First Trust Plans Three New ETFs

by on January 26, 2010 | Updated January 27, 2010 | ETFs Mentioned:

First Trust, the Lisle, Illinois-based ETF provider best known for its AlphaDEX funds, has filed papers for three new ETFs, including two commodity funds and one emerging market ETF. The funds in registration are the First Trust BICK Index Fund, First Trust ISE Global Copper Index Fund, and the First Trust ISE Global Platinum Index Fund. All three will have an expense ratio of 0.70%.

The two commodity funds seek to cash in on the wave of investor demand for precious and industrial metals both as a way to protect against inflation and as a way to play a possible economic recovery. A handful of existing ETFs seek to track the price of platinum, including the E-TRACS UBS Long Platinum ETN (PTM), iPath Dow Jones-UBS Platinum Trust Subindex TR ETN (PGM), and ETFS Physical Platinum Shares (PPLT). The iPath Copper Total Return ETN (JJC) offers exposure to copper.

The funds from First Trust won’t seek to track spot prices of commodities, but rather will invest in companies that are involved in the mining, exploration, and refining of copper and platinum on a global scale. This may be preferable for investors looking for a more leveraged play on a particular commodity. According to Van Eck (PDF), the Gold Miners ETF (GDX) has a beta of 1.84 compared to gold bullion, suggesting that mining firms generally exhibit greater volatility than prices of the underlying metals.

While the copper index fund will focus exclusively on copper, the platinum fund will invest in companies that are involved with a wide variety of the so-called “platinum group” metals (which, in addition to platinum, consist of palladium, osmium, iridium, ruthenium and rhodium). The indexes use a modified linear-weighted methodology adjusted by revenue exposure to copper or platinum production. The strategy allows for smaller, more pure-play companies to have an added weight in the index.

The BICK index fund is a spin on the well known BRIC bloc of countries, which includes the emerging economies of Brazil, Russia, India, and China. BICK replaces Russia with Korea in hopes of attracting investors that are bullish on the emerging market countries but have reservations about investing in the Russian Federation. The fund will allocate 25% of its assets to each country and the fund will have equal weighting allocations for all components within the four countries. In order to be included in the fund, companies must have a market capitalization of at least $100 million and be headquartered in one of the BICK countries. For another take on the BRICs, check out our recent article Forget The BRIC, Your Portfolio Needs The TICK.

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Disclosure: No positions at time of writing.