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New Active Multi-Asset ETF to Ride Out Current Turmoil - ETF News And Commentary

Actively managed ETFs are gaining immense popularity in recent months courtesy of increasing demand and the potential for more favorable regulations. While these represent just a small slice of the broad ETF world, they aim to beat the benchmark index or the passively managed counterparts even if the odds are against them.

Geo-politics make counter attacks on the economy and investors are seeking such smart investments for diversification and superior returns. Keeping this in mind, First Trust launched the multi-manager, multi-strategy First Trust Strategic Income ETF (FDIV) on the NASDAQ on August 14. It is the eleventh actively managed ETF issued by First Trust (read: Two Actively Managed ETFs worth the Cost ).

The fund will be co-managed by six sub-advisers who will use tactical asset allocation strategy to the respective asset class that they control. This would allow investment in a number of income generating securities ranging from high-yield bonds to dividend-paying equities.

FDIV in Focus

This multi-asset ETF is a fund of funds and looks to offer high risk-adjusted returns with capital appreciation. This is done by allocating the fund's total asset base among six asset classes -high-yield bonds and senior loans, mortgage-related securities, preferred securities, international sovereign bonds, master limited partnerships (MLPs) and energy infrastructure companies, and dividend stocks .

The product will not invest more than 30% of its assets in each asset class according to the primary target but each asset class allocation might go up to 50%, in certain circumstances.

At the time of writing, the fund holds 134 securities in its basket with the largest allocation going to high yield bond fund - First Trust Senior Loan Fund ( FTSL ) - with 15.75% of total assets. Other funds hold less than 6.5% share in the basket. In terms of geographical allocation, North American firms account for 79% share, followed by Europe (13%) and Latin America (4%). The ETF charges 87 bps in fees per year from investors (read: High Yield Bond ETFs See Huge Outflow, Where to Go? ).

How does it fit in a portfolio?

This ETF could be an intriguing choice for investors seeking a diversified exposure to multiple asset classes across the globe through a single investment. The multi asset strategy seeks to enhance returns and reduce overall volatility in the portfolio. The product aims to provide a high level of current income with stability and potential for long-term appreciation while simultaneously avoid downside risk of specific asset classes (read: Protect Your Portfolio with These Multi-Asset Income ETFs ).

Further, the active portfolio appears to be the perfect choice in a world torn by strife and uncertainties. This is because the fund seeks to take advantage of the current trends by modifying the asset allocation based on a various market and economic factors.

ETF Competition

Though the multi asset space is not crowded, the new product still has various contenders. In particular, the ETF would face fierce competition from its own passively managed counterpart, Multi-Asset Diversified Income Index Fund ( MDIV ). It is the most popular ETF in this category with AUM of $742.5 million.

The fund holds 126 securities in its basket putting a greater focus on equities. It consists of stocks/depository receipts (25%), REITs (20%), preferred securities (20%), MLPs (20%), and ETFs (15%). The fund charges investors 60 basis points a year in fees for this service.

Among others, Guggenheim Multi-Asset Income ETF ( CVY ), iShares Morningstar Multi-Asset Income ETF ( IYLD ) and SPDR SSgA Income Allocation ETF ( INKM ) - also provide stiff competition to the new First Trust product (see: all the Multi-Asset/Total Portfolio ETFs here ).

CVY has amassed $1.3 billion in its asset base and provides exposure to a basket of 150 stocks from a universe of domestic stocks, ADRs, REITs, MLPs, CEFs and preferred stocks. The ETF charges 0.82% in expense ratio. On the other hand, IYLD consists of a comprehensive set of iShares ETFs that collectively target equity, fixed income, and alternative income sources. The fund has accumulated $173 million in AUM and charges 60 bps in annual fees from investors.

Meanwhile, INKM with AUM of $102.6 million seeks to provide total return by focusing on investment in income and yield-generating assets. The ETF primarily invests in SPDR ETFs but also includes other exchange traded products. Expense ratio came in at 0.70%.

Based on huge success of the existing multi asset ETFs, it would not be much difficult for FDIV to see big inflows and solid investor interest given the global market uncertainty.

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FT-NDQ MA DIIF (MDIV): ETF Research Reports

GUGG-MULTI-ASST (CVY): ETF Research Reports

ISHARS-MO MA (IYLD): ETF Research Reports

SPDR-SSGA IN AL (INKM): ETF Research Reports

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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