Daily ETF Watch: First Trust’s Hedging Plans

July 28, 2015

In two filings, First Trust has outlined plans to jump into the currency-hedged ETF space and to morph two of its existing commodity equity ETFs into a natural resources ETF and an agriculture ETF, respectively.

Currency-Hedged Funds

A recent filing detailed the firm’s intentions to launch its first currency-hedged products, combining two popular ETF trends. The First Trust Hedged Eurozone AlphaDex and First Trust Hedged Japan AlphaDex ETFs will track similar smart-beta indexes to the firm’s existing $105 million First Trust Eurozone AlphaDex ETF (FEUZ | F-58) and $141 milion First Trust Japan AlphaDex ETF (FJP | C-78), but the index methodologies include a hedging function in which the funds will sell forward currency contracts on their targeted currencies.

The AlphaDex indexes generally target five growth factors, including price appreciation over different time periods, sales growth and sales-to-price ratio as well as three value factors, including book value-to-price ratio, cash-flow-to-price ratio and return on assets.

First Trust is just the latest firm to look to the currency-hedged ETF space, while WisdomTree, Deutsche Bank, iShares, ProShares and IndexIQ have already launched products.

The filing did not mention if the proposed funds would invest in FEUZ and FJP, but presumably that will be a possibility. It also did not include tickers or expense ratios; however, it did note that the funds will list on the Nasdaq stock exchange.

First Trust To Revamp Funds
Another filing from First Trust indicates it is planning to shut down its copper and platinum global equity ETFs and relaunch them as entirely different products.

The First Trust ISE Global Copper Index Fund (CU | F-77) is slated to become the First Trust Indxx Global Natural Resources Income ETF (FTRI), while the First Trust ISE Global Platinum Index Fund (PLTM | F-95) will be morphed into the First Trust Indxx Global Agricuture ETF (FTAG). Although both ETFs launched in March 2010, neither CU nor PLTM has managed to accumulate much in the way of assets in their current incarnations.

FTRI will target the upstream energy, materials, agriculture, water and timber spaces via a 50-stock index that selects the highest-yielding securities from the selection pool. The fund will come with an expense ratio of 0.70 percent.

FTAG will invest in companies that are involved—even tangentially—in the improvement of agricultural yields; these include farmland companies and providers of agricultural chemicals, farming equipment and seeds. Like FTRI, FTAG will come with a price tag of 0.70 percent.

Both revamped funds will list on the Nasdaq exchange, though it is not clear when the changes are expected to be effective.

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