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 it has launched the FT Cboe Vest Rising Dividend Achievers Target Income ETF (the “fund”). RDVI is an actively managed ETF that seeks to provide investors with current income with a secondary objective of providing capital appreciation.
Rising interest rates, low real bond yields, and increasingly positive stock/bond correlations have heightened portfolio risk and created a performance drag. RDVI seeks to provide an alternative source of consistent income through a novel Target Income Strategy® developed by Cboe Vest Financial LLC (“Cboe Vest”), sub-advisor to the fund and creator of Target Outcome Investments® and Target Income Strategies®.
Under normal market conditions, the fund will pursue its investment objective by investing primarily in U.S. exchange-traded equity securities contained in the Nasdaq US Rising Dividend Achievers™ Index (the “Index”) and by utilizing an “option strategy” consisting of writing (selling) U.S. exchange-traded call options on the S&P 500® Index or ETFs that track the S&P 500® Index. In furtherance of its objectives, the fund seeks to make distributions from stock dividends and option premiums at an annual rate that are approximately 8.0% (before fees and expenses) over the current annual dividend yield of the S&P 500® Index. The fund also seeks a secondary objective of generating capital appreciation based on the price returns of the equity securities held by the fund. There is no guarantee that the fund’s distribution target will be achieved. The fund does not seek to achieve any specific level of total return performance compared with the total return performance of the Index or the S&P 500® Index. Capital appreciation on the securities held by the fund may be less than the capital appreciation of the Index and the S&P 500® Index, and the total return performance of the fund may be less than the total return performance of the Index and the S&P 500® Index.
The equity securities held by the fund will be selected by the portfolio managers from the common stocks and depositary receipts in the Index. The Index is designed to provide access to a diversified portfolio of small, mid and large capitalization companies with a history of raising their dividends while exhibiting the characteristics to continue to do so in the future by including companies with strong cash balances, low debt and increasing earnings. The Index includes 50 U.S. exchange-traded equity securities, including securities issued by non-U.S. companies that trade on U.S. securities exchanges in the form of depositary receipts. The constituents and individual security weighting of the equity portfolio will be actively managed by the portfolio managers in order to seek to achieve the fund’s investment objective and strategy.
The fund will seek additional cash flow in the form of premiums on options. A premium is the income received by an investor who sells an option contract to another party. Each week, the fund compares the dividend income of the equity securities against the fund’s target distribution and looks to bridge that difference with the premiums that come from selling call options. By combining premiums collected from the sale of calls with the dividend income of the equity securities, the fund seeks to increase total income for investors while still participating in the growth potential from the price appreciation of the stocks held by the fund.
Jeff Chang, President of Cboe Vest, said, “The first generation of simple call-writing options strategies sell fully-covered options to produce income, and in doing so, give up all of the potential future growth opportunities of the securities. In 2017, Cboe Vest developed the Target Income partial covered call strategy, which seeks to produce consistent current income and allow participation in the potential growth of Dividend Aristocrats stocks. We are pleased to extend this strategy to Dividend Achievers with the introduction of RDVI.”
"Investors are, more than ever, challenged to find quality sources of income without increasing risk in their portfolios. We believe that RDVI, with its Dividend Achiever stock selection and partial covered call options strategy, offers a novel and timely approach,” Chang said.
“Despite increased volatility in the bond market this year, investors still need to generate income,” said Ryan Issakainen, CFA, Senior Vice President, ETF Strategist at First Trust. “We believe RDVI is an effective tool for investment professionals seeking alternative sources of income to help satisfy their clients’ needs, while also providing opportunities for potential capital appreciation.”
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 $178 billion as of September 30, 2022 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, manage volatility, amplify gains or provide consistent income to a diverse spectrum of investors. Today, Cboe Vest’s Target Outcome Strategies® are available in mutual funds, exchange-traded funds (ETFs), unit investment trusts (UITs), collective investment trusts (CITs), variable insurance trusts (VITs) and customizable managed accounts / sub-advisory services. For more information 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
You could lose money by investing in a fund. An investment in a fund is not a deposit of a bank and is not insured or guaranteed. There can be no assurance that a fund’s objective(s) will be achieved. Investors buying or selling shares on the secondary market may incur customary brokerage commissions. Please refer to each fund’s prospectus and SAI for additional details on a fund’s risks. The order of the below risk factors does not indicate the significance of any particular risk factor.
Unlike mutual funds, shares of the fund 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 premium or discount to a fund’s net asset value and possibly face delisting and the bid/ask spread may widen.
The fund’s use of call options involves risks different from those associated with ordinary portfolio securities transactions and depends on the ability of the fund's portfolio managers to forecast market movements correctly. As the seller (writer) of a call option, the fund will tend to lose money if the value of the reference index or security rises above the strike price. When writing a call option, the fund will have no control over the exercise of the option by the option holder and the American style options sold by the fund may be exercised at any time before the option expiration date (as opposed to the European style options which may be exercised only on the expiration date). There may be times the fund needs to sell securities in order to settle the options, which may constitute a return of capital and make the fund less tax-efficient than other ETFs. Options may also involve the use of leverage, which could result in greater price volatility than other markets.
A fund is susceptible to operational risks through breaches in cyber security. Such events could cause a fund to incur regulatory penalties, reputational damage, additional compliance costs associated with corrective measures and/or financial loss.
Depositary receipts may be less liquid than the underlying shares in their primary trading market and distributions may be subject to a fee. Holders may have limited voting rights, and investment restrictions in certain countries may adversely impact their value.
The use of derivatives instruments involves different and possibly greater risks than investing directly in securities including counterparty risk, valuation risk, volatility risk, and liquidity risk. Further, losses because of adverse movements in the price or value of the underlying asset, index or rate may be magnified by certain features of the derivatives.
Companies that issue dividend-paying securities are not required to continue to pay dividends on such securities. Therefore, there is a possibility that such companies could reduce or eliminate the payment of dividends in the future.
Equity securities may decline significantly in price over short or extended periods of time, and such declines may occur in the equity market as a whole, or they may occur in only a particular country, company, industry or sector of the market.
Financial services companies are subject to the adverse effects of economic recession, currency exchange rates, government regulation, decreases in the availability of capital, volatile interest rates, portfolio concentration in geographic markets, industries or products, and competition from new entrants in their fields of business.
A fund may be a constituent of one or more indices or models which could greatly affect a fund’s trading activity, size and volatility.
As inflation increases, the present value of a fund’s assets and distributions may decline.
Large capitalization companies may grow at a slower rate than the overall market.
Certain fund investments may be subject to restrictions on resale, trade over-the-counter 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.
The portfolio managers of an actively managed portfolio will apply investment techniques and risk analyses that may not have the desired result.
Market risk is the risk that a particular security, or shares of a fund in general may fall in value. Securities are subject to market fluctuations caused by such factors as general economic conditions, political events, regulatory or market developments, changes in interest rates and perceived trends in securities prices. Shares of a fund could decline in value or underperform other investments as a result. In addition, local, regional or global events such as war, acts of terrorism, spread of infectious disease or other public health issues, recessions, or other events could have significant negative impact on a fund. In February 2022, Russia invaded Ukraine which has caused and could continue to cause significant market disruptions and volatility within the markets in Russia, Europe, and the United States. The hostilities and sanctions resulting from those hostilities could have a significant impact on certain fund investments as well as fund performance. The COVID-19 global pandemic and the ensuing policies enacted by governments and central banks have caused and may continue to cause significant volatility and uncertainty in global financial markets. While the U.S. has resumed "reasonably" normal business activity, many countries continue to impose lockdown measures. Additionally, there is no guarantee that vaccines will be effective against emerging variants of the disease.
A fund faces numerous market trading risks, including the potential lack of an active market for fund shares due to a limited number of market makers. Decisions by market makers or authorized participants to reduce their role or step away in times of market stress could inhibit the effectiveness of the arbitrage process in maintaining the relationship between the underlying values of a fund’s portfolio securities and a fund’s market price.
Large inflows and outflows may impact a new fund’s market exposure for limited periods of time.
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.
Securities of non-U.S. issuers are subject to additional risks, including currency fluctuations, political risks, withholding, lack of liquidity, lack of adequate financial information, and exchange control restrictions impacting non-U.S. issuers.
A fund and a fund’s advisor may seek to reduce various operational risks through controls and procedures, but it is not possible to completely protect against such risks. The fund also relies on third parties for a range of services, including custody, and any delay or failure related to those services may affect the fund’s ability to meet its objective.
High portfolio turnover may result in higher levels of transaction costs and may generate greater tax liabilities for shareholders.
The market price of a fund’s shares will generally fluctuate in accordance with changes in the fund’s net asset value (“NAV”) as well as the relative supply of and demand for shares on the exchange, and a fund’s investment advisor cannot predict whether shares will trade below, at or above their NAV.
A fund with significant exposure to a single asset class, country, region, industry, or sector may be more affected by an adverse economic or political development than a broadly diversified fund.
Securities of small- and mid-capitalization companies may experience greater price volatility and be less liquid than larger, more established companies.
If a fund does not qualify as a RIC for any taxable year and certain relief provisions were not available, a fund’s taxable income would be subject to tax at the fund level and to a further tax at the shareholder level when such income is distributed. Further, there may be other tax implications to a fund based on the type of investments in a fund.
Trading on an exchange may be halted due to market conditions or other reasons. There can be no assurance that a fund’s requirements to maintain the exchange listing will continue to be met or be unchanged.
A fund may hold securities or other assets that may be valued on the basis of factors other than market quotations. This may occur because the asset or security does not trade on a centralized exchange, or in times of market turmoil or reduced liquidity. Portfolio holdings that are valued using techniques other than market quotations, including “fair valued” assets or securities, may be subject to greater fluctuation in their valuations from one day to the next than if market quotations were used. There is no assurance that a fund could sell or close out a portfolio position for the value established for it at any time.
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.
Cboe® is a registered trademark of Cboe Exchange, Inc., which has been licensed for use in the name of the fund. The fund is not sponsored, endorsed, sold or marketed by Cboe Exchange, Inc. or any of its affiliates (“Cboe”) or their respective third-party providers, and Cboe and its third-party providers make no representation regarding the advisability of investing in the fund and shall have no liability whatsoever in connection with the fund.
Nasdaq® and Nasdaq US Rising Dividend Achievers™ Index are registered trademarks and service marks of Nasdaq, Inc. (together with its affiliates hereinafter referred to as the “Corporations”) and are licensed for use by First Trust. The Fund has not been passed on by the Corporations as to its legality or suitability. The Fund is not issued, endorsed, sold or promoted by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE FUND.
Definitions:
An option is a contractual obligation between a buyer and a seller. There are two types of options known as “calls” and “puts.” The buyer of a call option has the right, but not the obligation, to purchase an agreed upon quantity of an underlying asset from the writer (seller) of the option at a predetermined price (the strike price) within a certain window of time (until the option’s expiration), creating a long position. A put option is the opposite of a call option and gives the buyer the right to sell to the writer (seller) the underlying asset at the strike price until the option’s expiration. If the strike price is reached, the buyer has the right to exercise the option. For this right, the buyer pays a fee to the seller, called a premium.
The S&P 500 Index is an unmanaged index of 500 companies used to measure large-cap U.S. stock market performance.
The Nasdaq US Rising Dividend Achievers™ Index is comprised of 50 companies with a history of raising their dividends. These companies also exhibit the characteristics to continue to do so in the future.
