First Trust Active Factor Mid Cap ETF (AFMC)

Overview

The First Trust Active Factor Mid Cap ETF (AFMC) is designed to provide investors with exposure to mid-capitalization U.S. equities selected based on specific "active factors." Its strategy aims to identify companies exhibiting characteristics that have historically led to outperformance, such as value, growth, quality, and momentum. The ETF invests in a diversified portfolio of mid-cap stocks, actively managed to seek Alpha generation.

Reputation and Reliability

First Trust is a well-established and reputable issuer of exchange-traded funds in the United States, known for its diverse range of actively managed and index-based ETFs. The firm has a long history of providing investment solutions to a broad range of investors.

Management Expertise

The ETF is managed by First Trust Advisors L.P., a firm with extensive experience in active portfolio management and quantitative research. The management team comprises seasoned investment professionals with expertise in factor investing and mid-cap equity markets.

Goal

The primary investment goal of the First Trust Active Factor Mid Cap ETF is to achieve capital appreciation by investing in a portfolio of mid-capitalization U.S. common stocks that are believed to possess favorable "active factor" characteristics.

Investment Approach and Strategy

Strategy: AFMC does not aim to track a specific index. Instead, it employs an active management strategy that utilizes proprietary quantitative models to select securities based on multiple factor exposures. The portfolio is dynamically managed.

Composition The ETF primarily holds common stocks of mid-capitalization companies within the United States. The specific composition is driven by the active factor selection process and can change over time based on market conditions and factor performance.

Market Share: As of late 2023/early 2024, the First Trust Active Factor Mid Cap ETF has a relatively small market share within the broader mid-cap ETF universe. Specific market share data is dynamic and would require real-time access to market data for precise figures.

Total Net Assets (AUM): The Total Net Assets (AUM) for the First Trust Active Factor Mid Cap ETF fluctuates. As of recent reporting periods, AUM has generally been in the range of $100 million to $300 million. This is an estimate and subject to change.

Key Competitors

• iShares Russell Mid-Cap ETF (IWR)
• Vanguard Mid-Cap ETF (VO)
• SPDR Portfolio S&P 400 Mid Cap ETF (SPMD)

Competitive Landscape

The mid-cap ETF space is highly competitive, dominated by large, passive index-tracking ETFs from issuers like Vanguard and iShares. AFMC operates in a more niche segment focusing on active factor investing. Its advantages lie in its active management approach, potentially offering diversification beyond broad market cap indices and aiming for alpha. However, its disadvantages include higher expense ratios compared to passive ETFs and the inherent risk associated with active management, where performance may not consistently beat benchmarks.

Historical Performance: Historical performance data for AFMC shows varied returns depending on the time period. As an actively managed ETF, its performance is subject to the success of its factor-based selection strategy. Over longer periods, it has exhibited periods of outperformance and underperformance relative to mid-cap benchmarks. Specific numerical data requires up-to-date financial reporting.

Benchmark Comparison: When compared to broad mid-cap indices like the S&P MidCap 400 or the Russell Midcap Index, AFMC's performance can be inconsistent. Its active factor strategy aims to outperform, but this is not guaranteed. Analysis of its performance relative to its chosen benchmark (often an internal composite or a blend of factor indices) is crucial for evaluating its effectiveness.

Expense Ratio: The expense ratio for the First Trust Active Factor Mid Cap ETF is typically higher than passively managed ETFs, reflecting the costs associated with active management and proprietary research. Recent figures place it around 0.65% to 0.75%.

Average Trading Volume

The ETF's average daily trading volume is generally moderate, indicating that it is liquid enough for most retail and institutional investors, though it may be less liquid than the largest broad-market mid-cap ETFs.

Bid-Ask Spread

The bid-ask spread for AFMC is typically reasonable, reflecting its asset class and trading volume, meaning the cost of entry and exit for trades is generally contained.

Market Environment Factors

AFMC is influenced by factors affecting the broader U.S. equity market, particularly the mid-cap segment. Economic indicators such as GDP growth, inflation, interest rate policies, and corporate earnings are significant. Sector-specific trends within mid-cap companies and the overall risk sentiment in the market also play a crucial role.

Growth Trajectory

The growth trajectory of AFMC is tied to the success of its active factor strategy and the performance of mid-cap equities. Changes in its holdings and strategy are driven by ongoing quantitative analysis to adapt to evolving market conditions and factor effectiveness. The AUM and trading volume indicate a steady, albeit not explosive, growth pattern in recent years.

Competitive Edge

AFMC's competitive edge stems from its differentiated approach to mid-cap investing. By actively employing a multi-factor selection model, it seeks to capture alpha and provide diversification beyond traditional market-cap-weighted indices. This quantitative, systematic strategy aims to exploit market inefficiencies and behavioral biases that favor certain stock characteristics. The ETF offers a transparent, rules-based active management solution for investors seeking exposure to mid-cap growth drivers.

Volatility

The historical volatility of AFMC is generally comparable to other mid-cap equity ETFs, as it invests in equities. Its factor-based approach may lead to different volatility patterns compared to pure index-tracking ETFs, potentially experiencing periods of higher or lower volatility depending on the performance of the selected factors.

Market Risk

The primary market risks for AFMC include general equity market downturns, economic recessions, and specific risks associated with the mid-capitalization segment, which can be more volatile than large-cap stocks. Factor performance risk is also significant, as the effectiveness of the chosen factors can vary over time, impacting returns.

Ideal Investor Profile

The ideal investor for AFMC is one seeking exposure to U.S. mid-cap equities with an active, factor-based investment approach. Investors should have a moderate to high-risk tolerance and a long-term investment horizon. It is suitable for those who believe in the efficacy of quantitative factor investing for potentially enhancing returns or managing risk.

Market Risk

This ETF is likely best suited for long-term investors who are comfortable with the nuances of active management and factor-based strategies. It is not typically designed for short-term speculative trading due to its active selection methodology and the nature of mid-cap equities.

The First Trust Active Factor Mid Cap ETF (AFMC) is an actively managed fund focusing on mid-capitalization U.S. equities selected by proprietary factor models. It aims for capital appreciation by identifying stocks with favorable value, growth, quality, and momentum characteristics. While it offers a differentiated approach compared to passive mid-cap ETFs, it comes with a higher expense ratio and the inherent risks of active management. Its liquidity is generally adequate for most investors, and it is best suited for long-term investors with a moderate to high-risk tolerance.

Data Sources:

• First Trust Investors website
• Financial data aggregators (e.g., Morningstar, ETF.com)

Disclaimers:

This information is for informational purposes only and should not be construed as investment advice. Investment decisions should be based on individual financial circumstances and consultation with a qualified financial advisor. Performance data is historical and not indicative of future results. Market share and AUM figures are estimates and subject to change. Expense ratios can vary.