First Trust has expanded its ‘Strength’ line-up of ETFs focused on companies with robust financial attributes by launching a new fund targeting US high-growth stocks.
Ryan Issakainen, Senior Vice President, ETF Strategist at First Trust.
The First Trust Growth Strength ETF (FTGS US) has been listed on Nasdaq with an expense ratio of 0.60%.
According to First Trust, by blending in the quality factor through screening for companies with solid fundamentals, investors can improve the resiliency of their growth-focused portfolios.
Ryan Issakainen, Senior Vice President, ETF Strategist at First Trust, said: “Investment professionals have often witnessed how high-quality attributes can help companies navigate periods of economic uncertainty. In our opinion, FTGS may be an effective tool for those seeking to improve the quality of their allocations to large-cap growth.”
Methodology
The fund is linked to The Growth Strength Index which seeks to identify US large-cap companies with strong balance sheets, a high degree of liquidity, and a history of revenue and cash flow growth.
The index’s initial universe comprises the 500 largest companies listed in the US with average daily trading volumes in excess of $5 million.
The methodology first targets exposure to the quality factor risk premium by examining companies’ balance sheets and income statements. Specifically, the index screens for firms with at least $1 billion in cash or short-term investments, a long-term debt-to-market-cap ratio below 30%, and a return-on-equity greater than 15%.
Qualifying stocks are then ranked by their three-year revenue percentage growth and three-year cash flow percentage growth. The rankings are combined equally and the top 50 companies are selected for inclusion in the index.
If there are more than 15 stocks from any one ICB industry, the firm with the lowest ranking is removed and replaced with the next eligible company from a different industry.
Constituents are equally weighted, and the index is reconstituted and rebalanced on a quarterly basis.
As of 28 October, stocks from the technology (29.6%) and healthcare (24.3%) sectors dominated while there was also significant exposure to companies from the energy (18.0%) sector.
First Trust offers a further three ETFs within its Strength line-up. By far the largest of the trio is the $8.3 billion First Trust Capital Strength ETF (FTCS US) which first screens a universe of US-listed stocks for companies with robust financial strength before selecting the 50 firms with the lowest share price volatility.
The other two ETFs in the suite include the $20 million First Trust International Developed Capital Strength (FICS US), which applies the same strategy as FTCS to an initial universe of stocks from developed markets excluding the US, and the $20m First Trust Dividend Strength ETF (FTDS US), which selects 50 companies with high dividend yields from a universe of US-listed stocks that have been screened for robust financial strength.