First Trust Launches the First Trust Emerging Markets Human Flourishing ETF

Human Dignity as an Investment Factor

The ETF will track the Emerging Markets Human Flourishing Index, which screens for emerging market countries with sufficiently high ‘Human Dignity Scores,’ as assessed by Freedom House – a majority US government-funded non-profit organization well-known for its research and advocacy on democracy and human rights.

The Human Dignity Score leans heavily on Freedom of Expression and Belief, making up 80% of the score, and Freedom from Religious Persecution, which constitutes the remaining 20%.

Within eligible emerging market countries, companies are further screened to exclude those involved in seven controversial areas. These include known involvements in child or forced labor, non-compliance with the United Nations Global Compact Principles, as well as revenue streams dependent on activities such as abortion, adult entertainment, gambling, alcoholic beverages, and tobacco.

The methodology first selects the largest 150 companies from the eligible universe. These are then reduced to the 100 securities with the highest ‘Quality Score,’ determined through factor-based analysis considering variability, profitability, and leverage.

Constituents are weighted by float-adjusted market capitalization while capping any country exposure at 20% and any sector exposure at 10% above its weight in the headline Bloomberg Emerging Markets Large & Mid Cap Index. The top five positions are also capped at 8% each, while any other stock is limited to a weight of 4%.

A potential ‘Good Governance Focused Suite’

FTHF’s focus on good governance reflects the firm’s growing interest in providing investment solutions that have strong exposure to emerging market economies with strong civil liberties, as earlier this year, the firm launched the First Trust Bloomberg Emerging Market Democracies ETF (Ticker: EMDM), which tracks the performance of companies within emerging market countries that meet minimum political rights and civil liberties standards to qualify as Electoral Democracies according to Freedom House. The fund is intended for investors who want emerging market exposure to countries whose governmental policies and living conditions reflect democratic views toward individual and collective freedoms.

If First Trust is building an ETF suite around the theme of ‘Good Governance’, there is market precedence for an ETF provider making investment solutions espousing a distinct universal theme. As an example, Harbor Capital Advisors, Inc., an asset manager that leverages the expertise of boutique managers in building out their product shelf of active ETFs, has built a product suite based on the theme of corporate culture utilizing the Human Capital Factor (HCF), a strategy that quantifies corporate culture by studying employee behaviors and motivations, rather than by simply looking at more easily quantifiable statistics, such as compensation packages or the number of diverse members on the board. HCF is already the underlying thesis for three existing Harbor Capital Advisors solutions, the Harbor Corporate Culture Small Cap ETF (Ticker: HAPS), Harbor Corporate Culture Leaders ETF (Ticker: HAPY), and Harbor Corporate Culture ETF (Ticker: HAPI), highlighting the firm’s belief in this investment strategy.

In launching the First Trust Emerging Markets Human Flourishing ETF, First Trust is providing investors with an investment solution tailored towards accessing emerging market economies and ensuring the countries they are invested in treat their citizens with dignity and respect.  

Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decision.