New York, NY – Investing in micro-cap ETFs can be a rewarding but challenging endeavor for many investors. While the iShares Micro-Cap ETF (IWC) is a popular choice in this category, the First Trust Dow Jones Select MicroCap Index Fund (FDM) offers a compelling alternative with its unique advantages. FDM stands out for its better valuation, lower risk profile, and superior profitability, all factors that can potentially lead to higher long-term returns for investors. Despite some risks associated with timing risk-on environments that typically favor smaller stocks, FDM presents a robust option worth considering.

FDM tracks the Dow Jones Select Microcap Index, which was launched in 2005 and follows a meticulous selection process based on financial indicators and market cap criteria. With a concentrated portfolio of only 157 holdings compared to IWC’s 1,457, FDM focuses on quality and value screens to enhance its financial health, ultimately aiming to mitigate substantial underperformance during market downturns.

Historically, FDM has outperformed IWC, delivering a total return of 281.06% since 2005, with an annualized return of 7.33%, compared to IWC’s 186.64% (5.72% annualized). The fund’s superior risk-adjusted returns, as evidenced by its Sharpe and Sortino Ratios, indicate a level of downside protection that can be valuable during turbulent market conditions.

Sector allocations play a significant role in FDM’s investment strategy, with an emphasis on financials and industrials while actively managing exposure to healthcare and biotech stocks. The fund’s fundamentals by sub-industry reveal a well-diversified portfolio that offers a balance between concentration and risk management.

Looking ahead, potential catalysts such as a re-election of Donald Trump or a value re-rating within the micro-cap space could offer short-term opportunities for investors. For those interested in micro-cap investments, FDM emerges as a favorable choice over IWC due to its superior track record, more attractive valuation metrics, and emphasis on quality and profitability screens.

In conclusion, navigating the volatile micro-cap market can be daunting, but with the right investment approach, opportunities for growth and success await. By choosing FDM over its counterparts, investors can potentially access a more resilient and rewarding investment option in the micro-cap ETF landscape.