First Trust Files For First Trust Morningstar Diversified Futures Fund ETF
First Trust has filed paperwork with the SEC for a “First Trust Morningstar Diversified Futures Fund ETF.” The First Trust Morningstar Diversified Futures Fund will seek to provide investors with positive returns. They did not specify a trading symbol or expense ratio in the initial filing.
PRINCIPAL INVESTMENT STRATEGIES
The Fund is an actively managed exchange-traded fund (“ETF”) that seeks to achieve positive total returns that are not directly correlated to broad market equity or fixed income returns. The Fund is managed to correspond to the performance of the Morningstar(R) Diversified Futures Index(SM) (the “Benchmark”), which is developed, maintained and sponsored by Morningstar, Inc. (“Morningstar”). The Benchmark seeks to reflect trends (in either direction) in the commodity futures, currencies futures and financial futures markets. The Benchmark is a fully collateralized futures index that offers diversified exposure to global markets through highly-liquid, exchange listed futures contracts in commodities, currencies and equities. However, there can be no assurance that the Fund’s performance will correspond with the Benchmark at all times.
The Fund invests in a diversified portfolio of commodity futures, currency futures and equity futures, commodity-linked derivative instruments, equity-linked derivatives instruments and swap contracts (“Derivative Instruments”) with an aggregate notional value substantially equal to the Fund’s net assets. Although the Fund may make these investments in the Derivative Instruments directly, the Fund expects to primarily gain exposure to these investments by investing in the FT Cayman Subsidiary, a wholly-owned subsidiary of the Fund organized under the laws of the Cayman Islands (referred to herein as the “First Trust Subsidiary”). The First Trust Subsidiary is advised by First Trust Advisors L.P., the Fund’s investment adviser. The Fund’s investment in the First Trust Subsidiary is intended to provide the Fund with exposure to commodity markets within the limits of current federal income tax laws applicable to investment companies such as the Fund, which limit the ability of investment companies to invest directly in the Derivative Instruments. The First Trust Subsidiary has the same investment objective as the Fund, but unlike the Fund, it may invest without limitation in Derivative Instruments. Except as otherwise noted, for purposes of this prospectus, references to the Fund’s investments may also be deemed to include the Fund’s indirect investments through the First Trust Subsidiary. The Fund will invest up to 50% of its total assets in the First Trust Subsidiary, provided that the Fund’s investment in the First Trust Subsidiary generally will not exceed 25% of the Fund’s total assets at each quarter-end of the Fund’s fiscal year. Each of the First Trust Subsidiary’s investments will generally be positioned long, short or flat based on its price relative to its average price over a recent period, with the ability to change positions as frequently as daily if the Benchmark is so adjusted. The First Trust Subsidiary’s investments provide the Fund with exposure to domestic and international markets.
The Fund will invest a substantial portion of its assets in fixed income securities that include U.S. government and agency securities, money market instruments, overnight and fixed-term repurchase agreements, cash and other cash equivalents. The Fund uses the fixed-income securities as investments and to collateralize its commodity-linked derivative exposure on a day-to-day basis. The Fund may also invest directly in ETFs and other investment companies that provide exposure to commodities, equity securities and fixed income securities. As a whole, the Fund’s investments are meant to correspond to the investment returns of the Benchmark within the limitations of the federal tax requirements applicable to regulated investment companies.
The Benchmark and the Fund consist of futures contracts providing long, short and flat exposure, which include, but are not limited to, commodities, equity indexes and currencies (Euro, Japanese Yen, British Pound, Canadian Dollar, Australian Dollar and Swiss Franc). The Fund’s exposure is generally weighted 50% in commodity futures, 25% in equity futures and 25% in currency futures. The base weights are typically rebalanced quarterly to maintain the 50%/25%/25% allocation.
The Fund invests substantially all of its assets, directly or through the First Trust Subsidiary, in a combination of Derivative Instruments, U.S. government and agency securities and money market instruments whose collective performance is designed to correspond to the performance of the Benchmark. The Fund’s commodity- and currency-linked investments generally are limited to investments in listed futures contracts, forward currency contracts and swap transactions that provide exposure to commodity and non-U.S. currency returns. The Fund will invest in listed equity futures and also may invest directly in U.S. Treasury notes and bonds. The Fund also may enter into repurchase agreements with counterparties that are deemed to present acceptable credit risks. A repurchase agreement is a transaction in which the Fund purchases securities or other obligations from a bank or securities dealer and simultaneously commits to resell them to a counterparty at an agreed-upon date or upon demand and at a price reflecting a market rate of interest unrelated to the coupon rate or maturity of the purchased obligations. The Fund also may invest in structured notes based on commodities.
The Fund attempts to capture the economic benefit derived from rising and declining trends based on the “moving average” price changes of commodity futures, currency futures and equity futures. In an attempt to capture these trends, the Fund’s investments are generally positioned as either “long,” “short” or “flat.” To be “long” means to hold or be exposed to a security or instrument with the expectation that its value will increase over time. To be “short” means to sell or be exposed to a security or instrument with the expectation that it will fall in value. To be “flat” means to move a position to cash if a short signal is triggered in a security or instrument. The Fund will benefit if it has a long position in a security or instrument that increases in value or a short position in a security or instrument that decreases in value. Conversely, the Fund will be adversely impacted if it holds a long position in a security or instrument that declines in value and a short position in a security or instrument that increases in value. Although the Fund seeks returns that correspond to the returns of the Benchmark, the Fund may have a higher or lower exposure to any sector or component within the Benchmark at any time.
For the complete filing click: HERE