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Do You Like Momentum? First Trust Has a Fund for You

A look at the pros and cons of FV, a new momentum fund

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Do You Like Momentum? First Trust Has a Fund for You

Investors who like momentum stocks in their portfolio now have a way to really get the ball rolling.

Unknown2 Do You Like Momentum? First Trust Has a Fund for YouFirst Trust has launched a new ETF — the First Trust Dorsey Wright Focus 5 ETF (FV) — that uses relative strength and price momentum to determine the holdings in the fund. The fund seeks to replicate an index that identifies the five best sector and industry funds offered by First Trust using Dorsey Wright Associates’ (DWA) relative strength ranking system.

First Trust is known for developing some very unique ETFs, and FV is no different. Investors in momentum stocks will definitely be interested in this particular offering … though it does come with some pitfalls.

First Trust Dorsey Wright Focus 5 ETF (FV): The Basics

FV is a fund-of-funds that pulls from the First Trust universe.

Using the DWA relative strength ranking system, the index compares the price momentum of each of First Trust’s 23 sector and industry ETFs relative to other ETFs in the selection universe. The top five First Trust ETFs go into the index at equal weightings of 20% each. Relative strength analysis is carried out weekly, and rebalancing occurs when one or more of the ETFs loses price momentum and is no longer ranked in the top five in terms of relative strength. When this happens, the new ETF is thrown in and the funds are re-weighted equally.

The five ETFs included in the initial portfolio are:

  1. First Trust Consumer Discretionary AlphaDex Fund (FXD)
  2. First Trust Consumer Staples AlphaDex Fund (FXG)
  3. First Trust Dow Jones Internet Index Fund (FDN)
  4. First Trust Health Care AlphaDex Fund (FXH)
  5. First Trust NYSE Arca Biotechnology Index Fund (FBT)

While FV doesn’t have a track record, the five holdings in the fund do. Over the past five years, these five ETFs achieved an average annualized total return of 32.3% — 980 basis points higher than the SPDR S&P 500 ETF (SPY). A $50,000 investment made five years ago would be worth $202,661 as of March 12 — almost $65,000 more than the SPY.

It’s an impressive record. Unfortunately, it’s unlikely that these five momentum plays will go on another five-year run, but you never know. 

FV charges a total of 0.95% annually, which includes a management fee of 0.3% plus annual expenses from the five individual ETFs.

Now, a look at the pros and cons:


Article printed from InvestorPlace Media, http://investorplace.com/2014/03/first-trust-momentum-fv/.

©2014 InvestorPlace Media, LLC

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