First Trust EIP Carbon Impact ETF (ECLN)

Overview of First Trust EIP Carbon Impact ETF (QARP)

Profile:

The First Trust EIP Carbon Impact ETF is a passively managed exchange-traded fund that tracks the IHS Markit Carbon Impact Global Index. This index comprises publicly traded companies from developed markets that demonstrate a commitment to reducing their carbon footprint.

Objective:

The primary investment goal of QARP is to provide long-term capital appreciation by investing in companies actively engaged in reducing their carbon emissions and transitioning to a low-carbon economy.

Issuer:

First Trust Advisors L.P.

• Reputation and Reliability: First Trust is a well-established asset management firm with over $180 billion in assets under management. They have a strong reputation for innovation and creating unique and impactful investment solutions.
• Management: The ETF is managed by a team of experienced professionals with a deep understanding of the environmental and investment landscape.

Market Share:

QARP is a relatively new ETF, launched in 2021, and currently holds a small market share within the sustainable investing sector.

Total Net Assets:

As of November 2023, QARP has approximately $100 million in total net assets.

Moat:

QARP's competitive advantages include:

• Unique Strategy: Focus on companies actively reducing their carbon footprint, differentiating it from other ESG-focused ETFs.
• Data-Driven Approach: Utilizes IHS Markit's Carbon Impact Scores to select companies with superior environmental performance.
• Experienced Management: Leverages First Trust's expertise in ETF development and sustainable investing.

Financial Performance:

Historical Performance: QARP has provided positive returns since its inception, outperforming the broader market.

Benchmark Comparison: QARP has outperformed the S&P 500 Index in terms of both absolute and risk-adjusted returns.

Growth Trajectory:

The ETF is expected to experience continued growth as the demand for sustainable investing solutions increases.

Liquidity:

• Average Trading Volume: QARP's average daily trading volume is moderate, indicating sufficient liquidity.
• Bid-Ask Spread: The bid-ask spread is relatively tight, indicating low trading costs.

Market Dynamics:

• Positive factors: Growing investor interest in sustainable investing, increasing global focus on climate change, and government policies supporting carbon reduction initiatives.
• Negative factors: Potential economic downturns, market volatility, and regulatory changes impacting the environmental sector.

Competitors:

• iShares Global Clean Energy ETF (ICLN): 8.5% market share
• Invesco Solar ETF (TAN): 5.2% market share
• VanEck Low Carbon Energy ETF (SMOG): 2.7% market share

Expense Ratio:

The expense ratio for QARP is 0.65%, which is competitive within the sustainable investing ETF space.

Investment Approach and Strategy:

• Strategy: Track the IHS Markit Carbon Impact Global Index, which utilizes a data-driven approach to identify companies with strong environmental performance.
• Composition: Primarily invests in large-cap stocks across various sectors, with an emphasis on companies with ambitious carbon reduction goals and low carbon footprints.

Key Points:

• Focuses on companies actively reducing their carbon footprint.
• Well-established issuer with a strong track record.
• Unique data-driven approach to selecting investable companies.
• Competitive expense ratio.
• Moderate liquidity and tight bid-ask spread.

Risks:

• Market Risk: Performance is tied to the underlying holdings, which can be affected by market fluctuations.
• Concentration Risk: Focus on a specific environmental theme may lead to heightened volatility.
• Data Risk: Reliance on data provided by IHS Markit may lead to potential inaccuracies or misinterpretations.

Who Should Consider Investing:

• Investors seeking long-term capital appreciation.
• Individuals concerned about climate change and seeking to invest in solutions.
• Investors interested in gaining exposure to the rapidly growing low-carbon economy.

Fundamental Rating Based on AI: 8.5/10

QARP exhibits strong fundamentals with a unique investment strategy, experienced management, and competitive fees. However, its relatively small market share and short track record warrant some caution. Overall, the ETF offers a compelling option for investors seeking environmentally conscious investments with growth potential.

Resources and Disclaimers:

• First Trust EIP Carbon Impact ETF website: https://www.firsttrust.com/etfs/qarp
• IHS Markit Carbon Impact Scores: https://www.ihsmarkit.com/products/carbon-impact-scores.html
• This information is for educational purposes only and should not be considered investment advice. Please conduct your own research and consult with a financial professional before making any investment decisions.