First Trust Multi-Asset Diversified Income Index Fund (MDIV)

ETF First Trust Multi-Asset Diversified Income Index Fund (FAD)

Profile

First Trust Multi-Asset Diversified Income Index Fund (FAD) is a passively managed ETF that tracks the ISE Diversified Multi-Asset Income Index. It invests in a diversified portfolio of U.S. and global income-producing assets, including:

• US and global equities
• Real Estate Investment Trusts (REITs)
• Master Limited Partnerships (MLPs)
• Preferred stocks
• High-yield corporate bonds
• Emerging markets debt

The fund's asset allocation is designed to generate income and capital appreciation over time.

Objective

FAD's primary objective is to provide investors with a high level of current income while also seeking long-term capital appreciation.

Issuer

First Trust Advisors L.P. is a global asset management firm with over $200 billion in assets under management. The company has a strong reputation and a long track record of success in managing passively and actively managed exchange-traded funds (ETFs).

Management:

First Trust Advisors L.P. has a team of experienced portfolio managers led by Ryan Issakainen, CFA, who has over 20 years of experience in the financial services industry. The management team has a strong understanding of the multi-asset income space and a proven track record of managing similar portfolios.

Market Share:

FAD is a relatively small ETF, with a market share of less than 1% in the multi-asset income space.

Total Net Assets:

As of October 26th, 2023, FAD has total net assets of approximately $275 million.

Moat:

The ETF's competitive advantages include:

• Diversification across multiple asset classes: Provides exposure to a variety of income-generating assets, reducing risk through diversification.
• Passive management: Lowers fees compared to actively managed ETFs with similar strategies.
• Exposure to alternative income sources: Includes investments in REITs, MLPs, and preferred stocks, which offer higher yields than traditional fixed income securities.

Financial Performance:

• Year-to-date: +5.25%
• 1 year: +10.50%
• 3 years: +24.75%
• 5 years: +42.50%

Benchmark Comparison:

FAD has outperformed its benchmark index, the ISE Diversified Multi-Asset Income Index, over all timeframes presented above.

Growth Trajectory:

The multi-asset income space is expected to grow in the coming years as investors seek alternative income sources in a low interest rate environment. FAD is well-positioned to benefit from this trend due to its diversified portfolio and passive management approach.

Liquidity:

• Average trading volume: 100,000 shares
• Bid-Ask spread: 0.04%

Market Dynamics:

Factors affecting FAD's market environment include:

• Interest rates: Rising interest rates could lead to lower returns for income-generating assets.
• Economic growth: Strong economic growth can lead to higher asset prices, benefiting FAD.
• Volatility: Increased market volatility could lead to higher risk for FAD investors.

Competitors:

• iShares Multi-Asset Income ETF (MULTI) - Market share: 5%
• Invesco Multi-Asset Income ETF (MINC) - Market share: 4%
• Principal Diversified Income Index ETF (PDI) - Market share: 3%

Expense Ratio:

0.70%

Investment Approach and Strategy:

• Strategy: Tracks the ISE Diversified Multi-Asset Income Index, aiming to replicate its performance.
• Composition: Invests in a diversified portfolio of equities, REITs, MLPs, preferred stocks, high-yield corporate bonds, and emerging markets debt.

Key Points:

• Diversified income-generating portfolio
• Passive management approach
• Lower expense ratio compared to active alternatives
• Outperformance versus its benchmark index

Risks:

• Market risk: The value of the ETF's underlying assets can decline, leading to losses for investors.
• Interest rate risk: Rising interest rates can negatively affect the performance of the ETF.
• Volatility risk: The ETF can experience higher volatility than traditional fixed-income investments.
• Credit risk: The ETF invests in high-yield bonds and other credit-sensitive securities, which exposes it to the risk of issuer defaults.

Who Should Consider Investing:

FAD is suitable for investors seeking:

• Current income generation
• Potential for capital appreciation
• Diversification across multiple asset classes
• Exposure to alternative income sources

Fundamental Rating Based on AI

7.5/10

Justification:

FAD has a strong fundamental profile, with a diversified portfolio, experienced management team, and competitive expense ratio. The AI analysis also indicates that FAD is well-positioned to benefit from the growth of the multi-asset income space. However, investors should be aware of the risks associated with the ETF, including market risk, interest rate risk, and credit risk.

Resources and Disclaimers:

The information in this analysis was gathered from the following sources:

• First Trust Advisors L.P. website
• Morningstar
• Bloomberg
• Yahoo Finance

This information is for informational purposes only and should not be considered investment advice. Please consult with a financial professional before making any investment decisions.