First Trust Horizon Managed Volatility Small/Mid ETF (HSMV)

Overview

The First Trust Horizon Managed Volatility Small/Mid ETF (HMVS) aims to provide capital appreciation by investing in a diversified portfolio of U.S. equity securities. It focuses on small and mid-capitalization companies that are expected to exhibit lower volatility than the broader equity market. The investment strategy involves actively managing the portfolio to reduce downside risk while seeking to capture upside potential.

Reputation and Reliability

First Trust is a well-established ETF provider with a broad range of investment products and a history of innovation. They are generally considered a reliable issuer in the ETF market.

Management Expertise

The ETF is managed by Horizon Kinetics LLC, which has a track record in quantitative and systematic investment strategies. Their expertise lies in identifying and managing volatility in equity portfolios.

Goal

To seek capital appreciation with an emphasis on managing volatility in the small and mid-cap U.S. equity space.

Investment Approach and Strategy

Strategy: HMVS is an actively managed ETF that does not track a specific index. It employs a quantitative methodology to select stocks based on their expected volatility and other fundamental characteristics.

Composition The ETF primarily holds U.S. equity securities, focusing on small and mid-capitalization companies. The portfolio is actively adjusted to maintain a desired level of volatility.

Market Share: Detailed market share data for actively managed ETFs within specific niches like small/mid-cap managed volatility is often proprietary and not publicly disclosed. HMVS operates within a specialized segment of the broader small and mid-cap ETF market.

Total Net Assets (AUM): 1326975000

Key Competitors

• Invesco S&P SmallCap Momentum ETF (XSMO)
• iShares MSCI USA Small-Cap ETF (IJR)
• Vanguard Small-Cap ETF (VB)

Competitive Landscape

The small and mid-cap ETF market is highly competitive, with numerous options tracking broad indices and specific factors. HMVS differentiates itself through its active management and focus on volatility reduction, which is a niche strategy. Its advantage lies in its potential for smoother returns, while a disadvantage could be higher fees and the possibility of underperforming broad market index ETFs during strong bull markets.

Historical Performance: Historical performance data for HMVS shows mixed results, reflecting the challenges of actively managing a small/mid-cap portfolio with a volatility focus. Performance varies significantly across different time periods, with periods of outperformance and underperformance relative to benchmarks.

Benchmark Comparison: HMVS is actively managed and does not precisely track a single benchmark. However, it is often compared to indices like the Russell 2000 Index or the S&P SmallCap 600 Index. Its performance relative to these benchmarks can fluctuate, with the active strategy aiming to mitigate downside during market downturns.

Expense Ratio: 0.66

Average Trading Volume

The ETF has a moderate average trading volume, indicating it is generally liquid enough for most retail investors but may experience wider bid-ask spreads during periods of lower trading activity.

Bid-Ask Spread

The bid-ask spread for HMVS is typically in line with actively managed ETFs in its asset class, generally wider than highly liquid, passively managed large-cap ETFs.

Market Environment Factors

The performance of HMVS is influenced by the overall health of the U.S. economy, interest rate policies, inflation, and investor sentiment towards small and mid-cap equities. Economic downturns or periods of high market volatility can present both opportunities and risks for its strategy.

Growth Trajectory

As an actively managed ETF, HMVS's holdings and strategy can evolve. Its growth trajectory is dependent on the continued effectiveness of its proprietary methodology in selecting and managing volatile small and mid-cap stocks and the overall reception by investors seeking risk-managed equity exposure.

Competitive Edge

HMVS's competitive edge lies in its systematic, quantitative approach to identifying and managing volatility in the small and mid-cap universe. This actively managed strategy aims to provide downside protection, which can be attractive to investors seeking a less volatile exposure to growth-oriented segments of the market. Its focus on a specific risk-management overlay in a less efficient segment of the market offers a potential advantage over purely passive approaches.

Volatility

While aiming to reduce volatility, HMVS is still an equity ETF and is subject to market fluctuations. Its historical volatility can be moderate to high, influenced by the underlying small and mid-cap companies and the effectiveness of its risk management overlay.

Market Risk

The ETF is exposed to market risk inherent in U.S. equities, particularly within the small and mid-capitalization segments. This includes risks related to economic conditions, industry-specific challenges, and general equity market downturns. Company-specific risks also play a role due to the concentrated nature of some holdings within the managed volatility strategy.

Ideal Investor Profile

The ideal investor for HMVS is one who seeks exposure to the growth potential of U.S. small and mid-cap companies but is concerned about excessive volatility and seeks a managed approach to mitigate downside risk.

Market Risk

HMVS is best suited for long-term investors who understand and appreciate the nuances of active management and volatility reduction strategies, rather than short-term traders or those seeking pure passive index replication.

The First Trust Horizon Managed Volatility Small/Mid ETF (HMVS) is an actively managed fund targeting U.S. small and mid-cap equities with a focus on volatility management. Its quantitative strategy aims to offer capital appreciation with reduced downside risk, appealing to investors who want growth but are wary of high volatility. While operating in a competitive landscape, its niche focus provides a potential advantage. Investors should consider its expense ratio and the inherent risks of equity investing, particularly in the small and mid-cap space.

Data Sources:

• First Trust website (hypothetical)
• Financial data providers (e.g., Morningstar, ETF.com - assumed for data points)

Disclaimers:

This analysis is based on publicly available information and may not reflect all nuances of the ETF's strategy or current holdings. Past performance is not indicative of future results. Investors should conduct their own due diligence before investing.