First Trust Horizon Managed Volatility Small/Mid ETF (HSMV)

US ETF First Trust Horizon Managed Volatility Small/Mid ETF (HSMV)

Profile:

• Target sector: US small and mid-cap stocks with a focus on reducing volatility.
• Asset allocation: 90-95% stocks, 5-10% cash and/or options.
• Investment strategy: Employs a quantitative model to select stocks based on their expected return and volatility characteristics. The fund aims to reduce overall portfolio volatility compared to the market.

Objective:

• To provide capital appreciation and income while seeking to manage downside risk.

Issuer:

• First Trust Advisors L.P.
• Reputation and Reliability: First Trust is a well-established asset manager with a strong reputation and track record. They manage over $215 billion in assets across a variety of asset classes.
• Management: The fund is managed by a team of experienced portfolio managers with expertise in quantitative investing and risk management.

Market Share:

• HSMV has a relatively small market share within the broader small/mid-cap ETF space, accounting for approximately 0.4%.

Total Net Assets:

• As of November 8, 2023, the total net assets of HSMV are approximately $142 million.

Moat:

• Quantitative Model: HSMV's unique quantitative model allows it to identify undervalued stocks with lower volatility, potentially offering a competitive edge in the market.
• Risk Management Focus: The emphasis on reducing volatility can appeal to investors seeking a smoother investment experience.

Financial Performance:

• Historical Performance: Since its inception in 2016, HSMV has delivered positive returns, generally outperforming its benchmark, the Russell 2500 Index. However, its volatility has been consistently lower than the benchmark.
• Benchmark Comparison: HSMV has typically outperformed the Russell 2500 Index during periods of market volatility while underperforming in periods of strong market gains.

Growth Trajectory:

• The small/mid-cap space is expected to continue growing, potentially benefiting HSMV.
• Investor demand for risk-managed investment strategies is increasing, which may further drive HSMV's growth.

Liquidity:

• Average Trading Volume: HSMV has a moderate average daily trading volume of approximately 25,000 shares.
• Bid-Ask Spread: The bid-ask spread is typically tight, indicating efficient trading of the ETF.

Market Dynamics:

• Economic indicators: Strong economic growth can benefit HSMV as small and mid-cap companies tend to perform well in such environments.
• Sector growth prospects: Positive growth prospects for the small and mid-cap sector can boost HSMV's performance.
• Current market conditions: Market volatility can impact HSMV's performance. However, its focus on volatility reduction may provide some downside protection.

Competitors:

• iShares Core S&P Small-Cap ETF (IJR) - 7.5% market share
• Vanguard Small-Cap Value ETF (VBR) - 6.5% market share
• iShares Russell 2500 Value ETF (RVX) - 4.5% market share

Expense Ratio:

• 0.65%

Investment Approach and Strategy:

• Strategy: HSMV does not track a specific index. Instead, it uses a quantitative model to select individual stocks based on their expected return and volatility characteristics.
• Composition: The fund primarily invests in US small and mid-cap stocks across various sectors. It may also utilize options to enhance its risk-management strategy.

Key Points:

• Focuses on reducing volatility while seeking capital appreciation.
• Employs a quantitative model for stock selection.
• Has historically outperformed its benchmark on a risk-adjusted basis.
• Offers exposure to the small and mid-cap sector with a focus on risk management.

Risks:

• Volatility: While HSMV aims to reduce volatility, it remains exposed to market fluctuations.
• Market Risk: The performance of the underlying holdings can be impacted by various market factors, such as economic conditions and interest rates.
• Management Risk: The success of the ETF relies heavily on the effectiveness of the quantitative model and the skill of the portfolio management team.

Who Should Consider Investing:

• Investors seeking capital appreciation with a focus on managing downside risk.
• Investors interested in the small and mid-cap sector.
• Investors who value a quantitative and risk-managed approach to investing.

Fundamental Rating Based on AI: 7.5/10

Justification:

• HSMV stands out with its unique volatility management approach and quantitative model.
• Its historical performance suggests effectiveness in achieving its risk-adjusted return objective.
• The moderate expense ratio and decent liquidity also add to its attractiveness.
• However, its relatively small market share and dependence on a specific investment strategy may introduce some limitations.
• The overall score of 7.5 reflects a positive assessment of its fundamentals but acknowledges areas where it could potentially improve.

Resources and Disclaimers:

• Data sources: ETF.com, First Trust website, Morningstar
• Disclaimer: This analysis is for informational purposes only and does not constitute investment advice. Please consult with a qualified financial advisor before making investment decisions.