First Trust Global Portfolios Limited, a London-based ETF distributor and advisor, has launched a Euro hedged and a Sterling hedged share class of the First Trust FactorFX UCITS ETF, the actively managed foreign exchange UCITs ETF in Europe on the London Stock Exchange.
First Trust writes that the fund seeks to gain exposure to foreign exchange of developed and emerging markets via forward foreign exchange contracts, futures, money market instruments and short-dated sovereign debt denominated in their local currencies.
“Fixed income investors have reached for yield by extending duration and credit risk. International fixed income investing offers investors another route to higher yields but has historically been associated with higher volatility. Our fund offers investors a way to capture international yield differentials while managing currency volatility without taking on credit or duration risk. These new hedged share classes allow Euro and Sterling denominated investors to access the strategy while controlling their exchange rate volatility against the funds USD base currency,” says Derek Fulton, CEO of FTGP.
The Fund utilises a proprietary rules-based strategy utilising Carry, Value and Momentum factors to generate stable total returns, whilst minimising volatility, from a diversified portfolio of USD and non-USD currency exposures. The factors are supported by decades of academic research and are widely used by academics and practitioners. The process takes advantage of the low cross-correlation of the three factors and combines them in an efficient way to maximize total returns whilst reducing risk through diversification.
“Currency is an asset class, and an extremely liquid one,” says portfolio manager Leonardo DaCosta. “By focusing on the yield differential of currency pairs, the fund can generate total returns in a world of compressed yields. The addition of hedged share classes allows a broader investor base to add the strategy to their portfolio construction toolkit”.