It was one of the first exchange-traded funds (ETF) companies to offer smart beta funds. It reimagined commodities exchange-traded funds (ETFs). It was one of the first, if not the first, providers to promote thematic ETFs. It houses FDN, the world’s best-performing ETF over the last ten years, with an astounding annualised average return of 22%.
According to our estimations, the company makes $475 million in ETF revenue per year, which is not far behind Vanguard’s $620 million. However, their profit margins are a multiple of Vanguards due to their high fees. (Vanguard, it should be noted, is a “It’s a “revenue neutral” operation that doesn’t strive to make a profit).
Despite its accomplishments, the Wheaton, Illinois-based firm maintains a low-key, even hidden atmosphere. Unlike the majority of large ETF providers, First Trust does not have a Wikipedia article. There is no large structure bearing the company’s brand. It does very little media and has a small online presence. Professionals who work in the ETF sector for years may be unaware that First Trust exists.
Outsiders – or nosy journalists – looking for basic information on First Trust (such who owns it) must rummage through SEC filings due to a lack of public information.
The CEO, James Allen Bowen, owns a large portion of the corporation. In 2010, Bowen paid $3 million to the family of Robert Donald Van Kampen, a deceased bible collector and financial star. The financial crisis had lowered asset values at the time, and First Trust was substantially smaller.
Bowen might be the richest man in the ETF industry, with a personal net worth far into the billions, based on these facts and the company’s phenomenal success over the last 10 years.
The willingness of First Trust to sidestep – and even ignore – the fee battle is a big part of its success.
Only one of the company’s 141 ETFs has a charge of less than 40 basis points. Fees must be low, according to conventional industry thinking, because advisors prefer low fees. Last year, the weighted average charge on American ETFs dropped to a new low of 18 basis points.
However, there is little evidence of price pressure in First Trust’s suite. A First Trust ETF’s average cost is 73 basis points. While a dollar invested in one of their funds incurs an average cost of 66 basis points. (This compares to Vanguard’s 11 and 7 basis points, respectively.)
This appears to be how the firm intends to keep things. The First Trust Indxx NextG ETF was introduced this week after First Trust converted its unloved smartphone ETF, FONE, into the First Trust Indxx NextG ETF (NXTG). The fund, which primarily invests in semiconductors, telecoms equipment, and data center REITs, is the market’s third of its kind. Despite this, NXTG joined the market with a 70 basis point cost, outpricing incumbents Pacer and Defiance, which charge 60 and 30 basis points, respectively, for the same exposure.
“We put a lot of effort into offering tools for advisors. We don’t usually advertise to the general public. Financial professionals, in our perspective, are best suited to service retail investors. That’s why we’re flying beneath the radar,” he explained.
He goes on to say that the company is very communicative and accessible, but only to industry insiders. There are no plans to keep anything hidden.
Every American ETF provider makes every effort to sell their products to financial advisors. First Trust, on the other hand, appears to be considerably more focused on the adviser market.
Most ETF providers will aim to gain media attention and improve their search engine optimization. They want to be able to communicate with retail buyers and end-investors. They regard the media, the internet, and search engines as tools to help them get there.
The communication links with First Trust, on the other hand, are strictly B2B. This helps convey loyalty, according to Issakainen, because advisors can be wary of product manufacturers who talk to end investors too frequently.
“There is always the risk that the client concludes that the investment advisor can be removed from the process. As a result, our strategy has been to supply ETF models to financial advisors for use at their discretion. We give it to specialists for free, but we don’t make it available to the general public.”
The company’s dedication to advisers shines through in its refusal to offer advising services or robo-advice, according to Issakainen.
Many people have remarked that ETF issuers’ recent expansion of advise services appears to be a stab in the back. Financial advisors, who invested their clients’ money in ETFs, helped the ETF business grow. ETF issuers have traditionally informed advisors that their products are “indispensable” and deliver “advisor alpha” in order to sell them products.
However, some ETF providers are now offering advising services that directly compete with retail consultants. Vanguard, the main offender, has promised to bring advisor fees under control “down to the level of an index fund.” Many others, on the other hand, offer model portfolio services that can eliminate the need for advisors.
“Unlike some of the larger ETF providers, we have not pursued the development of robo-advisors or other alternatives to investment advisors. “We want to make it apparent to investment and financial advisors that we are partners, not rivals,” adds Issakainen.
Aside from maintaining its dominance in retail advisor distribution, the company’s future objectives aim to innovate, including products in niches outside of the fee battle. And to duplicate the products of smaller, possibly weaker competitors, frequently for a larger price.
NXTG (above) is an example of copying, as is a recent application for a defined outcome ETF that duplicates Bruce Bond’s Innovator ETFs. Issakainen cites plans to crack multi-asset and multi-manager products as examples of innovating.
“We’ve had requests to convert some of our models into a fund-of-funds single ticker strategy as a result of our ETF model portfolios.”
Regardless of the facts, one imagines James Bowen will continue to be a silent ETF kingmaker and the richest guy no one has ever heard of if First Trust maintains its winning product innovation and the company’s low profile.
Editor’s note: This article has been amended to reflect NXTG’s benchmark more correctly. (18/6/19)
Editor’s note: First Trust requested that the headline of this article be changed. (21/6/19)
What type of business is First Trust?
First Trust Portfolios, L.P. is a financial services firm that specializes in asset management. Unit trusts, annuities, mutual funds, and investment counseling services are all available through the organization.
Who invests in ETFs?
ETFs are a sort of investment fund and exchange-traded vehicle, which means they are traded on stock markets. ETFs are comparable to mutual funds in many aspects, except that ETFs are bought and sold from other owners on stock exchanges throughout the day, whereas mutual funds are bought and sold from the issuer at the end of the day. An ETF is a mutual fund that invests in stocks, bonds, currencies, futures contracts, and/or commodities such as gold bars. It uses an arbitrage mechanism to keep its price close to its net asset value, however it can periodically deviate. The majority of ETFs are index funds, which means they hold the same securities in the same quantities as a stock or bond market index. The S&P 500 Index, the overall market index, the NASDAQ-100 index, the price of gold, the “growth” stocks in the Russell 1000 Index, or the index of the greatest technological companies are all replicated by the most popular ETFs in the United States. The list of equities that each ETF owns, as well as their weightings, is provided daily on the issuer’s website, with the exception of non-transparent actively managed ETFs. Although specialist ETFs can have yearly fees considerably in excess of 1% of the amount invested, the largest ETFs have annual costs as low as 0.03 percent of the amount invested. These fees are deducted from dividends received from underlying holdings or from the sale of assets and paid to the ETF issuer.
An ETF divides its ownership into shares, which are held by investors. The specifics of the structure (such as a corporation or trust) will vary by country, and even within a single country, various structures may exist. The fund’s assets are indirectly owned by the shareholders, who will normally get yearly reports. Shareholders are entitled to a portion of the fund’s profits, such as interest and dividends, as well as any residual value if the fund is liquidated.
Because of their low expenses, tax efficiency, and tradability, ETFs may be appealing as investments.
Globally, $9 trillion was invested in ETFs as of August 2021, with $6.6 trillion invested in the United States.
BlackRock iShares has a 35 percent market share in the United States, The Vanguard Group has a 28 percent market share, State Street Global Advisors has a 14 percent market share, Invesco has a 5% market share, and Charles Schwab Corporation has a 4% market share.
Even though they are funds and are traded on an exchange, closed-end funds are not considered ETFs. Debt instruments that are not exchange-traded funds are known as exchange-traded notes.
What is the history of First Trust?
First Trust Portfolios L.P. and its subsidiary First Trust Advisors L.P. (collectively “First Trust”) were founded in 1991 with the goal of providing dependable financial products and advice.
How many exchange-traded funds does First Trust have?
First Trust ETFs manage $146.92 billion in assets under management across 191 ETFs trading on US exchanges. The cost-to-income ratio is 0.76 percent on average. ETFs from First Trust are available in the following asset classes:
With $12.92 billion in assets, the First Trust Value Line Dividend Index Fund FVD is the largest First Trust ETF. FCG was the best-performing First Trust ETF in the previous year, with a return of 90.38 percent. The FT Cboe Vest U.S. Equity Enhance & Moderate Buffer ETF – December XDEC was the most recent ETF released by First Trust on 12/17/21.
Who established First Trust?
Billy Graham, the preacher, attended Wheaton College, as did a slew of ETF executives. Mr. Southard, 49, as well as Jim Bowen, CEO of First Trust, and Christian Magoon, founder and CEO of Amplify, are all graduates.
Who develops ETFs?
- Mutual funds and exchange-traded funds (ETFs) are comparable, but ETFs have several advantages that mutual funds don’t.
- The process of creating an ETF starts when a potential ETF manager (also known as a sponsor) files a proposal with the Securities and Exchange Commission (SEC).
- The sponsor then enters into a contract with an authorized participant, who is usually a market maker, a specialist, or a major institutional investor.
- The authorized participant buys stock, puts it in a trust, and then utilizes it to create ETF creation units, which are bundles of stock ranging from 10,000 to 600,000 shares.
- The authorized participant receives shares of the ETF, which are legal claims on the trust’s shares (the ETFs represent tiny slivers of the creation units).
- The ETF shares are then offered to the public on the open market, exactly like stock shares, once the approved participant receives them.
Who manages the ETF?
Under the provisions of ETF Act No. 46 of 1980, the Employees’ Trust Fund was founded on March 1, 1981. The Employees’ Trust Fund Board administers the Fund, which is now headed by Hon. Minister Basil Rajapaksa of the Ministry of Finance, Economy, and Policy Development. The requirements of the Act apply to all state and private sector undertakings that fall into one of the classes or categories indicated in an order issued by the Hon. Minister and published in the Gazette.
Self-employed people and migratory employees can also donate to the Fund and become members on their own. The fund currently has around 2.6 million active members who are protected by 79,000 companies. As of December 31, 2019, the value of the members fund was around Rs. 339 billion. In 1995, the ETFB established a Branch Network to decentralize its activities and provide better service to its members.
How do corporations profit from ETFs?
An ETF can invest in stocks, bonds, or commodities like gold or silver, or it can try to replicate the performance of a benchmark index like the Dow Jones Industrial Average or the S&P 500.
Warren Buffet frequently advises investors to invest in an index because of its long-term performance and consistency in the face of market volatility. If you purchase a stock ETF that focuses on an underlying index, returns can come through a combination of capital gains—an increase in the price of the stocks your ETF owns—and dividends paid out by those same stocks.
Bond fund ETFs are made up of Treasury or high-performing corporate bond assets. These funds can be used to diversify a portfolio’s risk by including investments that have historically produced returns when the stock market has reversed.
How much money is managed by First Trust?
First Trust Advisors manages $171.6 billion in assets and provides investment advice to 3,304 customers (1:9 advisor-to-client ratio).