New exchange-traded funds focus on the American
Industrial Renaissance and Equity Income
First Trust Advisors L.P. (“First Trust”), a leading ETF
provider, expects to launch two new exchange-traded funds (“ETFs”),
the First Trust RBA American Industrial RenaissanceTM ETF (NASDAQ:
AIRR) and the First Trust RBA Quality Income ETF (NASDAQ: QINC).
The new funds are expected to begin trading on The NASDAQ Stock
Market on March 11, 2014 and track indexes developed by Richard
Bernstein Advisors LLC (“RBA”). “These two ETFs seek to address
investors’ needs for income and theme-based investing. RBA has long
been a proponent of the American industrial renaissance theme and
we think we understand it better than most,” said Richard
Bernstein, RBA’s Chief Executive and Chief Investment Officer.
The First Trust RBA American Industrial RenaissanceTM
ETF
The First Trust RBA American Industrial RenaissanceTM ETF seeks
investment results that correspond generally to the price and yield
(before the fund’s fees and expenses) of an equity index called the
Richard Bernstein Advisors American Industrial RenaissanceTM Index.
The Index is designed to measure the performance of small and mid
cap U.S. companies in the industrial and community banking sectors.
RBA believes there are increasing reasons to expect that the United
States may regain industrial market share, based on a number of
factors, including: access to cheap energy sources; the relative
stability of the U.S. market compared to many emerging markets; and
growing availability of bank financing for manufacturers. For many
decades, American companies sent their manufacturing work overseas.
But today, in a trend known as “reshoring,” many companies are
bringing their manufacturing back to the United States. A variety
of factors are driving the U.S. manufacturing renaissance including
slower growth in hourly compensation compared to some global
competitors and lower natural gas and electricity prices. These
factors are helping the U.S. to have a competitive advantage over
other countries, in our opinion, which we believe will allow U.S.
industrial and manufacturing companies to gain market share.
“Cost-based incentives for American companies to manufacture
goods overseas have declined dramatically in recent years,
particularly for goods produced for U.S. consumers. Not only can
domestic manufacturers save on shipping costs and tariffs, but the
U.S. shale gas boom has provided a cheap, abundant source of
domestic energy,” said Ryan Issakainen, Senior Vice President and
ETF Strategist for First Trust. “Meanwhile, emerging market labor
costs have continued to trend higher, compared to the relatively
stable cost of high quality domestic labor. Taken together, these
factors are contributing to an American industrial renaissance, and
potentially providing significant competitive advantages for many
domestically-oriented manufacturing companies.”
The First Trust RBA Quality Income ETF
The First Trust RBA Quality Income ETF seeks investment results
that correspond generally to the price and yield (before the fund’s
fees and expenses) of an equity index called the Richard Bernstein
Advisors Quality Income Index. The index attempts to control the
risks associated with investing in higher-yielding stocks, yet
maintain attractive current income. RBA believes stocks with
extremely high dividend yields should be viewed cautiously. High
dividend yields may simply reflect depressed stock prices in
anticipation of dividend cuts or omissions. RBA believes risk
actually increases as dividend yield increases and that simply
investing in high-yield equities often leads to selecting stocks
whose dividends are subsequently cut or discontinued. RBA’s index
incorporates several layers of risk control in order to attempt to
minimize the probability of dividend cuts and the related
underperformance. “As investor appetite for dividend strategy ETFs
has grown in recent years, so has the need for risk management, in
order to avoid so-called “dividend traps,” Issakainen said. Of
course, there is no guarantee that the issuers of the fund’s
portfolio securities will declare dividends in the future or that,
if declared, they will either remain at current levels or increase
over time.
For more information about First Trust, please contact Chris
Moon of JCPR at 973-850-7304 or cmoon@jcprinc.com.
About First Trust
First Trust Advisors L.P., along with its affiliate First Trust
Portfolios L.P., are privately-held companies which provide a
variety of investment services, including asset management and
financial advisory services, with collective assets under
management or supervision of approximately $86 billion as of
February 28, 2014 through unit investment trusts, exchange-traded
funds, closed-end funds, mutual funds and separate managed
accounts. First Trust is based in Wheaton, Illinois. For more
information, visit http://www.ftportfolios.com.
You should consider each fund’s investment objectives, risks,
and charges and expenses carefully before investing. Contact First
Trust Portfolios L.P. at 1-800-621-1675 to obtain a prospectus or
summary prospectus which contains this and other information about
the funds. The prospectus or summary prospectus should be read
carefully before investing.
ETF Characteristics
The funds list and principally trade their shares on The NASDAQ
Stock Market LLC.
The funds’ returns may not match the returns of the underlying
indexes. The funds may not be fully invested at times. Securities
held by the funds will generally not be bought or sold in response
to market fluctuations.
Investors buying or selling fund shares on the secondary market
may incur customary brokerage commissions. Market prices may differ
to some degree from the net asset value of the shares. Investors
who sell fund shares may receive less than the share’s net asset
value. Shares may be sold throughout the day on the exchange
through any brokerage account. However, unlike mutual funds, shares
may only be redeemed directly from the funds by authorized
participants, in very large creation/redemption units.
Risk Considerations
There can be no assurance that the funds’ investment objectives
will be achieved. The funds’ shares will change in value, and you
could lose money by investing in a fund. One of the principal risks
of investing in the funds is market risk. Market risk is the risk
that a particular security owned by a fund, fund shares or
securities in general may fall in value.
The funds may invest in securities issued by companies
concentrated in a particular industry which involves additional
risk, including limited diversification. The funds may invest in
small capitalization and mid capitalization companies. Such
companies may be more vulnerable to adverse general market or
economic developments, and their securities may be less liquid and
may experience greater price volatility than larger, more
established companies as a result of several factors, including
limited trading volumes, products or financial resources,
management inexperience and less publicly available information.
Accordingly, such companies are generally subject to greater market
risk than larger, more established companies.
General risks of industrial companies include the general state
of the economy, intense competition, consolidation, domestic and
international politics, excess capacity and consumer demand and
spending trends. They may also be significantly affected by overall
capital spending levels, economic cycles, technical obsolescence,
delays in modernization, labor relations, government regulations
and e-commerce initiatives.
Financial companies are especially subject to the adverse
effects of economic recession, currency exchange rates, government
regulation, decreases in the availability of capital, volatile
interest rates, portfolio concentrations in geographic markets and
in commercial and residential real estate loans, and competition
from new entrants in their fields of business.
AIRR invests in the securities of community banks. Such
companies were significantly impacted by the downturn in the
U.S. and world economies that began with the decline in the
subprime mortgage lending market in the United States. Unlike
larger national or other regional banks that are more
geographically diversified, a community bank’s financial
performance may be highly dependent upon the business environment
in certain geographic regions of the United States and may be
adversely impacted by any downturn or unfavorable economic or
employment developments in its local market and the United States
as a whole.
Utilities companies are subject to the imposition of rate caps,
increased competition due to deregulation, the difficulty in
obtaining an adequate return on invested capital or in financing
large construction projects, the limitations on operations and
increased costs and delays attributable to environmental
considerations, and the capital market’s ability to absorb utility
debt.
QINC invests in securities of non-U.S. issuers. Such securities
are subject to higher volatility than securities of domestic
issuers. Because the fund’s NAV is determined on the basis of U.S.
dollars and the fund invests in foreign securities, you may lose
money if the local currency of a foreign market depreciates against
the U.S. dollar. Additionally, the fund invests in depositary
receipts, usually in the form of ADRs or GDRs. Investment in ADRs
or GDRs may be less liquid than the underlying shares in their
primary trading market.
The funds currently have fewer assets than larger funds, and
like other relatively new funds, large inflows and outflows may
impact the funds’ market exposure for limited periods of time.
The funds are classified as “non-diversified.” A non-diversified
fund generally may invest a larger percentage of its assets in the
securities of a smaller number of issuers. As a result, the funds
may be more susceptible to the risks associated with these
particular companies, or to a single economic, political or
regulatory occurrence affecting these companies.
The funds are not sponsored, endorsed, sold or promoted by RBA.
RBA makes no representation or warranty, express or implied, to the
owners of the funds or any member of the public regarding the
advisability of trading in the funds. RBA’s only relationship to
First Trust Advisors L.P. (“First Trust”) is the licensing of
certain trademarks and trade names of RBA and of the indexes, which
are determined, composed and calculated by RBA without regard to
First Trust or the funds. Licensor has no obligation to take the
needs of First Trust or the owners of the funds into consideration
in determining, composing or calculating the indexes. Licensor is
not responsible for and has not participated in the determination
of the timing of, prices at, or quantities of the funds to be
listed or in the determination or calculation of the equation by
which the funds are to be converted into cash. Licensor has no
obligation or liability in connection with the administration,
marketing or trading of the funds.
JCPRChris Moon, 973-850-7304cmoon@jcprinc.com
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