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First Trust launches EquityCompass Risk Manager ETFs


First Trust Advisors has launched the EquityCompass Risk Manager ETF (ERM) and the EquityCompass Tactical Risk Manager ETF (TERM).

Both funds are actively managed by EquityCompass Strategies and seek to provide long term capital appreciation with capital preservation as a secondary objective.
The funds’ portfolio managers employ an investment strategy that seeks to avoid large, prolonged market losses and reduce volatility.
EquityCompass believes avoiding the market’s worst down days is more beneficial than the penalty that comes from missing the best up days. Severe losses reduce future earnings power due to a smaller capital base. Gains required to fully recover from a loss need to be greater than the original loss. For example, a 20 per cent loss requires a 25 per cent gain for a full recovery, and a 10 per cent loss requires an 11.1 per cent gain to recover. Outsized losses can add years to the time it takes to recover capital.
EquityCompass believes the implications of proper risk management, or lack thereof, are often underappreciated, poorly understood or ignored entirely. All investments carry some risk but steps can be taken within an investment strategy that have the potential to both protect against market stress and downside volatility and to participate in potential market gains. EquityCompass believes the key to achieving consistent performance that is both explainable and repeatable is the disciplined application of a rules-based investment process that manages volatility and attempts to stay invested, while merging traditional investment theory with quantitative techniques.
“Following two devastating bear markets in the last 17 years, investors, especially those nearing or in retirement, recognise the vulnerability of equity markets and are seeking risk management solutions. EquityCompass has been successfully utilising active risk management in our portfolios since 2009. We are excited to collaborate with First Trust to offer investors a convenient and efficient method for incorporating this strategy into their portfolios,” says Richard E. Cripps, chief investment officer at EquityCompass.
“We believe these ETFs will be useful tools for investment advisers seeking to manage risk in their clients’ portfolios, while maintaining exposure to US equities. As sub-adviser, EquityCompass brings a unique approach to risk-management, supported by years of rigorous empirical research,” says Ryan Issakainen, senior vice president, ETF strategist at First Trust.
The funds’ portfolio managers include Timothy M McCann, senior portfolio manager, and Bernard J Kavanagh, III, portfolio manager, who share responsibilities for the day-to-day management of each fund’s investment portfolio, along with the First Trust Advisors’ investment committee.

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