RFEM: new Active Multi-Factor Emerging Markets ETF by First Trust

First Trust Advisors L.P., begun trading a new Active Multi-Factor Emerging Markets ETF, the First Trust RiverFront Dynamic Emerging Markets ETF (Nasdaq: RFEM) on Wednesday, June 15, 2016. Here is a synopsis of the new ETF:

 

FUND INFORMATION:

Symbol: RFEM Exchange: NASDAQ
Name: First Trust RiverFront Dynamic Emerging Markets ETF  Net Expense Ratio: 0.95%

 

FUND OBJECTIVE:
The First Trust RiverFront Dynamic Emerging Markets ETF is an actively ETF which seeks to provide capital appreciation.
Under normal market conditions, the Fund will seek to achieve its investment objective by investing at least 80% of its net assets (including investment borrowings) in a portfolio of equity securities of emerging market companies, including through investments in common stock, depositary receipts, and common and preferred shares of real estate investment trusts (REITs), and forward foreign currency exchange contracts and currency spot transactions used to hedge the Fund’s exposure to the currencies in which the equity securities of such emerging market companies are denominated.

The Fund considers an emerging market company to be one:
(i) domiciled or with a principal place of business or primary securities trading market in an emerging market country, or
(ii) that derives a substantial portion of its total revenues or profits from emerging market countries.
The Fund considers an emerging market country to be any country whose issuers are included in the Morgan Stanley Capital International Emerging Markets Index and/or those countries considered to be developing by the World Bank, the International Finance Corporation or the United Nations. The Fund will generally focus its emerging market company investments in Brazil, Chile, China, Colombia, the Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Malaysia, Mexico, Morocco, Nigeria, Peru, the Philippines, Poland, Qatar, Russia, South Africa, South Korea, Taiwan, Thailand, Turkey and/or the United Arab Emirates.

The Fund will utilize a dynamic currency hedging strategy through the use of forward foreign currency exchange contracts and currency spot transactions to hedge up to 100% of the Fund’s currency exposure. The securities in which the Fund may invest must be listed on a U.S. or non-U.S. securities exchange. The Fund may invest in small, mid and large capitalization companies.
In selecting the portfolio securities of the Fund, RiverFront Investment Group, LLC, the Fund’s sub-adviser, assembles a portfolio of eligible securities based on several core attributes, including, but not limited to, value, quality and momentum. The Sub-Advisor will consider multiple factors within each core attribute, such as the price-to-book value of a security when determining value and a company’s cash as a percentage of the company’s market capitalization when determining quality. The Sub-Advisor then assigns each qualifying security a score based on its core attributes and selects the individual securities with the highest scores for investment. In doing so, the Sub-Advisor utilizes its proprietary optimization process to maximize the percentage of high-scoring securities included in the portfolio in accordance with country, sector and risk factor (e.g., beta, quality, volatility) limitations. The Sub-Advisor will also consider the market capitalization of the companies in which the Fund may invest, and the trading volume of a company’s shares in the secondary market. In managing the Fund’s currency exposure, the Sub-Advisor will deploy a dynamic currency hedging strategy based on a proprietary hedging methodology that considers a combination of quantitative measures, such as interest rate differentials, central bankbalance sheet expansion/contraction and price momentum, and qualitative measures, such as formal and informal guidance from central bankers.

Top Holdings (06/17/16):

Samsung Electronics Co., Ltd. 9.00%
Taiwan Semiconductor Manufacturing Company Ltd. 8.61%
Tencent Holdings Limited 7.62%
China Construction Bank Corporation (Class H) 6.27%
Industrial and Commercial Bank of China Limited (Class H) 4.47%
Naspers Limited (Class N) 3.73%
Bank of China Ltd. 3.46%
Housing Development Finance Corporation Ltd. (HDFC) 3.13%
Itau Unibanco Holding S.A. (Preference Shares) 2.97%
Reliance Industries Ltd. 2.75%

 

Top Country Exposure (06/17/16):

China 20.26%
South Korea 17.60%
Taiwan 13.56%
South Africa 8.69%
Brazil 7.93%
India 6.84%
Mexico 5.58%
Malaysia 3.39%
Russia 2.97%
Indonesia 2.81%

 

 

Useful Links:
RFEM Home Page

 

 

Category: Equities> Emerging Equity Markets> Emerging Markets Equity Strategy

 

ETFtrack comment:
Here is a comment from Ryan Issakainen, CFA, Senior Vice President, ETF Strategist at First Trust:
“Emerging market equities are dynamic and quickly-evolving, brimming with both opportunities and risks. We believe this actively managed ETF may provide significant advantages versus ETFs tracking traditional beta benchmarks, particularly when it comes to security selection, asset allocation, and managing currency risk.”

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