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

Launched on 07/06/2006, the First Trust Capital Strength ETF (FTCS) is a smart beta exchange traded fund offering broad exposure to the Style Box - Large Cap Blend category of the market.

What Are Smart Beta ETFs?

Products that are based on market cap weighted indexes, which are strategies designed to reflect a specific market segment or the market as a whole, have traditionally dominated the ETF industry.

Because market cap weighted indexes provide a low-cost, convenient, and transparent way of replicating market returns, they work well for investors who believe in market efficiency.

But, there are some investors who would rather invest in smart beta funds; these funds track non-cap weighted strategies, and are a strong option for those who prefer choosing great stocks in order to beat the market.

This kind of index follows this same mindset, as it attempts to pick stocks that have better chances of risk-return performance; non-cap weighted strategies base selection on certain fundamental characteristics, or a mix of such characteristics.

Methodologies like equal-weighting, one of the simplest options out there, fundamental weighting, and volatility/momentum based weighting are all choices offered to investors in this space, but not all of them can deliver superior returns.

Fund Sponsor & Index

FTCS is managed by First Trust Advisors, and this fund has amassed over $8.42 billion, which makes it one of the largest ETFs in the Style Box - Large Cap Blend. FTCS 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

When considering an ETF's total return, expense ratios are an important factor. And, cheaper funds can significantly outperform their more expensive cousins in the long term if all other factors remain equal.

Annual operating expenses for FTCS are 0.56%, which makes it on par with most peer products in the space.

FTCS's 12-month trailing dividend yield is 1%.

Sector Exposure and Top Holdings

Most ETFs are very transparent products, and disclose their holdings on a daily basis. ETFs also offer diversified exposure, which minimizes single stock risk, though it's still important for investors to research a fund's holdings.

For FTCS, it has heaviest allocation in the Consumer Staples sector --about 19.80% of the portfolio --while Industrials and Financials round out the top three.

Taking into account individual holdings, Agilent Technologies, Inc. (NYSE:A) accounts for about 2.28% of the fund's total assets, followed by Garmin Ltd. (NASDAQ:GRMN) and Keysight Technologies, Inc. (NYSE:KEYS).

The top 10 holdings account for about 21.86% of total assets under management.

Performance and Risk

Year-to-date, the First Trust Capital Strength ETF has added about 17.34% so far, and is up about 24.35% over the last 12 months (as of 09/20/2021). FTCS has traded between $60.98 and $79.92 in this past 52-week period.

The ETF has a beta of 0.89 and standard deviation of 21.06% for the trailing three-year period, making it a medium risk choice in the space. With about 51 holdings, it effectively diversifies company-specific risk.

Alternatives

First Trust Capital Strength ETF is an excellent option for investors seeking to outperform the Style Box - Large Cap Blend segment of the market. There are other ETFs in the space which investors could consider as well.

IShares Core S&P 500 ETF (IVV) tracks S&P 500 Index and the SPDR S&P 500 ETF (SPY) tracks S&P 500 Index. IShares Core S&P 500 ETF has $301.99 billion in assets, SPDR S&P 500 ETF has $401.21 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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