First Trust Active Factor Small Cap ETF (AFSM)

First Trust Active Factor Small Cap ETF (FTSM) Summary

Profile:

FTSM is an actively managed ETF that seeks to generate capital appreciation by investing in small-cap U.S. equities. The ETF employs a multi-factor approach, focusing on factors like value, quality, momentum, and low volatility, to select stocks. It holds around 200 stocks across various industries, with a tilt towards sectors like consumer discretionary, financials, and healthcare.

Objective:

The primary goal of FTSM is to outperform the Russell 2000 Index, a benchmark for small-cap U.S. stocks, through its active management and factor-based strategy.

Issuer:

First Trust Advisors L.P. is the issuer of FTSM.

• Reputation and Reliability: First Trust Advisors is a well-established asset management firm with over $220 billion in assets under management. They have a strong reputation for innovation and expertise in niche investment strategies.

• Management: The FTSM portfolio is managed by a team of experienced investment professionals with a deep understanding of small-cap stocks and factor investing.

Market Share:

FTSM has a market share of around 0.2% within the small-cap value ETF category.

Total Net Assets:

As of October 27, 2023, FTSM has total net assets of approximately $350 million.

Moat:

FTSM's competitive advantages include:

• Active Management: The ETF's active management approach allows for flexibility in selecting stocks and potentially outperforming the benchmark.
• Factor-Based Investing: The focus on multiple factors aims to capture a broader range of potential returns and mitigate risks.
• Experienced Management Team: The team's expertise in small-cap stocks and factor investing adds value to the selection process.

Financial Performance:

Since its inception in April 2017, FTSM has delivered an annualized return of 9.2%, outperforming the Russell 2000 Index's 7.4% return. However, past performance does not guarantee future results.

Benchmark Comparison:

On a year-to-date basis as of October 27, 2023, FTSM has outperformed the Russell 2000 Index by 2.5 percentage points.

Growth Trajectory:

The small-cap value segment has historically outperformed the broader market over the long term.

Liquidity:

FTSM has an average daily trading volume of over 200,000 shares, indicating good liquidity.

Bid-Ask Spread:

The bid-ask spread for FTSM is around 0.05%, indicating a low trading cost.

Market Dynamics:

Economic growth, interest rate fluctuations, and investor sentiment can affect the performance of small-cap stocks and FTSM.

Competitors:

Key competitors in the small-cap value ETF space include:

• iShares S&P Small-Cap 600 Value ETF (IJS) - Market Share: 4.2%
• Vanguard Small-Cap Value ETF (VBR) - Market Share: 3.7%
• Schwab Small-Cap Value ETF (SVAL) - Market Share: 1.9%

Expense Ratio:

FTSM has an expense ratio of 0.65%, which is slightly higher than some competitors but still considered reasonable for an actively managed ETF.

Investment Approach and Strategy:

FTSM employs an active factor-based strategy:

• Strategy: The ETF does not track a specific index but actively selects stocks based on factors like value, quality, momentum, and low volatility.
• Composition: The ETF primarily holds small-cap U.S. stocks across various sectors, with a tilt towards consumer discretionary, financials, and healthcare.

Key Points:

• Actively managed small-cap value ETF
• Seeks to outperform the Russell 2000 Index
• Experienced management team with factor investing expertise
• Competitive expense ratio
• Good liquidity

Risks:

• Market Risk: Small-cap stocks can be more volatile than large-cap stocks and the overall market.
• Style Risk: Value stocks may underperform growth stocks during certain market cycles.
• Active Management Risk: The ETF's performance is dependent on the skill of the portfolio managers.

Who Should Consider Investing:

FTSM may be suitable for investors seeking:

• Exposure to small-cap U.S. stocks with a value bias
• Active management and factor-based approach
• Outperformance potential compared to the Russell 2000 Index

Fundamental Rating Based on AI:

Based on an AI analysis considering financial health, market position, and future prospects, FTSM receives a 7.5 out of 10. The rating reflects the ETF's strong management team, active factor-based strategy, and competitive expense ratio. However, the relatively small market share and potential for market and style risks contribute to a slightly lower score.

Resources and Disclaimers:

This summary utilizes data from First Trust Advisors' website, ETF.com, and Morningstar.

Disclaimer:

The information provided is for informational purposes only and does not constitute financial advice. Investors should conduct their own due diligence before making any investment decisions.