheaton, Ill.-based fund firm behind the $426
million First Trust Dow Jones Internet Fund (NYSEArca:FDN), filed
regulatory paperwork to market two ETFs designed to deliver
relatively high income-one a multi-asset class income fund and the
other a dividend-focused tech fund.
The two proposed funds are:
- First Trust Multi-Asset Diversified Income Index Fund
- First Trust Nasdaq Technology Dividend Index Fund
The two proposed funds come at a time when investors are
scouring the universe of securities for ways to generate income.
Many fear that bond prices are heading for a sharp correction as a
30-year bull market runs its course. What's worse, for now, the
S&P 500 Index is yielding more than 10-year Treasurys these
days, which has put considerable focus on dividend-rich equities
funds.
The prospectus didn't say how much the two funds would cost or
what their tickers would be. But it did say they would both have
primary listings on the Nasdaq stock Exchange.
The company said in the filing that both funds could charge
12b-1 fees to cover marketing costs of up to 0.25 percent a year
but, like many prospectuses, First Trust took that possibility off
the table for now.
Multi-Asset Fund
The First Trust Multi-Asset Diversified Income Index Fund will
own common stocks and/or depositary receipts, real estate
investment trusts, preferred securities, master limited
partnerships and "an exchange-traded fund" that comprise the index,
the prospectus said.
It looks a bit like a number of securities already on the
market-in intent if not in actual holdings. Those include the Arrow
Dow Jones Global Yield ETF (NYSEArca:GYLD), as well as the actively
managed SPDR SSgA Income Allocation ETF (NYSEArca:INKM) and the
passive iShares Morningstar Multi-Asset Income Index Fund
(NYSEArca:IYLD). IndexUniverse ETF Analyst Paul Britt looked at the
three in a recent blog as he took measure of the quest for stable
income at a time of heightened volatility.
A Dividend-Rich Tech Fund?
A dividend-focused equities fund targeting technology stocks
might sound like a bit of a stretch, since technology still exists
in investors' imaginations as growth stocks from the go-go 1990s.
But things are changing.
Apple did make a splash raising its dividend this year, though
the yield at the time was still just under 2 percent, compared with
more than 5 percent for AT&T and 3.4 percent for General
Electric, as IndexUniverse Carolyn Hill wrote in blog about
dividend funds back in March.
But who knows? Perhaps First Trust is on the cutting edge here,
and the yield on the fund will become something to write home
about.
In any case, the company said in the prospectus that the
"modified dividend value-weighting" index methodology is designed
to cherry-pick those securities and depositary with the most
attractive payouts. Just how attractive, we'll have to wait and
see.
Each quarter, the Nasdaq-created index will be rebalanced to
give a collective weight of 80 percent to tech stocks and 20
percent to telecommunications stocks, the filing said.
First Trust, which currently markets 71 exchange-traded funds,
is the ninth-biggest U.S. ETF firm by assets, with $7.21 billion
under management, according to IndexUniverse's Daily League
Table.
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