First Trust, the fund company known in part for its
Internet-focused exchange-traded fund, filed regulatory paperwork
earlier this month detailing plans for an actively managed ETF that
will own U.S. equities and will use options to add cash flow or
help protect the portfolio from downside movement.
The First Trust Enhanced Low Beta Income ETF will invest
primarily in U.S.-listed securities, and will also own
international securities that trade on U.S. exchanges as American
depositary receipts and global depositary receipts, the prospectus
said. The fund will select securities using a mathematical
optimization strategy that tilts the portfolio toward stocks with
The options overlay will consist mostly of call options on the
S&P 500 Index aimed at obtaining extra income from monthly
premium payments. The company stressed in the filing that the
options will be so-called covered calls.
Additionally, the fund will at times use a portion of the call
option proceeds to purchase exchange-listed index puts to cushion
the fund's performance when the market experiences severe
"The option portion of the portfolio generally consists of
covered calls and long puts on the Index," the company said in the
filing, adding that the fund may also contain put or call options
on other indexes as part of its hedging strategy.
The company didn't say in the filing what the fund's price would
be, but it did leave the door open to one day possibly including
12b-1 fees of 0.25 percent a year, though those won't be part of
the fund's charges when it first comes to market.
First Trust also didn't say what the fund's ticker would be or
on what exchange the ETF would have its primary listing.
First Trust is the 11
-largest U.S. ETF sponsor by assets, with almost $9 billion under
management, according to IndexUniverse's latest daily ETF League
Table. Among its more successful funds are the $703.8 million First
Trust Dow Jones Internet Fund (NYSEArca:FDN).
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