First Trust Advisors is to launch the First Trust RBA American Industrial Renaissance ETF (AIRR) and the First Trust RBA Quality Income ETF (QINC).
The new funds are expected to begin trading on The Nasdaq Stock Market on 11 March and track indices developed by Richard Bernstein Advisors (RBA).
“These two ETFs seek to address investors’ needs for income and theme-based investing. RBA has long been a proponent of the American industrial renaissance theme and we think we understand it better than most,” says Richard Bernstein, RBA’s chief executive and chief investment officer.
The First Trust RBA American Industrial Renaissance ETF seeks investment results that correspond generally to the price and yield (before the fund’s fees and expenses) of an equity index called the Richard Bernstein Advisors American Industrial Renaissance Index. The index is designed to measure the performance of small and mid-cap US companies in the industrial and community banking sectors.
RBA believes there are increasing reasons to expect that the US may regain industrial market share, including access to cheap energy sources; the relative stability of the US market compared to many emerging markets; and growing availability of bank financing for manufacturers. For many decades, American companies sent their manufacturing work overseas. But today, in a trend known as “reshoring,” many companies are bringing their manufacturing back to the US. A variety of factors are driving the US manufacturing renaissance including slower growth in hourly compensation compared to some global competitors and lower natural gas and electricity prices. These factors are helping the US to have a competitive advantage over other countries, which could allow US industrial and manufacturing companies to gain market share.
“Cost-based incentives for American companies to manufacture goods overseas have declined dramatically in recent years, particularly for goods produced for US consumers. Not only can domestic manufacturers save on shipping costs and tariffs, but the US shale gas boom has provided a cheap, abundant source of domestic energy,” says Ryan Issakainen, senior vice president and ETF strategist for First Trust. “Meanwhile, emerging market labour costs have continued to trend higher, compared to the relatively stable cost of high quality domestic labour. Taken together, these factors are contributing to an American industrial renaissance, and potentially providing significant competitive advantages for many domestically-oriented manufacturing companies.”
The First Trust RBA Quality Income ETF seeks investment results that correspond generally to the price and yield (before the fund’s fees and expenses) of an equity index called the Richard Bernstein Advisors Quality Income Index. The index attempts to control the risks associated with investing in higher-yielding stocks, yet maintain attractive current income.
RBA believes stocks with extremely high dividend yields should be viewed cautiously. High dividend yields may simply reflect depressed stock prices in anticipation of dividend cuts or omissions. RBA believes risk actually increases as dividend yield increases and that simply investing in high-yield equities often leads to selecting stocks whose dividends are subsequently cut or discontinued. RBA’s index incorporates several layers of risk control in order to attempt to minimise the probability of dividend cuts and the related underperformance.
“As investor appetite for dividend strategy ETFs has grown in recent years, so has the need for risk management, in order to avoid so-called ‘dividend traps’,” Issakainen says.