FIRST TR EXCHANGE TRADED FD II Stock Price, News & Analysis

The First Trust Indxx Critical Metals ETF (NYSE Arca: FMTL) is an exchange-traded fund that seeks investment results which correspond generally to the price and yield, before fees and expenses, of the Indxx Global Critical Metals Index. According to First Trust, the fund is designed to provide exposure to companies that are involved with metals viewed as critical to the supply chains of technology and clean energy applications.

The fund is advised by First Trust Advisors L.P., a federally registered investment advisor. First Trust describes itself as a privately held firm that, together with its affiliate First Trust Portfolios L.P., offers investment products such as unit investment trusts, exchange-traded funds, closed-end funds, mutual funds and separate managed accounts. First Trust and its affiliate are based in Wheaton, Illinois, and First Trust Portfolios L.P. is a FINRA-registered broker-dealer and distributor of mutual fund shares and ETF creation units.

Investment objective and index approach

FMTL’s stated objective is to track, before fees and expenses, the performance of the Indxx Global Critical Metals Index. The index uses a rules-based methodology that begins with a universe of securities listed in the United States and in developed and emerging markets that are members of the Minerals Security Partnership, excluding Vietnam. Securities in this universe must meet specific geographic, size, liquidity, price and seasoning requirements in order to be eligible for inclusion.

Eligible securities are classified into three sub-themes based on their applications, as defined by the index provider:

• Sustainable Energy Metals: Metals that support the production of solar and wind power plants.
• NextGen Mobility Metals: Metals that enable the production of batteries for electric vehicles.
• Other High Technology Metals: Metals used in advanced technology industries not covered by the other two sub-themes, with applications in products such as smart phones, digital cameras, computer hard disks, fluorescent and light-emitting diode (LED) lights, flat screen televisions, computer monitors and electronic displays.

From this classified universe, the index selects the top 50 securities and weights them by free-float market capitalization. The index is reconstituted and rebalanced on a semi-annual schedule. As an index-tracking ETF, FMTL invests in securities that are included in, or representative of, the index and holds those securities regardless of investment merit, and it generally does not take defensive positions in declining markets.

Focus on critical metals and related risks

The fund’s strategy centers on companies associated with critical metals, which are described as materials identified as having a high risk of supply chain disruption. First Trust notes that companies engaged in the mining of critical metals face risks related to commodity price volatility, supply-demand dynamics, speculation, macroeconomic trends, changes in technology such as battery chemistries, and actions by governments or large producers. These factors can significantly affect the profitability and valuations of such companies, which in turn can influence the performance of an ETF that holds their securities.

Because of its focus, FMTL may have significant exposure to materials and processing companies. First Trust highlights that materials companies can be affected by the general state of the economy, consolidation, domestic and international politics, excess capacity, volatility of commodity prices, import controls, worldwide competition, environmental liability, depletion of resources and mandated expenditures for safety and pollution control devices.

Geographic and market exposure

The index underlying FMTL includes securities listed in the United States as well as in certain developed and emerging markets that are members of the Minerals Security Partnership. As a result, the fund may hold securities of non-U.S. issuers and may be exposed to emerging market securities. First Trust notes that investments in emerging market securities are generally considered speculative and involve additional risks relating to political, economic and regulatory conditions.

Securities of non-U.S. issuers are described as subject to risks such as currency fluctuations, political risks, withholding, lack of liquidity, lack of adequate financial information and exchange control restrictions. In addition, when securities trade on non-U.S. exchanges that are closed while the fund’s primary listing exchange is open, there can be deviations between the current price of an underlying security and the last quoted foreign price, which may result in premiums or discounts to the fund’s net asset value.

Fund structure and trading characteristics

FMTL is structured as an ETF. First Trust explains that, unlike mutual funds, shares of the fund may only be redeemed directly from the fund by authorized participants in large creation and redemption units. If authorized participants are unable to proceed with creation or redemption orders and no other authorized participant is available, shares of the fund may trade at a premium or discount to net asset value and could face delisting, and the bid/ask spread may widen.

The market price of the fund’s shares will generally fluctuate with changes in the fund’s net asset value and with the relative supply of and demand for shares on the exchange. First Trust notes that there is no assurance that shares will trade at, above or below net asset value in any particular pattern, and that trading on an exchange may be halted due to market conditions or other reasons. The fund is also subject to market trading risks, including the potential lack of an active market for its shares if there are a limited number of market makers.

Risk considerations and investor suitability

First Trust emphasizes that investors in FMTL could lose money and that an investment in the fund is not a bank deposit and is not insured or guaranteed. Equity securities held by the fund may decline significantly in price over short or extended periods, whether due to broad equity market movements or developments affecting particular countries, companies, industries or sectors.

The risk disclosures also reference market risk and current market conditions risk, noting that factors such as changes in governmental fiscal and regulatory policies, disruptions in banking and real estate markets, international conflicts, hostilities, public health crises, recessions, natural disasters and similar events can materially affect the value of the fund’s investments. The fund may also be affected by large inflows and outflows, which can influence its market exposure for limited periods.

Additional risks cited include exposure to large capitalization, mid capitalization and small capitalization companies, each of which may experience different patterns of price volatility and liquidity. The fund may be classified as non-diversified, meaning it can invest a relatively high percentage of its assets in a limited number of issuers, which can increase its susceptibility to adverse economic or regulatory events affecting those issuers.

Operational and index-related considerations

First Trust notes that the fund and its advisor seek to reduce operational risks through controls and procedures, but it is not possible to eliminate such risks entirely. The fund is susceptible to operational risks through breaches in cyber security, which could lead to regulatory penalties, reputational damage, additional compliance costs and financial loss. The fund also relies on third parties for services such as custody, and delays or failures in those services may affect the fund’s ability to meet its objective.

As an index-tracking ETF, FMTL’s returns may not exactly match the return of the Indxx Global Critical Metals Index. Reasons cited include operating expenses, costs of buying and selling securities to reflect changes in the index, and the possibility that the fund’s portfolio holdings may not precisely replicate the index. There is also no assurance that the index provider or its agents will compile or maintain the index accurately, and losses or costs associated with index provider errors are generally borne by the fund and its shareholders.

Role within the First Trust ETF lineup

First Trust has described FMTL as its 300th ETF launch, reflecting the firm’s broader activity in the exchange-traded fund market. Within that lineup, FMTL is positioned as a thematic fund that focuses on companies connected to critical metals, with applications in sustainable energy, next-generation mobility and other high technology uses. The fund’s design aligns with commentary from First Trust and Indxx that highlights global interest in metals that enable clean energy, advanced manufacturing and emerging technologies.

Prospective investors are directed by First Trust to consider the fund’s investment objectives, risks, charges and expenses carefully and to review the prospectus or summary prospectus for detailed information. The information provided by First Trust is presented as general information and is not described as an individualized investment recommendation or advice for any specific person.