First Trust Launches Asset-Class, Tech ETFs

August 14, 2012

A multi-asset-class fund and a dividend-focused tech ETF are the latest to join the hunt for income.

First Trust, the Wheaton, Ill.-based fund firm behind the First Trust Dow Jones Internet Fund (NYSEArca: FDN), today rolled out two income-focused ETFs—one a multi-asset-class income fund and the other a dividend-focused tech fund.

Both the First Trust Multi-Asset Diversified Income Index Fund (NasdaqGM: MDIV) and the First Trust Nasdaq Technology Dividend Index Fund (NasdaqGM: TDIV) cater to investor demand for income in an environment of low interest rates.

First Trust is joining other fund providers—such as iShares and State Street Global Advisors, to name a few—that have rushed to meet that demand through passive and active strategies.

MDIV tracks a Nasdaq index that dilutes single-class risk by diversifying across several asset classes while screening for volatility to limit exposure to high yields that are associated with poor price performance. The fund looks to generate lower-risk total returns.

TDIV, on the other hand, targets dividend-paying technology and telecommunications company stock in a portfolio that costs 0.50 percent a year. MDIV comes with a 0.68 percent price tag.

“With interest rates at historically low levels, income investors have been seeking yield from alternative sources, including multi-asset income investing,” First Trust Chief Market Strategist Robert Carey said in a press release.

Multi-Asset-Class Approach

MDIV will own domestic and international dividend-paying stocks, real estate investment trusts, preferred securities, master limited partnerships and high-yield corporate bond ETFs in a portfolio that’s split five ways. Dividend-paying stocks represent 25 percent of the mix, while junk corporate debt snags 15 percent, and the remaining three classes each carries a 20 percent weighting in the mix, the company said.

“Limiting volatility is fundamental to multi-asset investing,” the company said on its website. “Yield is the main driver behind the index; however, in an effort to ensure consistent high yields without the negative drag due to inconsistent security price performance, a maximum volatility cap is used.”

The fund would join others in the space such as the actively managed SPDR SSgA Income Allocation ETF (NYSEArca: INKM) and the passive iShares Morningstar Multi-Asset Income Index Fund (NYSEArca: IYLD).

“Every asset class has its own set of eligibility criteria, and every security in the index is U.S.-listed and meets stringent eligibility criteria based on liquidity, size, volatility and yield,” the company said in the release.

The portfolio is rebalanced quarterly.

Technology Sector Promises Hefty Dividends

TDIV also tracks a Nasdaq index and invests in technology or telecommunications companies in a mix that gives a collective weight of 80 percent to tech stocks and 20 percent to telecommunications stocks, the company said.

The portfolio, which is rebalanced quarterly, also caps single-stock exposure to limit risk.

The company said in its most recent prospectus that the “modified dividend value-weighting” index methodology is designed to cherry-pick those securities with the most attractive payouts.

“Given that Internet usage and demand for products such as mobile phones, semiconductors and computer devices are growing rapidly, and the technology industry’s dividend growth rate has outpaced all other sectors over the past seven years, we believe this is an ideal time to invest in the technology field,” First Trust’s ETF Strategist Ryan Issakainen said in the release.

“According to Moody’s, it is projected that technology firms will pay out $26 billion in dividends in 2012,” he added.


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