Liquid Alternatives: UK Investors Can Now Get Their Hands On First Trust’s US Capital Strength Strategy
Get the best of both – the payoff from rising markets and protection in negative ones
First Trust launches a highly successful US strategy for UK investors. The First Trust Capital Strength UCITS ETF (FTCS) will replicate one that swept up $1.5 billion in inflows in the US.
“Over the last twenty-five years in times of market instability, quality and less volatile US equities have historically outperformed the S&P 500 index in down months by 74% and 85% respectively,” said Gregg Guerin, senior product specialist at First Trust. “We are pleased to bring this rules-based strategy to market and believe FTCS offers advisers and wealth managers the potential for protecting in negative markets while participating in increasing markets.”
The ETF will invest investors’ funds in high-quality companies that have strong balance sheets. Furthermore, it will select only companies with low volatility in their prices. The ETF, therefore, assures a stable and positive performance in all kinds of market situations, according to Investment Week.
How First Trust Capital Strength UCITS ETF works
The strategy tracks the Capital Strength Index, drawn from the NASDAQ US Benchmark index. Starting from a population of the biggest 500 companies, the final list is drawn as follows:
A minimum three-month average daily dollar trading volume of $5m.
Balance sheet quality
At least $1bn in cash or short-term investments, a long-term debt to market cap ratio less than 30% and a return on equity greater than 15%.
Ranking by combined short-term (three-month) and long-term (one year) realized volatility
The final selection from ranking
Finally, the 50 eligible securities with the lowest combined volatility score will make it to the list, subject to a 30% maximum from any one sector.
First Trust UCITS ETF-expense ratio
The ETF has a total expense ratio of 0.6%. Moreover, it trades on the London Stock Exchange from January 30, 2020.
This ETF from First Trust will, therefore, provide advisors a ‘rules-based’ investment alternative, wrapped in a transparent and efficient UCITS ETF structure according to First Trust.
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