WHEATON, Ill.--(BUSINESS WIRE)--First Trust Advisors L.P. (“First Trust” or “FTA”) a leading exchange-traded fund (“ETF”) provider and asset manager, announced today that the reorganization of Cboe Vest S&P 500® Dividend Aristocrats Target Income ETF® (the “Target Fund”), an index based exchange-traded fund (“ETF”), managed by Cboe Vest Financial LLC, into FT Cboe Vest S&P 500® Dividend Aristocrats Target Income ETF® (the “Acquiring Fund” or “KNG”), an index based ETF managed by FTA, was completed prior to the open of the Cboe BZX Exchange on March 1, 2021. The Target Fund originally launched by Cboe Vest in March 2018, is First Trust’s latest addition to their growing suite of Target Outcome ETFs®, with over $1.6B in total net assets for the product line as of January 29, 2021.
Shareholders of the Target Fund approved the Target Fund’s reorganization into the Acquiring Fund at a Special Meeting of Shareholders on February 17, 2021. The reorganization was approved by the Board of Trustees of the Target Fund on October 7, 2020 and the Board of Trustees of the Acquiring Fund on October 19, 2020.
In the reorganization, the assets of the Target Fund were transferred to, and the liabilities of the Target Fund were assumed by, the Acquiring Fund. The shareholders of the Target Fund received shares of the Acquiring Fund with a value equal to the aggregate net asset value of the shares of the Target Fund held by them.
“In the past, equity investors who were seeking income had to choose between high dividend payers--which have historically delivered lower total returns with higher volatility, or dividend growers--which have historically delivered higher total returns but with lower dividend yields. We designed KNG with this dilemma in mind, targeting a level of income similar to that of high dividend payers, but with the potential for total returns and lower volatility expected of high-quality dividend growers,” said Karan Sood, CEO of Cboe Vest.
The Acquiring Fund is an index-based ETF that seeks to track the performance, before fees and expenses, of the Cboe S&P 500® Dividend Aristocrats Target Income Monthly Series (the “Index”). The Acquiring Fund, under normal market conditions, invests at least 80% of its total assets (including borrowings for investment purposes) in the common stocks and call options that comprise the Index. The Index’s primary goal is to generate an annualized level of income from stock dividends and option premiums that is approximately 3% over the annual divided yield of the S&P 500® Index and has a secondary goal of generating price returns that are proportional to the price returns of the S&P 500® Index.
The Index’s construction process involves purchasing stocks in the S&P 500® Dividend Aristocrats Index and selling “covered” call options on a portion of the holdings of each stock each month. The criterion of consistent dividend growth results in a selection of “Dividend Aristocrats” stocks that are high quality-companies with strong balance sheets, a history of stable cash flows and earnings growth. Consistently increasing dividends is a means for management to signal confidence in their company’s growth prospects. The capital appreciation potential from holding dividend growth stocks supports the growth component of the Index’s objective, while the premiums collected from the sale of the options, in addition to the dividend payments, support the target income goal.
“By systematically applying a covered-call strategy to a portfolio of dividend growth stocks, we believe this ETF may be an effective tool for investment professionals as they address the needs of income-seeking investors” said Ryan Issakainen, CFA, Senior Vice President, ETF Strategist at First Trust.
Sood added, “KNG may be appropriate in three places in an investor’s portfolio: strategic income allocation, strategic core U.S. large-cap equity allocation, or inflation hedge allocation.”
Cboe Vest Financial LLC (“Cboe Vest”) will manage and sub-advise the fund. Karan Sood and Howard Rubin, of Cboe Vest, will serve as portfolio managers for the fund. The portfolio managers are jointly and primarily responsible for the day-to-day management of the fund.
For more information about First Trust, please contact Ryan Issakainen at (630) 765-8689 or RIssakainen@FTAdvisors.com.
About First Trust
First Trust is a federally registered investment advisor and serves as the funds’ investment advisor. First Trust and its affiliate First Trust Portfolios L.P. (“FTP”), a FINRA registered broker-dealer, are privately held companies that provide a variety of investment services. First Trust has collective assets under management or supervision of approximately $174 billion as of January 29, 2021 through unit investment trusts, exchange-traded funds, closed-end funds, mutual funds and separate managed accounts. First Trust is the supervisor of the First Trust unit investment trusts, while FTP is the sponsor. FTP is also a distributor of mutual fund shares and exchange-traded fund creation units. First Trust and FTP are based in Wheaton, Illinois. For more information, visit www.ftportfolios.com.
About Cboe Vest:
Cboe Vest is the creator of Target Outcome Investments®, which strive to buffer losses, amplify gains or provide consistent income to a diverse spectrum of investors. Today, Cboe Vest’s Target Outcome StrategiesTM are available in mutual funds, exchange-traded funds (ETFs), unit investment trusts (UITs), collective investment trusts (CITs), and customizable managed accounts / sub-advisory services. For more information about Cboe Vest and the evolution of Target Outcome Investments, visit www.cboevest.com or contact Linda Werner at lwerner@cboevest.com or 703-864-5483.
You should consider the fund’s investment objectives, risks, and charges and expenses carefully before investing. Contact First Trust Portfolios L.P. at 1-800-621-1675 or visit www.ftportfolios.com to obtain a prospectus or summary prospectus which contains this and other information about the fund. The prospectus or summary prospectus should be read carefully before investing.
Risk Considerations
The fund’s return may not match the return of the Cboe S&P 500® Dividend Aristocrats Target Income Index. Securities held by the fund will generally not be bought or sold in response to market fluctuations.
The fund has characteristics unlike many other traditional investment products and may not be appropriate for all investors.
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 a fund by authorized participants, in very large creation/redemption units. If a fund’s authorized participants are unable to proceed with creation/redemption orders and no other authorized participant is able to step forward to create or redeem, fund shares may trade at a discount to a fund’s net asset value and possibly face delisting.
The fund’s shares will change in value, and you could lose money by investing in a fund. There can be no assurance that the fund’s investment objective will be achieved. The outbreak of the respiratory disease designated as COVID-19 in December 2019 has caused significant volatility and declines in global financial markets, which have caused losses for investors. The COVID-19 pandemic may last for an extended period of time and will continue to impact the economy for the foreseeable future.
The fund may invest in securities issued by companies concentrated in a particular asset class, country, region, industry or sector, which involves additional risks including limited diversification.
High portfolio turnover may result in higher levels of transaction costs and may generate greater tax liabilities for shareholders.
There is no assurance that the index provider, or any agents that act on its behalf, will compile the index accurately, or that the index will be determined, maintained, constructed, reconstituted, rebalanced, composed, calculated, or disseminated accurately.
Large capitalization companies may grow at a slower rate than the overall market.
The fund’s covered call strategy may limit its ability to distribute dividends eligible for treatment as qualified dividend income and to distribute dividends eligible for the dividends-received deduction for corporate shareholders.
Certain fund investments may be subject to restrictions on resale, trade over-the-counter market or in limited volume, or lack an active trading market. Illiquid securities may trade at a discount and may be subject to wide fluctuations in market value.
Leverage may result in losses that exceed the amount originally invested and may accelerate the rates of losses.
A passive investment fund invests in securities included in or representative of the index regardless of investment merit and generally will not attempt to take defensive positions in declining markets.
The fund will effect all or a portion of its creations and redemptions for cash, rather than in-kind securities. As a result, the fund may be less tax-efficient.
As inflation increases, the present value of the fund’s assets and distributions may decline.
The fund may be a constituent of one or more indices which could great affect a fund’s trading activity, size and volatility.
If a counterparty defaults on its payment obligations, the fund will lose money and the value of fund shares may decrease.
The fund's investment in dividend-paying securities may cause the fund to underperform similar funds that do not consider an issuer's track record of paying dividends.
The use of options and other derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives.
As the use of Internet technology has become more prevalent in the course of business, a fund has become more susceptible to potential operational risks through breaches in cyber security.
A fund classified as “non-diversified” may invest a relatively high percentage of its assets in a limited number of issuers. As a result, a fund may be more susceptible to a single adverse economic or regulatory occurrence affecting one or more of these issuers, experience increased volatility and be highly concentrated in certain issuers.
First Trust Advisors L.P. is the adviser to the fund. First Trust Advisors L.P. is an affiliate of First Trust Portfolios L.P., the fund’s distributor.
The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. By providing this information, First Trust is not undertaking to give advice in any fiduciary capacity within the meaning of ERISA, the Internal Revenue Code or any other regulatory framework. Financial professionals are responsible for evaluating investment risks independently and for exercising independent judgment in determining whether investments are appropriate for their clients.
S&P® is a registered trademark of Standard & Poor’s Financial Services LLC (“S&P”), a division of S&P Global; Cboe® is a registered trademark of Cboe. The Index, S&P, and Cboe trademarks have been licensed for use by the Sub-Advisor, and in turn, sub-licensed by the Advisor, including for use by the Fund. The Fund is not sponsored, endorsed, sold, or promoted by Cboe and/or its affiliates (the “Cboe Group”), or S&P and/or its affiliates (together, the “S&P Group”). Neither the Cboe Group nor the S&P Group make any representation regarding the advisability of investing in the Fund and shall have no liability whatsoever in connection with the Fund.
Target Outcome Investments, Target Outcome ETFs and Target Income ETF are registered trademarks of Cboe Vest Financial.
Target Income Investments, Target Income Strategy and Target Outcome Strategies are trademarks of Cboe Vest Financial.
