A Concentrated Approach to International Quality Investing

Explore the actively managed First Trust International Capital Strength ETF, a concentrated portfolio of 40 financially robust companies in developed ex-North America markets, focusing on industrial and healthcare sectors.

For investors seeking exposure to financially robust companies in developed markets outside North America, the First Trust International Capital Strength ETF offers a distinct, actively managed strategy. This fund employs a disciplined quantitative methodology to construct a focused portfolio of just 40 holdings, prioritizing capital strength and long-term growth potential.

A Quantitative Screen for Financial Resilience

The ETF’s investment process is built on a multi-factor quantitative model designed to identify issuers with exceptional financial stability. Key screening criteria include a company's available cash reserves, its return on equity, and the ratio of its long-term debt to market value. The underlying objective is to select firms whose future cash flow generation has the potential to surpass current market expectations. While the fund hedges its currency exposure between the US and Canadian dollar, it maintains unhedged positions in other foreign currencies.

The strategy's resilience was demonstrated through positive share price and Net Asset Value (NAV) performance over the past year. The fact that the ETF recently traded at a slight premium to its NAV suggests sustained investor interest in this quality-focused approach.

Portfolio Composition and Sector Emphasis

As of last Thursday's close, the fund reported net assets of approximately 17.4 million CAD. Its concentrated nature is evident in its top holdings, with the ten largest positions collectively accounting for 28.13% of the portfolio. Leading these positions is the shipbuilding firm Yangzijiang Shipbuilding, with a 3.11% weighting. It is followed by pharmaceutical companies Chugai and Ryohin Keikaku, each representing 2.86%. Other significant holdings include Deutsche Börse (2.82%) and GSK (2.75%).

A clear sector preference defines the portfolio's structure. Industrial stocks form its backbone, representing a substantial 25.01% allocation. The healthcare sector follows with a 17.81% weighting, and information technology accounts for 14.59%. Financials also play a notable role at 12.05%. In contrast, smaller exposures are found in the energy (2.47%) and communication services (2.14%) sectors.

Given that the industrial and healthcare segments together comprise nearly 43% of the fund's weight, their respective economic outlooks will be crucial to the strategy's continued performance. This targeted allocation, favoring capital-strong companies in specific sectors, underscores the fund's objective of achieving capital appreciation through a selective, rather than broadly diversified, international equity approach.