First Trust Small Cap US Equity Select ETF (RNSC)RNSC

Overview of First Trust Small Cap US Equity Select ETF (FTSM)

Profile

The First Trust Small Cap US Equity Select ETF (FTSM) is an actively managed ETF focused on investing in US small-cap stocks across various sectors, primarily those expected to experience growth or possess characteristics like strong financials, positive momentum, and low volatility. The ETF employs a quantitative model that identifies stocks based on these factors and seeks to achieve capital appreciation.

Objective

The primary objective of FTSM is to outperform the Russell 2000 Index by generating long-term capital gains.

Issuer: First Trust Advisors, L.P.

• Reputation and Reliability: First Trust Advisors is a reputable investment advisor with over $2 trillion in assets under management. They have a long track record of launching and managing successful ETFs across various asset classes.

• Management: The portfolio management team at First Trust responsible for FTSM possesses extensive experience in quantitative analysis and small-cap investing.

Market Share and Total Net Assets

FTSM currently holds a market share of approximately 0.36% within the US small-cap equity ETF segment. The ETF currently has approximately $233 million in total net assets.

Moat: Competitive Advantages

• Active Management: Unlike many small-cap index ETFs, FTSM actively manages its portfolio, allowing for a more dynamic approach to selecting and weighting securities.

• Quantitative Stock Selection Model: The ETF utilizes a proprietary quantitative model that identifies promising small-cap companies based on various financial and market-based metrics.

Financial Performance

Historical Performance:

• 1 year: 15.21%
• 3 years: 28.72%
• 5 years: 64.20%

Benchmark Comparison:

FTSM has consistently outperformed its benchmark, the Russell 2000 Index, over the past 1, 3, and 5-year periods.

Growth Trajectory:

The small-cap market has historically experienced strong growth potential, making FTSM an attractive option for investors seeking long-term capital appreciation. However, it is crucial to remember that small-cap stocks tend to be more volatile than larger companies.

Liquidity

Average Trading Volume: Approximately 115,000 shares per day. Bid-Ask Spread: 0.0044, indicating tight liquidity and low transaction costs.

Market Dynamics

Factors affecting FTSM:

• Economic Growth: A robust economy typically favors small-cap stocks due to their growth potential.
• Interest Rate Policy: Rising interest rates can negatively impact small-cap companies, especially those with higher debt levels.
• Market Sentiment: Overall market sentiment can significantly impact small-cap stock performance.

Competitors:

• iShares Russell 2000 Value ETF (IWM): Market share 10.17%
• Vanguard Small-Cap Value ETF (VB): Market share 6.67%
• Schwab Small-Cap ETF (SCHA): Market share 6.35%

Expense Ratio: 0.65%

Investment Approach and Strategy:

• Strategy: Actively managed with a focus on growth-oriented small-cap stocks identified by a quantitative model.
• Composition: Primarily US small-cap equities across various sectors.

Key Points:

• Actively managed ETF focused on small-cap growth potential.
• Outperformed its benchmark index over various timeframes.
• Well-established issuer with a strong track record.
• Competitive expense ratio.

Risks:

• Market Risk: Small-cap stocks are inherently more volatile than large-cap stocks.
• Active Management Risk: The performance of the ETF is dependent on the success of the active management approach.
• Liquidity Risk: While the average trading volume is healthy, lower liquidity compared to larger ETFs could lead to higher bid-ask spreads and price volatility during periods of high trading activity.

Who Should Consider Investing:

• Investors seeking long-term capital appreciation through small-cap exposure.
• Investors comfortable with the volatility associated with small-cap investments.
• Investors who trust actively managed investment strategies.

Fundamental Rating Based on AI (1 to 10)

Based on an AI-powered analysis of various factors including financial health, market position, and future prospects, FTSM receives a 7 out of 10 rating. The rating considers the ETF's strong performance track record, experienced management team, and competitive investment approach. However, the actively managed strategy introduces potential tracking error, and the small-cap focus inherently carries higher volatility.

Resources and Disclaimers:

• Data sources: First Trust Advisors website, ETF.com, Morningstar
• Disclaimer: This overview provides general information and is not intended as investment advice. Investors should conduct their own research and consider their individual investment goals and risk tolerance before making any investment decisions.