First Trust RiverFront Dynamic Developed International ETF (RFDI)

First Trust RiverFront Dynamic Developed International ETF is an actively managed fund that invests in stocks of developed countries excluding the United States. Rather than track a fixed index, the fund’s managers use a proprietary rules-based model to tilt the portfolio toward countries and sectors they expect to outperform, based on valuation metrics, economic growth, and market sentiment. RFDI appeals to investors who want exposure to Europe, Japan, and other developed economies but believe that active management can improve returns by adjusting the portfolio as conditions change.

Core strategy and rules-based approach

RFDI uses a quantitative model developed by RiverFront Investment Management to decide where to deploy capital. The model evaluates countries and sectors on three main dimensions: relative valuation (are stocks cheap or expensive compared to history and to the US), economic momentum (is growth accelerating or slowing), and market sentiment (are investors in a risk-on or risk-off posture). Based on these signals, the fund tilts its holdings toward the most attractive opportunities.

Unlike a fully active stock-picker, RFDI does not attempt to identify the next big winner company by company. Instead, it makes bets on which countries and sectors will do well, then holds a broad basket of stocks within those regions and sectors. This approach reduces idiosyncratic risk — the fund is not exposed to one manager’s poor stock-picking — while still allowing the portfolio to rotate toward the areas that the model expects to outperform.

Currency exposure and hedging decisions

RFDI holds stocks denominated in many currencies: euros, pounds sterling, yen, Swiss francs, and others. The fund does not hedge this currency exposure, so the returns an American investor receives include both the change in the stock price and the change in the exchange rate. A rise in the euro makes European stocks more expensive in dollar terms, boosting returns; a fall in the euro reduces them. This currency volatility adds both risk and opportunity: investors who believe the dollar will weaken can use RFDI to gain that currency exposure alongside equity exposure.

Some versions of similar funds do offer currency-hedged alternatives, which remove the currency bet and focus purely on the equity returns of the underlying stocks. RFDI, as a broad dynamic fund, does not hedge by default.

Performance, active management fees, and tracking error

Because RFDI is actively managed rather than a passive index follower, its expense ratio is higher than a typical international equity index fund — often in the range of 0.60% to 0.80% per year. The fund’s managers believe the superior performance from active allocation decisions will more than offset this fee; whether that bears out depends on the specific time period and market conditions. An investor comparing RFDI to a passive developed international index fund should look at after-fee returns over multiple years to assess whether the active strategy has added value.

The fund will not track any specific index exactly, so its performance will drift from any particular benchmark depending on how the model’s allocation decisions play out. This is intentional: the active approach is meant to produce returns that differ from — and better than — a static passive allocation.

Sector and country rotation

The model’s rules for rotating between sectors and countries are updated periodically, though the overall framework remains consistent. The fund might become overweighted to energy in a period when oil is cheap and expected to rise, or underweighted to consumer discretionary when economic growth is slowing. These shifts happen over weeks to months, not daily, so RFDI is not a high-turnover trading strategy, but it is more dynamic than a hold-and-rebalance-once-a-year approach.

Who RFDI is for and how to research it

RFDI suits investors who want exposure to developed international equity markets and believe that rules-based, systematic active management can outperform passive indexing over a full market cycle. It appeals to those with a higher risk tolerance who are comfortable with the fees and the uncertainty of active management. It is less suitable for cost-conscious index-fund investors or those who prefer maximum simplicity and transparency about what they own.

To research RFDI, begin with the fund prospectus and RiverFront’s detailed explanation of the investment model. Understand the specific criteria the model uses to select countries and sectors, and follow the fund’s holdings and allocation over time to see how frequently the model rotates the portfolio. Compare RFDI’s long-term after-fee returns against passively managed developed international index funds to assess whether the active approach has added value. Watch quarterly commentary from the management team to understand the current portfolio positioning and which metrics are driving allocation decisions.