First Trust Converts Closed-End Income Fund to ETF
The fund focuses on dividend and quality factor investing.
First Trust Advisors L.P. recently announced it has completed the conversion of its closed-end Dynamic Europe Equity Income Fund (FDEU) into an exchange-traded fund as conversions sweep the industry and the quality factor continues to dominate as 2023 winds down.
The closed-end fund, which focuses on dividend and quality factor investing, reopened as the First Trust Active Global Quality Income ETF (AGQI) last Tuesday, in the latest slew of conversions.
The ETF, which is actively managed by Janus Henderson Investors, invests in companies from around the world that have growing dividends and a high return on equity, a strategy that is meant to provide geographically diversified exposure, as well as high income and a focus on the quality factor. While geographically diversified, the fund is still relatively concentrated, holding just 29 stocks.
Since March 2021, firms have converted more than 50 funds to ETFs totaling over $60 billion in assets, according to an August report from asset manager Fidelity Investments.
Quality Dominates, Dividends Lag
AGQI, which has an 0.85% expense ratio that exceeds the 0.69% average for active ETFs, has experienced vastly different outcomes for its strategies of quality and dividend in 2023.
Dividend investing has taken a beating this year following the Federal Reserve’s rapidly raised rates. That, in turn, has pushed up the yield of Treasuries, making dividend yields look less attractive by comparison. After dividend ETFs pulled in a record $62 billion in inflows in 2022, less than the $1 billion so far this year has trickled in from investors, according to Bloomberg.
The largest dividend ETF, the $70 billion Vanguard Dividend Appreciation ETF (VIG), has returned just 8.9% through Nov. 20, compared with a return of 20.1% for the broader U.S. market, represented by the SPDR S&P 500 ETF Trust (SPY).
On the other hand, quality has trounced other factor-investing strategies. The $34 billion iShares MSCI USA Quality Factor ETF (QUAL), has beaten BlackRock Inc.'s other four factor ETFs, returning 25% this year compared with about 5% for the others.
First Trust has 158 ETFs on U.S. markets with $124 billion in assets under management.
Contact Gabe Alpert at [email protected].
