WHEATON, Ill.--(BUSINESS WIRE)--First Trust Advisors L.P. (“First Trust”), a leading ETF provider and asset manager, expects to launch a new actively-managed exchange-traded fund (“ETF”), the First Trust Strategic Income ETF (NASDAQ: FDIV) (the “fund”). The new fund is expected to begin trading on The NASDAQ Stock Market on August 14, 2014.
The fund’s primary investment objective is to seek risk-adjusted income. The fund’s secondary investment objective is capital appreciation. The fund will seek to achieve its investment objectives using multiple investment categories, targeted investment strategies and specialized management teams. “Finding ways to generate income for clients, while discerning the proper balance between income and risk, is one of the toughest challenges facing financial advisors today,” said Ryan Issakainen, CFA, Senior Vice President, Exchange-Traded Fund Strategist at First Trust. “This ETF may provide an alternative to traditional fixed-income funds, investing in a diversified group of income-producing fixed-income and equity asset classes, each actively-managed by a talented team of specialized asset managers.”
The fund’s multiple sources of income opportunities include high-yield bonds and senior loans, mortgage-related securities, preferred securities, international sovereign bonds, master limited partnerships (MLPs) and energy infrastructure companies, and dividend-paying equity securities. This broad scope of investments may act as a complement to traditional equity and fixed-income holdings. For added portfolio diversification, the fund provides exposure to both domestic and international markets. Further, the fund’s equity holdings may provide additional growth potential when market conditions favor stocks.
First Trust is the investment advisor to the fund, responsible for daily oversight of the fund. The First Trust Investment Committee will determine the allocation to each investment strategy using tactical asset allocation, generally making adjustments on a quarterly basis. Each of the investment strategies will be managed by the fund’s sub-advisors and portfolio management teams. The fund’s sub-advisors are First Trust Global Portfolios Ltd., managing international sovereign bonds; Energy Income Partners, LLC, managing MLPs and energy infrastructure companies; Stonebridge Advisors LLC, managing preferred securities; and Richard Bernstein Advisors LLC, managing dividend-paying equity securities. High-yield bonds and senior loans will be managed by the First Trust Leveraged Finance Team and mortgage-related securities will be managed by the First Trust Mortgage Securities Team. The management teams are responsible for security selection and ongoing monitoring of their respective investment category.
For more information about First Trust, please contact Ryan Issakainen of First Trust at (630) 765-8689 or RIssakainen@FTAdvisors.com.
About First Trust
First Trust Advisors L.P., along with its affiliate First Trust Portfolios L.P., are privately held companies which provide a variety of investment services, including asset management and financial advisory services, with collective assets under management or supervision of approximately $97 billion as of July 31, 2014 through unit investment trusts, exchange-traded funds, closed-end funds, mutual funds and separate managed accounts. First Trust is based in Wheaton, Illinois. For more information, visit http://www.ftportfolios.com.
You should consider the fund’s investment objectives, risks, and charges and expenses carefully before investing. Contact First Trust Portfolios L.P. at 1-800-621-1675 to obtain a prospectus or summary prospectus which contains this and other information about the fund. The prospectus or summary prospectus should be read carefully before investing.
The fund will list and principally trade its shares on The NASDAQ Stock Market LLC.
Investors buying or selling fund shares on the secondary market may incur customary brokerage commissions. Market prices may differ to some degree from the net asset value of the shares. Investors who sell fund shares may receive less than the share’s net asset value. Shares may be sold throughout the day on the exchange through any brokerage account. However, unlike mutual funds, shares may only be redeemed directly from the fund by authorized participants, in very large creation/redemption units.
The fund’s shares will change in value, and you could lose money by investing in the fund. One of the principal risks of investing in the fund is market risk. Market risk is the risk that a particular security owned by the fund, fund shares or securities in general may fall in value.
The fund may invest in small capitalization and mid capitalization companies. Such companies may experience greater price volatility than larger, more established companies.
Income from the fund’s fixed income investments could decline during periods of falling interest rates. Fixed income securities are also subject to credit risk and interest rate risk. Credit risk is the risk that an issuer of a security will be unable or unwilling to make dividend, interest and/or principal payments when due and that the value of a security may decline as a result. Interest rate risk is the risk that the value of the fixed-income securities in the fund will decline because of rising market interest rates.
High-yield securities, or “junk” bonds, are subject to greater market fluctuations and risk of loss than securities with higher ratings, and therefore, may be highly speculative. These securities are issued by companies that may have limited operating history, narrowly focused operations, and/or other impediments to the timely payment of periodic interest and principal at maturity. Lower quality debt tends to be less liquid than higher quality debt.
Senior loan securities are subject to numerous risks, including credit risk, interest rate risk, income risk and prepayment risk. The risks associated with these loans are similar to the risks of high-yield fixed income instruments. Credit risk is heightened for the senior loans in which the fund invests because companies that issue such loans tend to be highly leveraged and thus are more susceptible to the risks of interest deferral, default and/or bankruptcy. The loans are usually rated below investment grade but may also be unrated. Upon a prepayment, either in part or in full, the actual outstanding debt on which the fund derives interest income will be reduced. The fund may not be able to reinvest the proceeds received on terms as favorable as the prepaid loan.
Mortgage-related securities, including mortgage-backed securities, are more susceptible to adverse economic, political or regulatory events that affect the value of real estate. Mortgage-related securities are subject to the risk that the rate of mortgage prepayments decreases, which extends the average life of a security and increases the interest rate exposure.
Preferred securities combine some of the characteristics of both common stocks and bonds. Preferred securities are typically subordinated to bonds and other debt instruments in a company’s capital structure in terms of priority to corporate income, and therefore will be subject to greater credit risk than those debt instruments. Preferred securities are also subject to interest rate risk and income risk.
The fund may invest in covered call options. Covered call risk is the risk that the fund will forgo, during the option’s life, the opportunity to profit from increases in the market value of the security covering the call option above the sum of the premium and the strike price of the call, but has retained the risk of loss should the price of the underlying security decline. In addition, as the fund writes covered calls over more of its portfolio, its ability to benefit from capital appreciation becomes more limited. The use of options and other derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. These risks are heightened when the fund’s portfolio managers use derivatives to enhance the fund’s returns or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the fund.
Non-U.S. securities are subject to higher volatility than securities of domestic issuers due to possible adverse political, social or economic developments; restrictions on foreign investment or exchange of securities; lack of liquidity; currency exchange rates; excessive taxation; government seizure of assets; different legal or accounting standards and less government supervision and regulation of exchanges in foreign countries. These risks may be heightened for securities of companies located in, or with significant operations in, emerging market countries. Changes in currency exchange rates and the relative value of non-U.S. currencies will affect the value of the fund’s investment and the value of fund shares. Depositary receipts may be less liquid than the underlying shares in their primary trading market.
Illiquid securities involve the risk that the securities will not be able to be sold at the time desired by the fund or at prices approximately the value at which the fund is carrying the securities on its books.
The fund invests in equity securities and the value of the shares will fluctuate with changes in the value of these equity securities. Equity securities prices fluctuate for several reasons, including changes in investors’ perceptions of the financial condition of an issuer or the general condition of the relevant stock market.
Energy infrastructure companies may be directly affected by energy commodity prices, especially those companies which own the underlying energy commodity. A decrease in the production or availability of commodities or a decrease in the volume of such commodities available for transportation, processing, storage or distribution may adversely impact the financial performance of energy infrastructure companies.
Financial companies are especially subject to the adverse effects of economic recession, currency exchange rates, government regulation, decreases in the availability of capital, volatile interest rates, portfolio concentrations in geographic markets and in commercial and residential real estate loans, and competition from new entrants in their fields of business.
An investment in MLP units involves risks which differ from an investment in common stock of a corporation. Holders of MLP units have limited control and voting rights on matters affecting the partnership.
The fund may invest in the shares of other investment companies (“underlying funds”), and therefore, the fund’s investment performance and risks may be related to the investment performance and risks of the underlying funds. In general, as a shareholder in other investment companies, the fund bears its ratable share of the underlying fund’s expenses, and would be subject to duplicative expenses to the extent the fund invests in other investment companies. Pursuant to a contractual agreement, the Advisor has agreed to reduce the management fee paid by the fund by the proportional amount of the acquired fund fees and expenses of the shares of investment companies held by the fund so that the fund would not bear the indirect costs of holding them, provided, that, the investment companies are advised by the Advisor.
The fund is classified as “non-diversified” and may invest a relatively high percentage of its assets in a limited number of issuers. As a result, the fund may be more susceptible to a single adverse economic or regulatory occurrence affecting one or more of these issuers, experience increased volatility and be highly concentrated in certain issuers.
The fund currently intends to effect a portion of creations and redemptions, in whole or in part for cash, rather than in kind securities. As a result, the fund may be less tax efficient.
The fund currently has fewer assets than larger, more established funds, and like other relatively new funds, large inflows and outflows may impact the fund’s market exposure for limited periods of time.
The fund is subject to management risk because it is an actively managed portfolio. In managing the fund’s investment portfolio, the management teams will apply investment techniques and risk analyses that may not have the desired result. There can be no guarantee that the fund will meet its investment objectives.