First Trust has launched yet another ETF that implements Nasdaq Dorsey Wright’s relative strength methodology. The First Trust Dorsey Wright DALI 1 ETF (DALI) invests primarily in other U.S.-listed ETFs.
DALI comes with an expense ratio of 0.92% and lists on the Nasdaq exchange.
The underlying index’s methodology does a relative strength analysis on four key asset classes—U.S. equities, international equities, fixed-income securities and commodities—using point-and-figure charting to determine which one has the greatest forward price momentum. Each asset class is represented by a selection of indexes and ETFs that individually compare each of the indexes and ETFs representing the other asset classes, the prospectus says.
The analysis is performed every two weeks, with the fund rotating into (or remaining in) the asset class determined to have the highest degree of relative strength. The fund’s breakdown for the different asset classes is as follows:
- When the fund is in U.S. equities, it invests 65% of its portfolio in an equal-weighted basket of the Dorsey Wright Focus Five Index’s component funds and 35% of its portfolio in a basket that is split evenly between the First Trust Large Cap Growth AlphaDEX Fund (FTC) and the First Trust Small Cap Growth AlphaDEX Fund (FYC).
- When the fund is in international equities, it invests 65% of its portfolio in an equal-weighted basket of the Dorsey Wright International Focus Five Index’s component funds and 35% of its portfolio in a basket that is split evenly between the First Trust Emerging Markets AlphaDEX Fund (FEM) and the First Trust Developed Markets ex-US AlphaDEX Fund (FDT).
- When the fund is in fixed-income securities, it invests 65% of its portfolio in an equal-weighted basket of three ETFs targeting the U.S. investment-grade fixed-income space and 35% of its portfolio in an equal-weighted basket of the four ETFs included in the Dorsey Wright Fixed Income Model, which relies on relative strength analysis.
- When the fund is in commodities, it invests in the First Trust Global Tactical Commodity Strategy Fund (FTGC).
The Nasdaq Dorsey Wright relative strength methodology is the foundation for a wide range of ETFs offered by issuers such as ALPS, AdvisorShares, Innovator Funds and PowerShares, in addition to First Trust.
Some of First Trust’s most successful funds are based on the methodology including the $2.7 billion First Trust Dorsey Wright Focus 5 ETF (FV) and the nearly $1 billion First Trust Dorsey Wright International Focus 5 ETF (IFV).
DALI is First Trust’s fifth fund to implement the Dorsey Wright approach.
Contact Heather Bell at [email protected]