First Trust Plans Active 130/30 High-Yield ETF

by on October 19, 2012

Major indexes continued their march higher this week as corporate earnings and upbeat economic reports welcomed back the bulls on Wall Street. Better-than-expected retail sales and robust housing starts data earlier in the week helped to restore investors’ confidence in the recovery, although a few misses from big names like Intel and IBM kept a lid on optimism levels. Amid the improving landscape, Vanguard rolled out a short-term TIPS ETF, while UBS debuted a leveraged mortgage REIT ETN with a tantalizing 24% yield [see Monthly Dividend ETFdb Portfolio].


Illinois-based First Trust laid out the groundwork for what looks to be a one-of-a-kind active “junk bond” ETF [see also Inside The Peritus High Yield ETF]:

  • First Trust High Yield Long/Short ETF: The SEC filing states that the fund’s primary objective is to provide current income, with a secondary goal of capital appreciation. This ETF will look to manage a portfolio consisting of debt securities rated below investment grade from U.S. and non-U.S. corporations, as well as bank loans and convertible bonds. The filing stated that the fund would invest up to 10% of its assets in non-U.S. dollar denominated securities. The 130/30 strategy comes into play as the ETF can maintain up to 130% of its assets in long positions by using proceeds from up to a total of 30% in short positions; the ETF may short U.S. Treasury and corporate debt securities and use the proceeds to purchase high-yield debt, thereby utilizing leverage [see also 8% Yield ETFdb Portfolio].
With no other filings on deck, this was a fairly tame week on the product development front. In other industry news, the Investment Company Institute rolled out an educational site dedicated to enhancing the public understanding of ETFs. UnderstandETFs.org is a collaborative effort led by 14 ETF providers, including industry giants like iShares, Vanguard and State Street as well as growing issuers like AdvisorShares, First Trust and FlexShares. The site provides a roster of educational resources including a list of questions to ask before buying an ETF and other FAQs.

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Disclosure: No positions at time of writing.