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. 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.