First Trust adds small-cap ETF to multi-manager range

Oct 14th, 2021 | By | Category: Equities

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First Trust has expanded its actively managed multi-manager ETF line-up by launching a new fund focused on US small-cap equities.

First Trust adds US small-cap ETF to multi-manager range

Ryan Issakainen, Senior Vice President, ETF Strategist at First Trust.

The First Trust Multi-Manager Small Cap Opportunities ETF (MMSC US) has been listed on NYSE Arca and comes with an expense ratio of 0.95%.

First Trust, in its role as advisor, is responsible for the selection and ongoing monitoring of the securities in the ETF; however, the fund’s investment strategy will be driven by model portfolios supplied by third-party asset managers that act as sub-advisors.

The potential advantage of a multi-manager approach is that the fund benefits from diversified expertise from several asset management firms, each of whom offers its own experience, philosophy, and strategy.

Disadvantages of the multi-manager approach can include an additional layer of expense, a greater requirement for portfolio monitoring, and potentially higher rebalancing needs.

The ETF, which seeks to outperform the Russell 2000 Growth Index, has initially allocated its assets equally between two sub-advisors – Driehaus Capital Management and Stephens Investment Management. First Trust will generally move to rebalance the ETF if one sub-advisor accounts for more than 60% of the fund’s assets.

Ryan Issakainen, Senior Vice President, ETF Strategist at First Trust, said: “We are thrilled to work with best-in-class small-cap managers, each of which has demonstrated a long-term history of success by employing distinct, complementary investment philosophies.

“By combining different small-cap growth strategies that have the potential to perform well in different market environments, this ETF seeks to produce more consistent alpha over time.”

Driehaus Capital Management seeks out fundamentally strong companies generating sustained earnings growth. The firm evaluates macroeconomic factors, industry dynamics, and companies’ competitive positions, while also incorporating ESG factors into the selection process.

Stephens Investment Management also employs a fundamentally driven security selection process that seeks to identify two types of growth-oriented companies: ‘Earnings Catalyst’ companies exhibit rapid growth due to fundamental business change, while ‘Core Growth’ companies are characterized by stable, long-term, defensible growth. Once these companies are identified, Stephens utilizes its insights into behavioral biases to determine whether a firm may be trading below fair value.

The new ETF complements the First Trust Multi-Manager Large Growth ETF (MMLG US) which employs a multi-manager approach in a bid to outperform the large-cap Russell 1000 Growth Index. MMLG launched in July 2020, houses $160 million in assets, and comes with an expense ratio of 0.85%.

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