First Trust Advisors is launching an actively managed exchange-traded fund, the First Trust Morningstar Managed Futures Strategy Fund.
The fund is an actively managed ETF that will seek to exceed the performance of the Morningstar Diversified Futures Index, which currently contains 34 different futures positions consisting of 19 commodities, nine equity indexes, and six currencies.
Managed futures are an alternative asset class that may benefit from both rising and falling price trends. Managed futures have been successfully implemented by institutional investors for nearly three decades, but have been typically offered in hedge funds or private accounts until recently.
“Managed futures strategies have historically had low correlation to stocks, bonds, and other investment strategies, moderate volatility, lower drawdowns than equities and positive returns in a variety of economic environments,” says John Gambla, senior portfolio manager of the fund. “Consequently, managed futures can be a potentially powerful diversifier to an investment portfolio.”
However, alternative investments may employ complex strategies and have unique investment and risk characteristics. It is important to note that diversification does not guarantee profit or protect against loss and the fund itself is non-diversified.
The fund provides exposure, through a wholly-owned Cayman Islands subsidiary, to commodities, currencies, and equities through a long, short or flat futures strategy. The fund seeks to achieve positive returns that are not directly correlated to broad market equity or fixed income returns.
“We are excited that First Trust licensed our diversified futures index for an exchange-traded fund,” says Sanjay Arya, senior vice president of Morningstar Indexes. “Since launching our first futures-based indexes in 2007, we have seen growing investor demand for liquid, transparent, rules-based strategies. Designed to take both long and short positions, the Morningstar Diversified Futures Index provides the flexibility to potentially capture both upward and downward movements in price.”
In addition to Gambla, Rob A Guttschow will also serve as senior portfolio manager. The two will primarily be responsible for daily investment decisions under the direction of an investment committee which includes six other individuals with extensive investment experience.
The ETF structure makes the strategy more accessible to investors, providing a cost-effective way to invest in managed futures in addition to offering daily liquidity and full transparency to holdings and pricing.
