First Trust Advisors, a US investment firm, is set to launch a range of alternative exchange-traded funds (ETFs) in the UK and Europe.
The firm, which launched its first ETF in 2005 and has garnered around $9.3 billion in assets under management, is seeking to list a range of international equity ETFs on the London Stock Exchange and various venues across Europe.
The AlphaDex range of ETFs is based on indices that select stocks from major benchmarks, based on value and growth factors, in order to add alpha.
Dan Lindquist, managing director of First Trust, said AlphaDex provides an opportunity for UK and European investors to gain access to products other than the mainstream market-cap weighted ETFs.
‘We are committed to providing investors with opportunities to capitalise on companies with stronger investment merit through ETFs using our AlphaDEX methodology,’ he said in a statement.
Unlike other ‘Smart Beta’ type products, these ETFs are based on proprietary indices that select growth and value stocks, which are then ranked according to how highly they score against the criteria.
Depending on their scores, the stocks are grouped, with those in the bottom group underweight the benchmark. The stocks are then weighted equally within each group, in order to eliminate stock-specific risk.
The benchmarks are rebalanced on a quarterly basis, to take profits and realign stock positions.
Lindquist told Wealth Manager: ‘This is the next wave of growth, through innovation, particularly in terms of how the index is constructed and the ability to add value.’
As these ETFs are based on proprietary indices that select stocks designed to add alpha, the products are likely to have slightly higher charges at around 70 basis points, compared with typical market cap-weighted ETFs.
First Trust aims to list the initial three funds on the Irish and London stock exchanges, subject to regulatory approval.