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Is First Trust Capital Strength ETF (FTCS) a Strong ETF Right Now?

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A smart beta exchange traded fund, the First Trust Capital Strength ETF (FTCS - Free Report) debuted on 07/06/2006, and offers broad exposure to the Style Box - Large Cap Blend category of the market.

What Are Smart Beta ETFs?

The ETF industry has long been dominated by products based on market cap weighted indexes, a strategy created to reflect the market or a particular market segment.

Investors who believe in market efficiency should consider market cap indexes, as they replicate market returns in a low-cost, convenient, and transparent way.

There are some investors, though, who think it's possible to beat the market with great stock selection; this group likely invests in another class of funds known as smart beta, which track non-cap weighted strategies.

By attempting to pick stocks that have a better chance of risk-return performance, non-cap weighted indexes are based on certain fundamental characteristics, or a combination of such.

While this space offers a number of choices to investors, including simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies, not all these strategies have been able to deliver superior results.

Fund Sponsor & Index

Managed by First Trust Advisors, FTCS has amassed assets over $8.35 billion, making it one of the largest ETFs in the Style Box - Large Cap Blend. This particular fund seeks to match the performance of the The Capital Strength Index before fees and expenses.

The Capital Strength Index is an equal-dollar weighted index which provides exposure to well-capitalized companies with strong market positions based on strong balance sheets, high degree of liquidity, ability to generate earnings growth & record financial strength & profit growth.

Cost & Other Expenses

Since cheaper funds tend to produce better results than more expensive funds, assuming all other factors remain equal, it is important for investors to pay attention to an ETF's expense ratio.

Operating expenses on an annual basis are 0.55% for FTCS, making it on par with most peer products in the space.

It's 12-month trailing dividend yield comes in at 1.09%.

Sector Exposure and Top Holdings

ETFs offer diversified exposure and thus minimize single stock risk, but it is still important to delve into a fund's holdings before investing. Most ETFs are very transparent products and many disclose their holdings on a daily basis.

Representing 20.20% of the portfolio, the fund has heaviest allocation to the Consumer Staples sector; Healthcare and Industrials round out the top three.

Looking at individual holdings, Merck & Co., Inc. (MRK - Free Report) accounts for about 2.32% of total assets, followed by Expeditors International Of Washington, Inc. (EXPD - Free Report) and The Progressive Corporation (PGR - Free Report) .

FTCS's top 10 holdings account for about 22.1% of its total assets under management.

Performance and Risk

So far this year, FTCS has lost about -10.38%, and is down about -4.97% in the last one year (as of 08/23/2022). During this past 52-week period, the fund has traded between $67.19 and $84.75.

FTCS has a beta of 0.87 and standard deviation of 21.16% for the trailing three-year period, which makes the fund a medium risk choice in the space. With about 51 holdings, it effectively diversifies company-specific risk.

Alternatives

First Trust Capital Strength ETF is a reasonable option for investors seeking to outperform the Style Box - Large Cap Blend segment of the market. However, there are other ETFs in the space which investors could consider.

IShares Core S&P 500 ETF (IVV - Free Report) tracks S&P 500 Index and the SPDR S&P 500 ETF (SPY - Free Report) tracks S&P 500 Index. IShares Core S&P 500 ETF has $309.77 billion in assets, SPDR S&P 500 ETF has $377.84 billion. IVV has an expense ratio of 0.03% and SPY charges 0.09%.

Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Style Box - Large Cap Blend.

Bottom Line

To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.

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