ETF Watch: Fund To Target Securities Aimed At Institutions

First Trust fund will give investors access to preferred securities marketed primarily to institutions. 

ETF.com
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Reviewed by: etf.com Staff
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Edited by: etf.com Staff

In another example of ETFs potentially providing access to areas of the market previously considered the domain of institutions, First Trust has filed for a first-of-its-kind actively managed ETF that will offer investors exposure to preferred and debt securities that are typically only marketed to institutions. The First Trust Institutional Preferred Securities and Income ETF’s managers will evaluate potential holdings based on credit fundamentals, relative value and technical qualities, the prospectus said.

The document also noted that institutional preferred securities are typically traded over the counter, rather than on an exchange, in blocks of at least $100,000 and in increments of $1,000. Such securities aimed at retail investors typically top out at $100 and trade on exchanges as single shares.

Bottom-Up & Top-Down Analysis

The fund will use both bottom-up and top-down analysis, with the former focusing on individual security analysis, idiosyncratic risks, credit fundamentals and opportunistic trading. The latter approach will target sector and industry analysis, duration and interest rate analysis, capital structure positioning and systematic risks, the prospectus said.

The shares held by the fund are expected to be from issuers in the financial, communications, government, utilities, energy, materials, industrial and technology sectors, with the financial sector expected to represent at least 25% of the fund’s assets. In general, the fund’s holdings will be issued by companies with more than $500 million in market capitalization and have amounts outstanding between $50 million and $6 billion.

The fund can also invest in retail preferred securities and other income securities that are similar to preferred securities, such as hybrid capital securities and contingent capital securities. The prospectus further notes that the fund can invest in floating-rate and fixed-to-floating rate securities as well as other types of fixed income.

Although the filing did not include a ticker or expense ratio, it did indicate that the fund will list on the NYSE Arca.

Contact Heather Bell at [email protected].

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