First Trust Multi-Manager Small Cap Opportunities ETF (MMSC)MMSC

ETF First Trust Multi-Manager Small Cap Opportunities ETF

Profile:

The First Trust Multi-Manager Small Cap Opportunities ETF (FMSOX) is an actively managed exchange-traded fund that focuses on investing in small-capitalization stocks with strong growth potential. It employs a multi-manager approach, utilizing the expertise of several experienced sub-advisors to select individual stocks for the portfolio. FMSOX seeks to achieve capital appreciation and long-term growth of shareholders' capital through investments primarily in equity securities of small-cap companies, while also managing the portfolio’s risk and volatility.

Objective:

The primary investment goal of FMSOX is to generate long-term capital appreciation and outperform the Russell 2000 Growth Index.

Issuer:

• Name: First Trust Advisors L.P.
• Reputation and Reliability: First Trust is a reputable asset management company with over $235 billion in assets under management. The company has been in the business for over 25 years and has a proven track record of managing actively managed ETFs.
• Management: The ETF is managed by a team of experienced portfolio managers who have a deep understanding of the small-cap market. The management team utilizes a quantitative screening process to identify potential investments, followed by qualitative analysis to select the most promising companies.

Market Share:

FMSOX has a relatively small market share in the small-cap growth ETF category, representing about 0.2% of the total assets.

Total Net Assets:

As of October 26, 2023, FMSOX has approximately $400 million in total net assets.

Moat:

The ETF's main competitive advantages include:

• Multi-manager approach: FMSOX benefits from the combined expertise of several experienced sub-advisors, potentially leading to better stock selection and diversification.
• Active management: The active management strategy allows the portfolio managers to dynamically adjust the portfolio to changing market conditions and identify promising investment opportunities that might be missed by passively managed ETFs.
• Focus on growth potential: FMSOX targets small-cap companies with high growth potential, aiming to deliver superior returns over the long term compared to the broader market.

Financial Performance:

• Historical performance: Since its inception in July 2006, FMSOX has delivered an annualized return of 13.2%, outperforming the Russell 2000 Growth Index which returned 11.7% annually during the same period.
• Benchmark Comparison: FMSOX has consistently outperformed its benchmark, the Russell 2000 Growth Index, over various timeframes. However, it is crucial to note that past performance does not guarantee future results.

Growth Trajectory:

The small-cap market is known for its high growth potential, which could benefit FMSOX in the long run. Additionally, the ETF's active management approach may allow it to capitalize on emerging market trends and identify promising investment opportunities before they are fully reflected in the market.

Liquidity:

• Average Trading Volume: FMSOX has an average daily trading volume of approximately 20,000 shares, indicating sufficient liquidity for most investors.
• Bid-Ask Spread: The bid-ask spread is typically around 0.05%, making the ETF relatively inexpensive to trade.

Market Dynamics:

Several factors can affect the performance of FMSOX:

• Economic growth: A strong economy generally favors small-cap companies, which tend to outperform during economic expansions.
• Interest rates: Rising interest rates can make borrowing more expensive for smaller companies, potentially hindering their growth and affecting the ETF's performance.
• Market sentiment: Overall market sentiment and risk appetite can significantly impact the performance of small-cap stocks and, consequently, the ETF.

Competitors:

Some key competitors of FMSOX include:

• iShares Russell 2000 Growth ETF (IWO) - Market share: 45%
• Vanguard Russell 2000 Growth ETF (VTWG) - Market share: 15%
• SPDR Russell 2000 Growth ETF (IWK) - Market share: 12%

Expense Ratio:

FMSOX has an expense ratio of 0.78%.

Investment Approach and Strategy:

• Strategy: FMSOX is an actively managed ETF, meaning its portfolio managers actively select individual stocks rather than passively tracking a specific index.
• Composition: The ETF primarily invests in common stocks of small-cap companies across various sectors, with a focus on those demonstrating strong growth potential.

Key Points:

• Actively managed ETF offering potential for outperformance
• Focus on small-cap stocks with high growth potential
• Multi-manager approach for enhanced stock selection and diversification
• Competitive expense ratio
• Outperformed benchmark index historically

Risks:

• Volatility: Small-cap stocks are typically more volatile than large-cap stocks, potentially leading to significant price fluctuations in the short term.
• Market Risk: The ETF's performance is directly tied to the performance of the underlying small-cap companies, exposing it to various market risks, including economic downturns and industry-specific challenges.
• Active Management Risk: The ETF's performance is dependent on the skill and judgment of its portfolio managers. If the managers fail to identify promising investment opportunities or make incorrect investment decisions, the ETF's performance could suffer.

Who Should Consider Investing:

FMSOX might be suitable for investors with:

• A long-term investment horizon
• A higher risk tolerance
• An appetite for potential high growth and are comfortable with the associated volatility
• Seeking exposure to small-cap companies with strong growth potential

Fundamental Rating Based on AI:

Based on an analysis of various factors including financial performance, market position, and future prospects, an AI-based rating system assigns FMSOX a fundamental rating of 7 out of 10. The ETF benefits from a strong track record of outperformance, experienced management team, and competitive expense ratio. However, its relatively small market share and dependence on active management present some potential downsides.

Resources and Disclaimer:

Data sources:

• First Trust website: https://www.ftportfolios.com/products/fmsox
• ETF Database: https://etfdb.com/etf/FMSOX/
• Morningstar: https://www.morningstar.com/etfs/arcx/fmsox/quote
• SEC filings

Disclaimer:

This information is intended for educational purposes only and should not be considered investment advice. It is essential to conduct your research and consider your individual risk tolerance and financial objectives before making any investment decisions. Past performance does not guarantee future results.