First Trust Advisors has unveiled a new suite of ETFs in partnership with Dorsey, Wright & Associates: the First Trust Dorsey Wright Momentum Plus ETFs.
Ryan Issakainen, Senior Vice President, ETF Strategist at First Trust.
The smart beta ETFs track indices of US equities that have been selected based on individual stock momentum using DWA’s proprietary relative strength methodology, plus an additional fundamental factor – value, dividend yield or volatility.
Listed on Nasdaq Exchange, the three ETFs are the First Trust Dorsey Wright Momentum & Dividend ETF (DDIV US), the First Trust Dorsey Wright Momentum & Value ETF (DVLU US), and thee First Trust Dorsey Wright Momentum & Low Volatility ETF (DVOL US).
Ryan Issakainen, Senior Vice President, ETF Strategist at First Trust, commented, “In our view, the First Trust Dorsey Wright Momentum Plus ETFs are effective tools for investment advisors looking to target exposure to a combination of relative strength—or momentum—with other well-known fundamental factors, including value, dividend yield, and low volatility.”
Relative strength in this context compares the price performance, or momentum, between securities. According to this philosophy, the absolute momentum of the individual security is not as important as the relative momentum between them.
The Dorsey Wright model determines whether momentum is increasing relative to another security and assigns a buy signal if it is. The securities are then ranked in descending order according to their cumulative number of buy signals.
The funds’ indices apply this process to their parent index – the Nasdaq US Large Mid Index. Securities must exhibit a minimum level of relative strength to remain eligible for index inclusion.
Companies are then evaluated based on the targeted secondary factor—value, low volatility or dividend. Each index selects the top 50 securities exhibiting the highest exposure to its secondary factor and weights the constituents according to the factor score.
“DWA believes combining relative strength with a factor-based investing strategy provides the ability to hone in on a desirable characteristic of a stock and the potential for more attractive excess returns than the individual strategies may achieve separately from one another,” added Issakainen. “Dorsey Wright’s research on relative strength is widely followed and we are pleased to offer these funds which incorporate their insights.”
Each ETFs comes with an expense ratio of 0.60%.
While DVLU and DVOL are new funds, DDIV is a remodelled version of an existing fund – the First Trust RBA Quality Income ETF (QINC US).