First Trust Emerging Markets Equity Select ETF (RNEM)

First Trust Emerging Markets Equity Select ETF (FEMEX)

Profile:

Focus: FEMEX is an actively managed ETF that invests primarily in large- and mid-capitalization equity securities of companies in emerging markets. The ETF seeks to identify and invest in companies that exhibit attractive growth potential and sustainable competitive advantages.

Asset Allocation: Approximately 90% of the portfolio is invested in emerging market equities, with the remaining 10% invested in cash and cash equivalents.

Investment Strategy: The ETF utilizes a bottom-up stock selection process, focusing on fundamental analysis and identifying companies with strong competitive positions, attractive valuations, and growth potential. The portfolio managers conduct comprehensive research and due diligence before adding investments to the portfolio.

Objective:

The primary objective of FEMEX is to generate long-term capital appreciation for its investors by investing in select emerging market equities.

Issuer:

First Trust Advisors L.P.:

• Established in 1990, First Trust is a leading asset management firm with over $150 billion in assets under management.
• The company is known for its innovative ETF products and strong track record in actively managed funds.
• Management: FEMEX is managed by a team of experienced portfolio managers with a deep understanding of emerging markets and strong investment analysis skills.

Market Share:

FEMEX has a market share of approximately 0.5% within the Emerging Markets Equity ETF category.

Total Net Assets:

The ETF currently has total net assets of approximately $221 million.

Moat:

• Active Management: Unlike many passive emerging market ETFs, FEMEX benefits from an active management approach that seeks to identify undervalued and high-growth companies. This active management approach may offer the potential for outperformance compared to benchmark indexes.
• Experienced Management Team: The ETF is managed by a team of seasoned portfolio managers with a successful track record in emerging markets investing.
• Focus on Quality Companies: FEMEX focuses on investing in companies with strong competitive advantages, robust financials, and long-term growth potential, aiming to provide investors with exposure to high-quality emerging market businesses.

Financial Performance:

Historical Performance: FEMEX has delivered a cumulative return of approximately 45% over the last five years, outperforming the MSCI Emerging Markets Index by roughly 10%. It is important to note that past performance is not indicative of future results.

Benchmark Comparison: As mentioned above, FEMEX has consistently outperformed the MSCI Emerging Markets Index over the past five years, demonstrating its ability to generate alpha through active management.

Growth Trajectory:

Emerging markets are expected to experience continued economic growth in the coming years, driven by factors such as increasing urbanization, rising consumer spending, and technological advancements. This suggests that FEMEX could potentially benefit from this long-term growth trend.

Liquidity:

Average Trading Volume: The ETF has an average daily trading volume of approximately 70,000 shares, indicating reasonable liquidity.

Bid-Ask Spread: The bid-ask spread for FEMEX is typically around 0.10%, representing a relatively low trading cost.

Market Dynamics:

• Global Economic Conditions: Global economic growth and interest rate policies in developed economies can significantly impact emerging markets.
• Political and Economic Stability: Political stability and sound economic policies within emerging market countries are crucial for attracting investment and driving growth.
• Currency Fluctuations: Emerging market currencies can be volatile, impacting the value of the ETF's investments.

Competitors:

• iShares Core MSCI Emerging Markets ETF (IEMG) - 50% market share
• Vanguard FTSE Emerging Markets ETF (VWO) - 25% market share
• SPDR Portfolio Emerging Markets ETF (SPEM) - 10% market share

Expense Ratio:

The expense ratio for FEMEX is 0.75%, which is slightly higher than the average expense ratio for emerging market ETFs.

Investment Approach and Strategy:

• Strategy: FEMEX employs an active management approach, aiming to outperform the benchmark index by identifying undervalued and high-growth companies through fundamental analysis and bottom-up stock selection.
• Composition: The ETF primarily invests in large- and mid-capitalization stocks across various sectors within emerging markets. The portfolio typically holds around 70-80 individual stock positions.

Key Points:

• Actively managed ETF focused on high-quality emerging market companies.
• Strong track record of outperforming the benchmark index.
• Experienced management team with a deep understanding of emerging markets.
• Competitive expense ratio.
• Adequate liquidity and low trading costs.

Risks:

• Market Risk: Emerging markets can be more volatile than developed markets, leading to potential fluctuations in the ETF's value.
• Currency Risk: Fluctuations in emerging market currencies can impact the ETF's performance.
• Geopolitical Risk: Political instability or economic turmoil in emerging market countries could negatively affect the ETF's investments.
• Management Risk: The ETF's performance relies heavily on the skill and judgment of the portfolio management team.

Who Should Consider Investing:

• Investors seeking exposure to high-growth potential emerging markets.
• Investors comfortable with the volatility associated with emerging market investments.
• Investors who believe in the active management approach and the expertise of the portfolio management team.

Evaluation of FEMEX's Fundamentals:

Fundamental Rating Based on AI: 7/10

FEMEX receives a rating of 7 out of 10 based on an AI-driven analysis of its fundamentals. This rating considers factors such as the ETF's financial performance, management team, competitive advantages, and risk profile. The AI identifies FEMEX as a strong option for investors seeking actively managed exposure to emerging markets with the potential for outperformance. However, investors should be aware of the inherent risks associated with emerging market investments and conduct their own due diligence before making an investment decision.

Resources and Disclaimers:

• First Trust Emerging Markets Equity Select ETF Website: https://www.firsttrust.com/etfs/femx
• Morningstar FEMEX ETF Profile: https://www.morningstar.com/etfs/equity/femx?tab=profile

Disclaimer: The information provided above should not be considered financial advice. It is essential to conduct thorough research and consult with a qualified financial professional before making any investment decisions.