FTGC: Next-Generation Commodity ETF

June 03, 2014

What's the real story behind the red-hot active commodity ETF from First Trust?

For a number of reasons, I’ve been following the First Trust Global Tactical Commodity Strategy Fund (FTGC | C) since its launch in late October 2013.

For starters, FTGC is a pioneer in the commodities ETF space in two ways: its actively managed investment strategy; and the open-ended structure it has as a security registered under the Investment Company Act of 1940 Act, which gives it unique tax implications.

Of course, FTGC crushing its peers in performance jumped out at me as well. FTGC has managed to return more than 12 percent since its launch on Oct. 23, 2013. During that same period, the S&P GSCI Total Return Index—our benchmark for the segment—returned 4.6 percent.

FTGC vs Peers

Chart courtesy of StockCharts.com

But to understand the secret behind FTGC’s stellar performance in its short life span thus far, we need to understand what separates it from the rest of the pack.

Active Management

FTGC is the first and only actively managed commodities ETF. This active management has really been the secret behind FTGC’s performance, according to Ryan Issakainen, an ETF strategist at First Trust.

“Traditional commodity indexes select and weight based on production and liquidity, while we constructed a portfolio based on volatility and correlations,” he told me recently.

Basically FTGC favors commodities exhibiting less volatility and lower correlations relative to other commodities. This approach creates quite a different portfolio from many popular indexes that tend to favor energy.

I looked at FTGC’s portfolio shortly after its launch, and you can see why it’s performed so well.


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