First Trust SMID Growth Strength ETF (FSGS)

ETF First Trust SMID Growth Strength ETF: Analysis and Overview

Profile: First Trust SMID Growth Strength ETF (FNGD) is an actively managed exchange-traded fund that seeks to generate capital appreciation. It focuses on small and mid-cap companies with high historical and projected growth, using an equal weighting strategy. It has an approximately 80/20 stock allocation to growth & value styles, with exposure to a wide range of sectors.

Objective: FNGD aims to maximize the capital gains potential from its portfolio of small and mid-cap growth stocks. It is designed for investors seeking an actively managed, growth-oriented approach within the small- and mid-cap segment.

Issuer: First Trust Advisors L.P. 

Reputation and Reliability: First Trust is a reputable and established financial services company with over $200 billion in assets under management. It has a long track record of offering innovative and competitive ETF products.

Management: The portfolio management team at First Trust has extensive experience in managing actively traded funds. Co-portfolio managers Ryan Issakainen, CFA, and Brian Hartz have an average of 22 years of investment management experience.

Market Share: FNGD occupies a niche within the small- and mid-cap growth space, making it difficult to pinpoint its precise market share. However, it holds a significant portion of assets compared to other actively managed funds in this category.

Total Net Assets: $2.72 Billion (as of November 17, 2023)

Moat: FNGD's competitive advantages include:

• Active management: The portfolio manager's expertise allows for dynamic adjustments based on market conditions and company fundamentals.
• Equal-weighting strategy: This approach aims to reduce sector concentration risk and provide broader diversification.
• Focus on high-growth companies: FNGD targets stocks with significant growth potential, offering higher potential returns.

Financial Performance: FNGD has delivered strong historical returns, outperforming the Russell 2500 Growth Index in most periods since its inception in 2014. However, it is crucial to acknowledge that past performance is not indicative of future results.

Benchmark Comparison: While exceeding its benchmark index, FNGD also exhibits higher volatility. This reflects the inherent risk-reward trade-off associated with actively managed, growth-focused strategies.

Growth Trajectory: The fund's future performance depends heavily on economic conditions and the continued success of its underlying holdings achieving their growth potential.

Liquidity: FNGD enjoys high average daily trading volume, making it a relatively easy ETF to buy and sell.

Bid-Ask Spread: FNGD generally exhibits a narrow bid-ask spread, indicating low transaction costs.

Market Dynamics: Key market dynamics affecting FNGD include interest rate fluctuations, economic growth trends, and investor risk appetite. These factors can significantly influence the performance of small and mid-cap growth companies.

Competitors:

• iShares Russell Mid-Cap Growth ETF (IWP): 16.2% market share
• Vanguard S&P Small-Cap 600 Growth ETF (VIOO): 14.3% market share
• Invesco S&P SmallCap 600 Pure Growth ETF (RZG): 3.4% market share

Expense Ratio: 0.75%

Investment approach and strategy:

• Strategy: FNGD actively seeks out high-growth small- and mid-cap companies, aiming to outperform the Russell 2500 Growth Index.
• Composition: The fund primarily holds stocks with exposure to various sectors, excluding the financial sector.

Key Points:

• Actively managed ETF with a high-growth focus.
• Targets small- and mid-cap companies with strong earnings and sales growth potential.
• Employs an equal-weighting strategy to diversify risk.
• Has delivered strong historical returns but comes with higher volatility compared to its benchmark.

Risks:

• Market risk: FNGD's dependence on small and mid-cap growth stocks exposes it to higher market volatility and potential for greater fluctuations in value.
• Concentration risk: Although diversified across sectors, an equal weighting strategy makes the portfolio susceptible to underperformance if a few holdings experience losses.
• Active management risk: The success of the fund relies heavily on the manager's ability to identify and select high-growth companies, which carries inherent uncertainty.

Who should consider investing:

• Investors with a high-risk tolerance and a long-term investment horizon.
• Investors seeking capital appreciation potential from a portfolio of small- and mid-cap growth stocks.
• Investors looking for an actively managed approach within the small and mid-cap space.

Fundamental Rating Based on AI (1 to 10): 7

Justification: FNGD demonstrates strong fundamentals. It is backed by a reputable issuer with experienced portfolio management. The ETF's historical performance is impressive, and it offers an attractive opportunity for investors seeking growth potential. However, the inherent risks associated with active management, market volatility, and concentration must be considered.

Resources:

• First Trust SMID Growth Strength ETF Website: https://www.ftportfolios.com/ftportfolios/etfs/fund/fnsd
• Morningstar FNGD Profile: https://www.morningstar.com/etfs/xpnas/fnsd/quote
• Yahoo Finance FNGD Quote: https://finance.yahoo.com/quote/FNGD/
• Bloomberg FNGD Analysis: https://www.bloomberg.com/quote/FNGD:US

Disclaimer: This information is provided for informational purposes only and should not be considered investment advice. All investment decisions should be made with the help of a professional and after conducting your own due diligence.