New Fund Seeks Low Volatility and Income

NEW YORK (TheStreet) --Exchange-traded fund provider First Trust launched three new funds last week, including the First Trust Low Beta Income ETF (FTLB).

Investors closely following the ETF industry will note that FTLB picks up on two popular trends of the last couple of years: low volatility and income.

A third popular trend captured by FTLB is that it is an actively managed fund. The basic strategy is an equity portfolio comprised of large-cap domestic stocks with an option strategy to both generate income and provide a hedge.

The equity portfolio is constructed based on a proprietary process that considers fundamental factors such as operating cash flow, share buybacks, debt and dividends. The portfolio will favor dividend-paying stocks.

The portfolio allocates 17% to technology stocks, 14% to consumer staples, 13% to consumer discretionary and 12% each to health care and financials.

The larger positions in the fund are mostly familiar companies, including Johnson & Johnson (JNJ) at 5%, Altria (MO) 4.5% and General Electric (GE) 4.2%. A couple of surprises in the top 10 are Seadrill (SDRL), which sports a generous 9% dividend yield but carries a heavy debt load, and Priceline (PCLN), which has no dividend and is quite volatile.

The reason a volatile stock with no dividend is in the fund -- Priceline is not the only one; Google (GOOG) is another -- is because the fund aims to stay within 3-5% of the S&P 500 and it probably wouldn't be able to do that owning just tobacco, utilities and pharmaceuticals.

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