Today, First Trust Advisors announced it is expanding its roster of Target Income ETFs with the launch of three new funds.
Each of these Target Income ETFs looks to generate current income with a secondary goal of capital appreciation. All three actively managed funds have net expense ratios of 65 basis points.
To start, the three funds all invest in U.S. Treasury securities. From there, each of the funds uses an option strategy to gain exposure to a respective underlying ETF. These underlying ETFs each offer exposure to a different sector in fixed income.
3 Distinct Strategies
First up is the FT Vest Investment Grade & Target Income ETF (LQTI). Its underlying ETF is the iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD ). Exposure to LQD thus provides LQTI with access to profits from investment-grade corporates.
In contrast, the FT Vest High Yield & Target Income ETF (HYTI) can provide exposure to high yield corporate bonds. This is subsequently performed through an option strategy on the underlying fund, the iShares iBoxx $ High Yield Corporate Bond ETF (HYG ).
Rounding out the new funds is the FT Vest 20+ Year Treasury & Target Income ETF (LTTI). Accordingly, LTTI offers long-term U.S. Treasury exposure through its underlying ETF, the iShares 20+ Year Treasury Bond ETF (TLT ).
Using FLEX Options
To maintain exposure to these underlying ETFs, HYTI, LQTI, and LTTI each use FLEX options. These funds all seek to provide distributions at an annual rate of about 5% higher than their underlying ETFs.
“The launch of HYTI, LQTI, and LTTI expands our suite of Target Outcome Investments® and strengthens our ongoing relationship with First Trust to deliver the full potential of derivatives to more investors,” noted Jeff Chang, president of Vest Financial, subadvisor to the funds.
“These ETFs are designed to provide enhanced income strategies across core fixed-income markets—including high-yield, investment-grade, and long-term U.S. Treasuries—each within a single-ticker solution. At Vest, we are committed to solving real investment challenges through practical, outcome-driven innovation that empowers financial professionals and investors to pursue their financial goals with greater clarity," he added.
With over 160 ETFs listed in the United States, First Trust offers a comparatively wide selection of income oriented strategies. Furthermore, one of the largest First Trust funds, the First Trust Preferred Securities & Income ETF (FPE ), has more than $5 billion in assets under management.
For more information, please visit VettaFi.com | ETF Trends.
