First Trust Launches First Trust High Yield Long/Short ETF
Actively Managed High-Yield ETF Utilizes Investment Strategy to Seek Enhanced Returns in Various Market Conditions While Potentially Mitigating Interest-Rate Risk
WHEATON, Ill.--(BUSINESS WIRE)-- First Trust Advisors L.P. ("First Trust"), a provider of more than 200 investment products, many of which offer transparency, tax efficiency and a rules-based approach to stock selection, has launched a new actively managed exchange-traded fund ("ETF"), the First Trust High Yield Long/Short ETF .
The First Trust High Yield Long/Short ETF ("the Fund") seeks to provide current income by investing primarily in a diversified portfolio of below-investment-grade or unrated high-yield debt securities, including U.S. and non-U.S. corporate debt obligations, bank loans and convertible bonds. Its secondary objective is to generate capital appreciation. Since the historical correlation of performance between high-yield securities and traditional fixed-income, including investment-grade corporate bonds and Treasury securities, is low, First Trust believes the addition of high-yield securities to a well-diversified portfolio has the potential to enhance overall return and provide diversification benefits while potentially decreasing portfolio volatility.
The Fund's investment approach includes a long/short strategy designed to capitalize on investment opportunities in various market environments. Under normal market conditions, the Fund's Portfolio Managers intend to maintain long and short positions in securities, and consequently may take short positions in U.S. Treasury securities and/or corporate debt obligations which may be rated investment-grade or considered to be high-yield securities. The ability to maintain short Treasury positions allows the Portfolio Managers to potentially isolate a portion of the interest-rate risk from the credit risk inherent in the high-yield securities in the Fund's portfolio. The Portfolio Managers believe that credit fundamentals within high-yield remain strong as a result of the ongoing, albeit modest, economic recovery, relatively strong corporate cash flow generation on the part of issuers and low corporate defaults within the high-yield market.
"At a time when investors are growing concerned about the potential fallout from increasing interest rates on their fixed income portfolios, First Trust is offering investors the opportunity to potentially capitalize on the strength of the high-yield bond market and U.S. corporate credit fundamentals while mitigating a portion of the interest-rate risk," said William Housey, CFA, Senior Vice President and Senior Portfolio Manager at First Trust, who serves as one of the Fund's Portfolio Managers. "By combining a rigorous credit selection process with this Fund's long/short strategy, First Trust's experienced leveraged finance investment team believes it can help investors achieve higher risk-adjusted returns in many different market conditions."
In addition to potentially mitigating risk, the long/short strategy may enhance returns via the implementation of the "carry trade," a process whereby a borrowed security is sold and the short seller profits by using the proceeds to purchase another security with a higher interest rate. The Portfolio Managers can unwind the Treasury short positions at any time, and intend to layer in short sales on high-yield debt securities when they believe corporate defaults may increase.
In times of unusual or adverse market, economic, regulatory or political conditions, the Fund may not be able, fully or partially, to implement its short selling strategy. Short selling creates special risks which could result in increased volatility of returns. There is no guarantee that any leveraging strategy the Fund employs will be successful during any period in which it is employed.
"The historically low interest rates in today's market present difficulties for investors seeking income, but we believe this Fund offers a long-term solution within a risk-managed framework for high-yield investors," said Mr. Housey. "Active portfolio management and alternative investment strategies, particularly this Fund's approach to reducing interest-rate risk by adding senior loans and a short Treasury position, may help investors obtain enhanced returns from fixed-income investments in the wake of increasing interest rates."
Along with Mr. Housey, the Fund's Portfolio Managers include Scott D. Fries, CFA, Senior Vice President and Portfolio Manager; Peter Fasone, CFA, Vice President and Portfolio Manager; and Vice Presidents and Fixed Income Portfolio Managers Todd Larson, CFA, and Eric Maisel, CFA.
For more information about First Trust, please contact Chris Moon of JCPR at 973-850-7304 or email@example.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 $67 billion as of January 31, 2013 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.
An investor 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 lists and principally trades 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.
High-yield securities are subject to numerous risks, including higher interest rates, economic recession, deterioration of the junk bond market, possible downgrades and defaults of interest and/or principal. High yield securities are subject to greater market fluctuations and risk of loss than securities with higher ratings. 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.
High-yield securities are subject to credit risk, interest rate risk, income risk and prepayment 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 the related risk that the value of a security may decline because of concerns about the issuer's ability to make such payments. Interest rate risk is the risk that if interest rates rise, the prices of the fixed-rate instruments held by the fund may fall. Income risk is the risk that if interest rates fall, the income from the fund's portfolio will decline as the fund intends to hold floating- rate debt that will adjust lower with falling interest rates. Prepayment risk is the risk that an issuer of a loan may exercise its right to pay principal on an obligation earlier than expected. This may result in the fund reinvesting proceeds at lower interest rates, resulting in a decline in the fund's income.
The fund is subject to market risk. Market risk is the risk that a particular security owned by the fund or shares of the fund in general may fall in value.
The fund may invest in convertible bonds. The market values of convertible bonds tend to decline as interest rates increase and, conversely, to increase as interest rates decline. A convertible bond's market value also tends to reflect the market price of the common stock of the issuing company.
Companies that issue loans tend to be highly leveraged and thus are more susceptible to the risks of interest deferral, default and/or bankruptcy. Senior floating rate loans, in which the fund may invest, are usually rated below investment grade but may also be unrated. As a result, the risks associated with these loans are similar to the risks of high yield fixed income instruments. Loans are subject to pre-payment risk. The degree to which borrowers prepay loans may be affected by general business conditions, the financial condition of the borrower and competitive conditions among loan investors, among others. The fund may not be able to reinvest the proceeds received on terms as favorable as the prepaid loan.
In times of unusual or adverse market, economic, regulatory or political conditions, the fund may not be able, fully or partially, to implement its short selling strategy.
Lower-quality debt tends to be less liquid than higher-quality debt. The fund may invest in Distressed Securities and many Distressed Securities are illiquid or trade in low volumes and thus may be more difficult to value.
The fund invests in securities of non-U.S. issuers. Such securities are subject to higher volatility than securities of domestic issuers. Because the fund's NAV is determined on the basis of U.S. dollars and the fund invests in foreign securities, you may lose money if the local currency of a foreign market depreciates against the U.S. dollar.
The fund currently intends to affect a significant portion of creations and redemptions for cash, rather than in-kind securities. As a result, the fund may be less tax-efficient than if it were to sell and redeem its shares principally in-kind.
The fund is subject to management risk because it is an actively managed portfolio. In managing the fund's investment portfolio, the advisor 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 objective.
Chris Moon, 973-850-7304
KEYWORDS: United States North America Illinois New York
The article First Trust Launches First Trust High Yield Long/Short ETF originally appeared on Fool.com.
Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.