First Trust Global Portfolios is launching a Irish-domiciled UCITS ETF denominated in US dollars, that it says is the “first actively-managed foreign exchange ETF” for the European marketplace.
The new First Trust Factor FX UCITS ETF (FTFX) will be available on the London Stock Exchange (LSE) on 1 August.
It will hold a basket of between 20 to 30 currency pairs in developing and emerging markets through forward FX contracts, futures, money market instruments and short-dated sovereign debt and will complement the FTGP fundamentally-weighted AlphaDEX fund range, the company said in a statement announcing the launch.
The new ETF is targeted at wealth managers, DFMs, advisers and institutional investors. First Trust said that the FTFX goes “long on undervalued currencies and higher-yielding currencies, and goes short on overvalued, lower-yielding currencies”, aiming to deliver total returns by “focusing on the yield differential.
“Currency is an asset class, and an extremely liquid one,” said FTFX portfolio manager Leonardo DaCosta. “By focusing on the yield differential of currency pairs, the fund can potentially generate total returns in a world of compressed yields, and is a great way to add portfolio diversification.”
FTFX point that yields have compressed, lessening yield income and total returns over the long term.
There is more than US$5trn worth of currency is traded per day, (according to the BIS Triennial Survey)
“International fixed income investing offers investors another route to higher yields but has historically been associated with higher volatility, said Derek Fulton, pictured below left, chief executive of FTGP.
“Our new fund offers investors a way to capture international yield differentials while potentially managing currency volatility without taking on credit or duration risk. Currencies also tend to have low correlation to bonds and equities.”
“We are delighted to be bringing to market our first actively managed UCITS ETF. We have always believed in the principles of active management, but our philosophy has been to establish a non-discretionary, systematic and rules-based approach and this quantitative investment strategy has proved popular across our product range,” Fulton added.
The Irish-domiciled UCITS ETF is denominated in US dollars and has a TER of 0.75%.
FTGP is a UK-based affiliate of First Trust Advisors LP. First Trust has total assets under management or supervision in excess of US$107.5bn as at 30 June.
In Europe FTGP came to market in 2011 and now offers 11 UCITS ETFs, including its proprietary AlphaDEX, fundamentally-weighted ETF range. It also provides open-end UCITS funds that invest in North American Energy Infrastructure Income as well as Tactical High Yield.