First Trust Advisors is to launch a new exchange-traded fund (ETF), the First Trust Dorsey Wright Dynamic Focus 5 ETF (FVC), which will seek investment results that correspond generally to the price and yield (before the fund’s fees and expenses) of an index called the Dorsey Wright Dynamic Focus Five Index.
The index is owned and was developed by Dorsey, Wright & Associates (“DWA”). DWA is a registered investment advisory firm that provides professional management of equity portfolios for investors and investment research services for numerous broker/dealers and large institutions around the world. Technical analysis provides the cornerstone of their approach and relative strength plays a very important role.
The index is designed to provide targeted exposure to five First Trust sector and industry based ETFs as identified by DWA’s proprietary relative strength methodology. This methodology is a ranking system used to measure a security’s price momentum relative to its peers and helps DWA identify meaningful patterns in daily share price movements. If an ETF’s price consistently rises faster than its peers, the index relies on DWA’s belief that the trend could continue. Additionally, the index has the potential to allocate to 1- to 3-month U.S. Treasury bills represented by the Nasdaq US T-Bill Index (the “cash index”). The index allocates to the cash index when the relative strength of more than one-third of the universe of First Trust ETFs begins to diminish relative to the cash index. The index seeks to identify major themes in the market, have exposure to those sectors whose price action is superior to others in the universe, and eliminate exposure to those sectors whose price action is sub-par to others in the universe. In instances where relative strength diminishes across equity sectors, the index gains varying amounts of exposure to the cash index.
“The First Trust Dorsey Wright Dynamic Focus 5 ETF provides a simplified way for financial advisors and their clients to gain exposure to a sector rotation strategy with the ability to allocate to cash equivalents. Dorsey Wright’s research on relative strength is widely followed and we are pleased to offer this fund which tracks an index that combines their insights with First Trust’s lineup of sector and industry ETFs,” says Ryan Issakainen, CFA, Senior Vice President, Exchange-Traded Fund Strategist at First Trust.