First Trust Plans 2 Income-Focused ETFs

By
Olly Ludwig
June 28, 2012
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First Trust plans to serve up two income-focused ETFs in an investment universe yearning for stability.

First Trust, the Wheaton, Ill.-based fund firm behind the $426 million First Trust Dow Jones Internet Fund (NYSEArca: FDN), filed regulatory paperwork to market two ETFs designed to deliver relatively high income—one a multi-asset class income fund and the other a dividend-focused tech fund.

The two proposed funds are:

  • First Trust Multi-Asset Diversified Income Index Fund
  • First Trust Nasdaq Technology Dividend Index Fund

 

The two proposed funds come at a time when investors are scouring the universe of securities for ways to generate income. Many fear that bond prices are heading for a sharp correction as a 30-year bull market runs its course. What’s worse, for now, the S&P 500 Index is yielding more than 10-year Treasurys these days, which has put considerable focus on dividend-rich equities funds.

The prospectus didn’t say how much the two funds would cost or what their tickers would be. But it did say they would both have primary listings on the Nasdaq stock Exchange.

The company said in the filing that both funds could charge 12b-1 fees to cover marketing costs of up to 0.25 percent a year but, like many prospectuses, First Trust took that possibility off the table for now.

Multi-Asset Fund

The First Trust Multi-Asset Diversified Income Index Fund will own common stocks and/or depositary receipts, real estate investment trusts, preferred securities, master limited partnerships and “an exchange-traded fund” that comprise the index, the prospectus said.

It looks a bit like a number of securities already on the market—in intent if not in actual holdings. Those include the Arrow Dow Jones Global Yield ETF (NYSEArca: GYLD), as well as the actively managed SPDR SSgA Income Allocation ETF (NYSEArca: INKM) and the passive iShares Morningstar Multi-Asset Income Index Fund (NYSEArca: IYLD). IndexUniverse ETF Analyst Paul Britt looked at the three in a recent blog as he took measure of the quest for stable income at a time of heightened volatility.

A Dividend-Rich Tech Fund?

A dividend-focused equities fund targeting technology stocks might sound like a bit of a stretch, since technology still exists in investors’ imaginations as growth stocks from the go-go 1990s. But things are changing.

Apple did make a splash raising its dividend this year, though the yield at the time was still just under 2 percent, compared with more than 5 percent for AT&T and 3.4 percent for General Electric, as IndexUniverse Carolyn Hill wrote in blog about dividend funds back in March.

But who knows? Perhaps First Trust is on the cutting edge here, and the yield on the fund will become something to write home about.

In any case, the company said in the prospectus that the “modified dividend value-weighting” index methodology is designed to cherry-pick those securities and depositary with the most attractive payouts. Just how attractive, we’ll have to wait and see.

Each quarter, the Nasdaq-created index will be rebalanced to give a collective weight of 80 percent to tech stocks and 20 percent to telecommunications stocks, the filing said.

First Trust, which currently markets 71 exchange-traded funds, is the ninth-biggest U.S. ETF firm by assets, with $7.21 billion under management, according to IndexUniverse’s Daily League Table.

 

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