By Hung Tran | From Index Universe

First Trust Advisors on Wednesday is launching an actively managed exchange-traded fund to bet on commodities indirectly by investing in a Cayman Islands-based unit in a strategy that has positive tax implications for investors in the fund.

The First Trust Global Tactical Commodity Strategy Fund will trade on the Nasdaq Stock Market under the symbol FTGC, and will invest up to 25 percent of its total assets in commodity futures contracts and exchange-traded commodity-linked instruments through a wholly owned subsidiary of the fund.

The investment strategy involving the First Trust Cayman subsidiary is aimed squarely at serving up commodities-type exposure that isn’t accompanied by tax treatment of futures involving everything from annual mark-to-market tax bills and “K-1” tax forms, according to Ryan Issakainen, senior vice president at First Trust Advisors.

“Your notional exposure to commodities will be 100 percent, and the only thing that’s different is there’s an entity that owns the commodity futures, so the fund takes a long position in that entity, and the reason it’s structured that way is to get 1099 tax treatment as opposed to K-1 tax treatment,” he said.

Futures investors have tax issues to deal with every year, regardless of whether they sell their positions, and the indirect exposure in the new fund via the Caymans unit will result in the futures holdings being taxed like equities.

The fund’s futures exposure will include aluminum, Brent crude, live cattle, cattle feeder, cocoa, coffee, copper, corn, cotton, crude oil, gas oil, gasoline, gold, heating oil, lean hogs, lead, natural gas, nickel, platinum, silver, soybean, soybean meal, soybean oil, sugar, tin, wheat and zinc, the filing said.

Assets not invested in the Caymans unit will be invested in U.S. government securities and money market instruments. Those funds will essentially serve as the fund’s collateral for the margined investments the ETF is making indirectly in the futures markets, according to Issakainen.

The fund sports an expense ratio of 0.95 percent, or $95 for every $10,000 invested.

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