First Trust, the Wheaton, Ill.-based fund provider known for its
Internet ETF, filed paperwork with U.S. regulators to market an
actively managed global asset allocation ETF that serves up total
return and income potential.
The filing follows separate paperwork the company submitted to
regulators that also detailed a multi-asset income index fund, and
it's unclear whether the new proposed ETF, the First Trust Global
Tactical Asset Allocation and Income Fund, would replace that
original strategy-an index fund-already in the regulatory pipeline
or join it.
The latest is a fund-of-funds that will invest in other ETFs and
ETNs tapping into various asset classes globally while relying on
diversification and regular rebalancing to keep the portfolio's
risk profile stable, the company said in its latest filing. The
strategy also adds an options overlay to enhance income potential
by selling calls on a portion of the holdings and supplement their
yields.
At the end of the day, it's clear that the Illinois-based fund
provider is looking for ways to tap into what has been strong
investor demand for income-generating funds as they look for
opportunities beyond stock dividends and bond coupons in an
interest-rate-starved environment.
Many companies have jumped onto the income ETF bandwagon
recently, and multi-asset strategies have been particularly popular
lately. Companies like Arrow, iShares and State Street Global
Advisors are some of the names that have launched multi-asset
income ETFs so far this year, as IndexUniverse analyst Paul Britt
recently explored in a blog.
SSgA's recently launched SPDR SSgA Income Allocation ETF
(NYSEArca:INKM) is of particular relevance here because, unlike
most other ETFs in the space, it, too, is actively managed.
INKM has gathered $9 million in assets since it came to market
on April 25. The fund costs an annual expense ratio of 0.70
percent.
Options Overlay
In the filing it submitted to the Securities and Exchange
Commission, First Trust said that it looks to keep the portfolio's
risk profile stable through diversification and regular
rebalancing.
Still, it noted that the options element of the strategy would
add another layer of risk, something investors should keep in
mind.
Just how much "overwrite" investors should expect to see will
depend on market conditions and "the composition of the underlying
period," First Trust said in the filing, referring to the purchase
of call options.
"However, the overwrite percentages on each individual security
will be approximately pro-rata with the other securities that have
liquid available options market," First Trust noted in the
filing.
The options sold will have, generally, a maturity of less than
180 days and be at-the-money or slightly out-of-money, the company
added.
The filing didn't disclose a planned ticker or fees, something
that suggests a launch could still be months away.
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