First Trust has expanded its suite of thematic equity ETFs with the launch of an actively managed strategy targeting firms poised to benefit from the application of scientific and technological innovation.
Ryan Issakainen, Senior Vice President, ETF Strategist at First Trust.
The First Trust Innovation Leaders ETF (ILDR US) has listed on NYSE Arca and comes with an expense ratio of 0.75%.
The fund invests in developed or emerging market companies, selecting holdings through an approach that combines top-down and bottom-up analyses.
The top-down analysis seeks to identify technological themes that are growing faster than the underlying economy and are likely to outperform the broader market.
Industries identified by First Trust as fitting this description include automation, advanced medicine, networks, advanced computing, enhanced mobility, energy revolution, and e-commerce.
Individual securities are then selected based on their exposure to the underlying theme while favouring companies with dominant industry positions who are developing technologies that have the potential to displace older technologies or create new markets. First Trust will generally examine several specific fundamental attributes such as revenue and earnings growth prospects, competitive positioning, valuation in the context of growth opportunities, potential value-creating catalysts, and timeliness.
Constituents are weighted based on upside opportunity, conviction, and downside risk.
The portfolio management team uses quantitative measures to actively monitor overall risk, applying sell discipline when the underlying thesis is no longer valid or has become significantly delayed, or valuation warrants a change in weightings.
Ryan Issakainen, Senior Vice President, ETF Strategist at First Trust, said: “Thematic ETFs have exploded in popularity over the past year as investment professionals have sought tools to capture cutting‐edge trends from a range of industries. As a leader in thematic investing, we believe this actively managed ETF represents our expertise in identifying the most compelling opportunities that may lie among multiple themes.”
The fund presently has 90 holdings of which US stocks dominate, making up nearly 90% of the total portfolio by weight.
At the industry level, software companies contribute 26.1% with biotechnology (11.4%), interactive media & services (8.2%), IT services (7.3%), and semiconductors (7.2%) also playing notable roles. Significant positions include Alphabet (3.8%), Facebook (3.8%), Microsoft (3.4%), and Amazon (2.5%).
(Data as of May month-end.)