The Dispatch

Diversifier: First Trust Alternatives Model

The First Trust Alternatives Strategic Focus ETF Model provides advisors with a comprehensive solution for diversifying traditional asset portfolios. Designed to enhance returns, improve risk-adjusted outcomes, and expand diversification, the model integrates core alternative strategies such as hedged equity, commodities, and managed futures. By utilizing exchange traded funds (ETFs) curated by the First Trust Advisors Model Investment Committee, the model seeks to deliver consistent performance across varying market conditions.

The model is rooted in a disciplined investment process that emphasizes flexibility and adaptability. While it primarily allocates among First Trust ETFs, the model may selectively incorporate other ETFs to capitalize on unique opportunities, address specific portfolio needs, or mitigate risk. This approach allows for thoughtful portfolio construction tailored to meet the challenges of an ever-evolving financial landscape. Key strategies include:

• Hedged Equity: Targeting market upside while mitigating downside risk.
• Managed Futures and Commodities: Leveraging tactical positions to capture opportunities in diverse market environments.
• Unconstrained Bonds and Treasuries: Offering income and stability while navigating interest rate volatility.

With a focus on providing exposure to alternative strategies, the First Trust Alternatives Model empowers advisors to address client needs for diversification beyond traditional equity and fixed income, seeking to manage risk and achieving long-term growth in a complex investment environment.

Recent Performance Highlights (as of November 30, 2024)

November marked another strong month for the First Trust Alternatives Model, which outperformed the Credit Suisse AllHedge Index, demonstrating its strategic effectiveness. Several factors contributed to its success:

• Top Performers:
  • The First Trust BuyWrite Income ETF (FTHI) led the model’s performance, capitalizing on strong equity market gains.
  • The First Trust Long/Short Equity ETF (FTLS) ranked as the second-best performer, benefiting from tactical positioning in equities.
  • The First Trust Managed Futures Strategy Fund (FMF) delivered positive contributions by effectively navigating commodity and futures markets.
• Moderate Contributors:
  • The First Trust TCW Unconstrained Plus Bond ETF (UCON) generated positive returns, though it slightly underperformed the Bloomberg US Aggregate Bond Index.
  • The iShares 7-10 Year Treasury Bond ETF (IEF) provided stability and added to portfolio gains.
• Underperformer:
  • The iShares Gold Trust (IAU) was the model’s weakest allocation, reflecting softness in the precious metals market.

The Federal Reserve’s decision to cut rates by 25 basis points, paired with positive macroeconomic data, supported strong market performance in November. U.S. equities posted impressive gains, with the S&P 500 Index up 5.87%, the Russell 2000 Index surging 10.97%, and bonds, as measured by the Bloomberg US Aggregate Bond Index, rising 1.06%. Despite a pause in the expected inflation decline, the model’s diverse approach allowed it to capitalize on equity and fixed-income opportunities while mitigating risks in underperforming areas.

With its thoughtful design and flexible strategy, the First Trust Alternatives Strategic Focus ETF Model continues to position itself as a leader in delivering alternative investment solutions for modern portfolios.

Contact your Freedom Advisors Consulting Team to find out more about these strategies or click on the model name in the Freedom Advisors Model Center where you will find extensive information.