MMSC: High Fees And Average Return

The First Trust Multi-Manager Small Cap Opportunities ETF (MMSC), an actively managed small-cap growth fund with a 0.95% expense ratio and 198 holdings, is deemed uncompelling despite its strong fundamental growth metrics. This assessment is driven by its high fees, thin trading, and lackluster returns, positioning MMSC unfavorably compared to alternative small-cap growth ETFs.

Analysis

The First Trust Multi-Manager Small Cap Opportunities ETF (MMSC) is an actively managed fund in the small-cap growth category that, despite holding a portfolio with excellent fundamental growth metrics, is viewed as an uncompelling investment vehicle. The primary deterrents identified are structural rather than related to its underlying 198 stock holdings. Specifically, the ETF carries a high expense ratio of 0.95%, which acts as a significant drag on potential returns. Furthermore, the analysis points to lackluster historical performance since its inception on October 13, 2021, and highlights a material risk associated with its thin trading volume, which can impact liquidity and trade execution. This combination of high fees, subpar returns, and poor liquidity positions MMSC unfavorably when compared to other available small-cap growth ETFs.

Key Decisions for Investors

• Given the high 0.95% expense ratio and lackluster historical returns, prospective investors should carefully evaluate alternative small-cap growth ETFs that may offer a more cost-effective and performant exposure to the asset class.
• Current holders of MMSC should weigh the strong fundamental metrics of the underlying portfolio against the significant fee drag and liquidity risks associated with the fund's structure.
• Investors should treat the fund's thin trading volume as a key risk factor, as it may lead to wider bid-ask spreads and difficulties executing large orders without adverse price impact.