CHAPMAN AND CUTLER LLP 111 WEST MONROE STREET
CHICAGO, ILLINOIS 60603
March 13, 2020
VIA EDGAR CORRESPONDENCE
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Jennifer Hardy
United States Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549
Re: First Trust Exchange-Traded Trust III (the "Trust")
File Nos. 333-176976; 811-22245
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Dear Ms. Hardy:
This letter responds to your comments, provided by telephone on March 11,
2020, regarding the registration statement filed on Form N-1A for First Trust
Exchange-Traded Fund III (the "Trust") with the staff of the Securities and
Exchange Commission (the "Staff") on March 9, 2020 (the "Registration
Statement"). The Registration Statement relates to the First Trust Horizon
Managed Volatility Small/Mid ETF (the "Fund"), a series of the Trust.
Capitalized terms used herein, but not otherwise defined, have the meanings
ascribed to them in the Registration Statement.
COMMENT 1 - PRINCIPAL RISKS
The Staff disagrees with the Fund's response to Comment 13 in the
correspondence filed with the Commission on March 9, 2020 (the "Original
Response Letter"). The Staff believes that risks should not be presented in
alphabetical order and that the most significant risks should be presented
first. The Staff notes that, in this case, "Authorized Participant Concentration
Risk" and "Cyber Security Risk" are not the most significant risks for this Fund
and asks the Fund to please revise.
RESPONSE TO COMMENT 1
As the Fund noted in the Original Response Letter, the Fund has reached
the same conclusion as many other industry participants and declines to make the
requested revisions as it believes the current presentation of risks is
compliant with the requirements of Form N-1A. The Fund continues to evaluate its
approach to the ordering of risk factors in light of recent Staff guidance.
COMMENT 2 - PRINCIPAL RISKS
The Staff reiterates Comment 16 in the Original Response Letter to please
provide disclosure about liquidity risk and indicate that in stressed market
conditions the market for the Fund's shares may become less liquid in response
to deteriorating liquidity in the market for the Fund's underlying portfolio
holdings, which could in turn lead to differences between the market price of
the Fund's shares and their NAV. The Staff notes that the disclosure in
"Premium/Discount Risk" does not address this risk and asks the Fund to please
revise.
RESPONSE TO COMMENT 2
In response to the Staff's comment, the following disclosure has been
added to "Premium/Discount Risk":
During stressed market conditions, the market for the Fund's shares may
become less liquid in response to deteriorating liquidity in the market
for the Fund's underlying portfolio holdings, which could in turn lead to
differences between the market price of the Fund's shares and their net
asset value.
COMMENT 3 - ADDITIONAL INFORMATION ON THE FUND'S INVESTMENT OBJECTIVE AND
STRATEGIES
Please disclose all of the information required by Item 9(b)(1) and
Instructions 1-7 of this Item and please provide more detailed disclosure about
the forecasting models and how they are used by the Sub-Advisor in determining
when to buy and sell securities as required by Item 9(b)(2). Also, please
provide more disclosure about the volatility strategy. The Staff notes that
there should be more detail in Item 9 disclosure than in Item 4, which is a
summary, and asks the Fund to please revise consistent with the requirements of
Form N-1A.
RESPONSE TO COMMENT 3
In response to the Staff's comment, the first sentence of the third
paragraph in the section entitled "Additional Information on the Fund's
Investment Objective and Strategies" has been revised to state:
In determining which securities to buy or sell for the Fund's
portfolio, the Sub-Advisor emphasizes small- and/or
mid-capitalization companies that it believes will exhibit low
future expected volatility by employing volatility forecasting
models.
Additionally, the following disclosure has been added to the section
entitled "Additional Information on the Fund's Investment Objective and
Strategies":
The Fund has an investment strategy that may frequently involve
buying and selling portfolio securities. High portfolio turnover may
result in the Fund paying higher levels of transaction costs,
including brokerage commissions, dealer mark-ups and other costs and
may generate greater tax liabilities for shareholders. For temporary
defensive purposes and during periods of high cash inflows or
outflows, the Fund may depart from its principal investment
strategies and invest part or all of its assets in these securities,
or it may hold cash.
The Fund otherwise believes that the disclosure, as currently separated
between Items 4 and 9, is compliant with the requirements of Form N-1A and is
presented in a manner conducive to investor comprehension. The Fund notes that
part C.3.(a) of the General Instructions to Form N-1A states that "information
that is included in response to Items 2 through 8 need not be repeated elsewhere
in the prospectus."
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Please call me at (312) 845-3484 if you have any questions or issues you
would like to discuss regarding these matters.
Sincerely yours,
CHAPMAN AND CUTLER LLP
By: /s/ Morrison C. Warren
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Morrison C. Warren