FSCS: Low Debt A Standout Feature For This Unique Capital Strength ETF

Summary

• FSCS selects 100 U.S. small/mid-cap stocks that meet specific capital strength and realized volatility screens. The portfolio reconstitutes quarterly, and the ETF has a 0.60% expense ratio.
• A low long-term debt to total market cap ratio is FSCS's standout feature. At only 9%, it's a fraction of what other small/mid-cap ETFs like SDVY, SMOT, and JSMD offer.
• Combined with a relatively low 0.92 five-year portfolio beta, FSCS stands a good chance of outperforming in market drawdowns. However, growth potential is stable but limited.
• My valuation calculations also indicate investors are paying a hefty price for this safety. Higher-growth options, particularly FSGS and JSMD, might be better choices, depending on your risk tolerance.
• FSCS is a solid fund, but I'm only comfortable assigning it a "hold" rating at this point.

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Investment Thesis

The First Trust SMID Capital Strength ETF (NASDAQ:FSCS) holds 100 small/mid-cap securities selected for their quality (capital strength) and risk (realized volatility) characteristics. Launched on June 20, 2017, FSCS has delivered decent returns, but my article below will reveal it

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.