First Trust Advisors is to launch the First Trust Global Tactical Commodity Strategy Fund, an actively managed exchange-traded fund (ETF), on 23 October, 2013
The new ETF will seek to provide total return by providing investors with commodity exposure while seeking a relatively stable risk profile by investing up to 25% of its total assets in commodity futures contracts and exchange-traded commodity linked instruments (collectively, “Commodities Instruments”) through a wholly-owned subsidiary of the fund. The remainder of the fund’s assets will primarily be invested in short term investment grade fixed income securities, money market instruments, ETFs and other investment companies and cash and other cash equivalents. The fund’s shares will list and trade on The NASDAQ Stock Market, under the ticker symbol FTCG.
The fund provides a cost-effective way to invest in commodity futures in addition to offering daily liquidity and full transparency to holdings and pricing. ETFs that invest in commodity futures contracts typically generate a form K-1 for tax reporting. However, FTGC will report taxable gains and losses on a Form 1099 and avoid the potential complications of K-1 reporting.
A key attribute to investing in commodities is their historically low correlation to traditional asset classes such as stocks and bonds. Combining uncorrelated asset classes in an overall portfolio—that is, those that have performed differently over varying market conditions—increases diversification and may potentially smooth out volatility. Of course, diversification does not guarantee a profit or protect against loss. Commodities may also be appealing to investors who are seeking a potential inflation hedge because commodities prices usually rise when inflation is rising. Commodities are “real assets” and have historically had a higher positive correlation with inflation than “financial assets” such as stocks and bonds.
Because commodities can be volatile, investment weightings of the underlying Commodities Instruments will be actively managed and rebalanced in an attempt to stabilize risk levels.
“Commodity investments have traditionally provided investors with attractive total returns and strong diversification characteristics, especially during periods of high inflation,” SAYS Rob Guttschow, CFA and Senior Portfolio Manager of the fund. “By tactically rotating between different commodity investments and managing the overall portfolio volatility, the fund may provide investors commodity exposure in a more attractive manner. Additionally, by attempting to pick the most attractive maturity futures contract for each commodity, FTGC may provide higher returns over a market cycle.”
Along with Rob Guttschow, John Gambla, CFA, FRM, PRM, will also serve as Senior Portfolio Manager of the fund. 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.