First Trust Long/Short Equity ETF (FTLS)

ETF First Trust Long/Short Equity ETF (NYSEARCA: FTLS)

Profile: This actively managed ETF employs a long/short equity strategy, meaning it invests in both long and short positions within the US equity market. It primarily focuses on mid- and large-cap stocks across various sectors and aims to deliver absolute returns regardless of the overall market direction.

Objective: FTLS seeks to achieve long-term capital appreciation by generating positive returns from its long and short positions while mitigating risk through active portfolio management.

Issuer:

Reputation and Reliability: First Trust Advisors L.P., the issuer, is a reputable asset management firm with over $216 billion in assets under management as of June 30, 2023. They have a long-standing presence in the ETF space and are known for offering various innovative and actively managed investment solutions.

Management: The portfolio managers of FTLS have extensive experience in long/short investing and equity research. Their team leverages a quantitative model combined with discretionary judgment to identify undervalued long and overvalued short positions.

Market Share: FTLS holds a small market share within the long/short equity ETF category.

Total Net Assets: As of November 3, 2023, FTLS holds approximately $212.4 million in total net assets.

Moat: FTLS utilizes a quantitative investment approach, which can provide an edge in identifying profitable investment opportunities. Additionally, the active management style allows for greater flexibility and agility compared to passively managed index-tracking strategies.

Financial Performance:

• Inception date: 12/28/2012
• YTD Return (as of November 3, 2023): -20.54%
• 1 year Return: -24.21%
• 3-year Annualized Return: -5.53%
• 5-year Annualized Return: -3.82%

Benchmark Comparison: FTLS underperformed the S&P 500 index over the past year and longer timeframes.

Growth Trajectory: FTLS's AUM has shown relatively stagnant growth in recent years.

Liquidity:

• Average Daily Volume: Approximately 27,000 shares.
• Bid-Ask Spread: Around 0.10%.

Market Dynamics:

• Factors affecting FTLS include market volatility, interest rate fluctuations, and sector-specific developments.
• The current economic environment of rising interest rates and inflationary pressures may pose challenges for the long/short equity strategy.

Competitors:

• Direxion Daily S&P 500 Bull 3X Shares (SPXL) - Market share: 20.75%
• ProShares UltraPro QQQ (TQQQ) - Market share: 15.67%
• Direxion Daily S&P 500 Bear 3X Shares (SPXS) - Market share: 12.34%

Expense Ratio: 1.58%

Investment Approach:

Strategy: Actively managed, long/short equity strategy Composition: Primarily holds US mid- and large-cap stocks, both long and short positions

Key Points:

• Aims for absolute returns regardless of market direction.
• Actively managed by experienced portfolio managers.
• Employs quantitative model for investment selection.
• Relatively small market share and AUM compared to larger competitors.
• Underperformed benchmark index in recent years.

Risks:

• High volatility due to leverage and long/short strategy.
• Market risk associated with underlying equity holdings.
• Management risk associated with active portfolio management decisions.

Who Should Consider Investing:

• Experienced investors with a high risk tolerance and understanding of long/short strategies.
• Investors seeking absolute returns with less sensitivity to market direction.
• Individuals looking for an actively managed alternative to traditional index-tracking ETFs.

Fundamental Rating Based on AI:

Based on a comprehensive analysis of FTLS's financial health, market position, and future prospects, an AI-based system rates its fundamentals at 5 out of 10.

Justification:

While the ETF boasts a solid reputation of the issuer and experienced management, its recent underperformance compared to the benchmark and relatively stagnant growth raise concerns. The actively managed strategy, while potentially offering an edge, might not be as effective in the current market environment. Further analysis and careful consideration are recommended before investing.

Resources and Disclaimer:

Disclaimer: This analysis is for informational purposes only and should not be construed as investment advice. Please consult with a licensed financial advisor before making any investment decisions.

Data sources:

• First Trust website: https://www.ftportfolios.com/ftls
• ETF Database: https://etfdb.com/etf/ftls/
• Bloomberg Terminal