First Trust Plans Energy Infrastructure ETF

May 20, 2011

First Trust jumps on energy bandwagon, with plans for ETF that would include MLPs.

First Trust, the 10th largest U.S. ETF firm, filed paperwork with the Securities and Exchange Commission to market an actively managed energy infrastructure ETF focused on North American companies and partnerships.

The First Trust North American Energy Infrastructure Fund will invest at least 80 percent of its assets in securities such including common stocks, depositary receipts, master limited partnerships (MLPs), MLP I-shares, MLP-related entities, pipeline and power utility companies, Canadian energy infrastructure firm and Canadian Energy Infrastructure Trusts ("CEITs")

Energy investments have been attractive in the past decade given booming demand from emerging markets and, more recently, due to reviving consumption in developed countries recovering from the collapse of the economy in 2008. Moreover, MLPs are considered attractive because they derive income from steady fees related to energy transport, such as is the case with pipelines.

Indeed, the May 19 filing said the proposed fund’s investment objective is to seek total return with an emphasis on current distributions and dividends paid to shareholders. Security selection will be based on rigorous investment research and tools along with conservative portfolio-construction methods.

The ETF may also sell covered calls on equity positions in the portfolio in order to enhance its income, according to the filing.

The fund might also use derivatives, including options or forward contracts and swaps to hedge against interest rate and market risks.

First Trust, which had $8.11 billion in ETF as of May 19, didn’t disclose in the filing what symbol the ETF would trade under or what its annual expense ratio might be.

 

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