Industry Updates

First Trust turns three smart beta strategies into thematic ETFs

The ETFs will now track indexes offering exposure to clean energy, internet services, and 5G development, respectively

Jamie Gordon

Rupert Haddon First Trust

First Trust has expanded its thematic ETF range by changing the underlying indices on three smart beta ETFs, in another sign of the growing demand for the segment.

The First Trust Small Cap Core AlphaDEX UCITS ETF (FYXLN) has been changed to the First Trust Nasdaq Clean Edge Green Energy UCITS ETF (QCLN) while the First Trust Switzerland AlphaDEX UCITS ETF (FTSZ) has been swapped to theFirst Trust Dow Jones International Internet UCITS ETF (FDNI) and the First Trust Japan AlphaDEX UCITS ETF (FJPLN) has been changed to the First Trust Indxx NextG UCITS ETF (NXTG).

All three of the new ETF themes have equivalent products in the US that have combined assets under management (AUM) of $4.1bn.

QCLN is the largest of the three ETFs in the US with $3.1bn AUM having launched in February 2007. The change in investment objective will see the ETF switch from tracking the Nasdaq AlphaDEX Small Cap Core index to the Nasdaq Clean Edge Green Energy index. 

The new strategy will offer investors exposure to companies engaged in the manufacturing, development, and installation of clean energy technology. 

First Trust said in a statement: “Given the strong demand in the market for clean energy technologies exposure, the manager believes that instead of tracking an index that provides exposure to US small cap core companies, tracking an index that provides exposure to companies that are involved in clean energy technologies should make the ETF more marketable.” 

Launched in November 2018, FDNI is the smallest of the US-listed ETFs with $128m AUM. Having previously tracked the NASDAQ AlphaDEX® Switzerland index, the ETF will now replicate the Dow Jones International Internet index. 

This new objective will provide investors with exposure to 40 of the largest and most actively traded non-US companies in internet commerce and services. Furthermore, the product’s base currency will be changed from Swiss francs to US dollars. 

“The manager believes that a more specific investment policy aimed at companies that are engaged in the exponential growth of internet services and internet commerce would better position the ETF for growth,” the firm added. 

The final ETF, NXTG, saw its $914m US-listed counterpart debut in 2011. NXTG has changed from tracking the NASDAQ AlphaDEX® Japan index to the Indxx 5G & NextG Thematic index. 

Its new strategy will see it invest in up to 100 securities issued by companies that are currently or planning to commit resources to the research, development, and application of 5G technology. Also, the ETF’s base currency will switch from Japanese yen to US dollars. 

Rupert Haddon (pictured), managing director, head of sales at First Trust, said: “With 5G’s transition now fully underway, tracking an index that provides exposure to companies involved in this next-generation technological innovation and infrastructure will enhance the marketability of the ETF.

"We are seeing increasing demand for and robust performance in our US-domiciled 5G focused ETF. We are delighted to be partnering with market leaders Indxx, pioneers in innovative and custom indexing, in bringing this to the UCITS market.”

There was increasing demand for thematic ETFs in 2020 with investors pouring a record €9.5bn into the segment, according to data from Morningstar.

At the other end of the spectrum, smart beta had a torrid year with value, size and low volatility all significantly underperforming the market.

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