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Is First Trust RBA American Industrial Renaissance ETF (AIRR) a Hot ETF Right Now?

Zacks Equity Research
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Launched on 03/10/2014, the First Trust RBA American Industrial Renaissance ETF (AIRR) is a smart beta exchange traded fund offering broad exposure to the Industrials ETFs category of the U.S. equity market.

What Are Smart Beta ETFs?

For a long time now, the ETF industry has been flooded with products based on market capitalization weighted indexes, which are designed to represent the broader market or a particular market segment.

Market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns, and are a good option for investors who believe in market efficiency.

But, there are some investors who would rather invest in smart beta funds; these funds track non-cap weighted strategies, and are a strong option for those who prefer choosing great stocks in order to beat the market.

These indexes attempt to select stocks that have better chances of risk-return performance, based on certain fundamental characteristics or a combination of such characteristics.

This area offers many different investment choices, such as simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies; however, not all of these strategies can deliver superior results.

Fund Sponsor & Index

The fund is sponsored by First Trust Advisors. It has amassed assets over $200.94 M, making it one of the average sized ETFs in the Industrials ETFs. AIRR, before fees and expenses, seeks to match the performance of the Richard Bernstein Advisors American Industrial Renaissance Index.

The Richard Bernstein Advisors American Industrial Renaissance Index is measures the performance of small and mid cap US companies in the industrial and community banking sectors.

Cost & Other Expenses

Investors should also pay attention to an ETF's expense ratio. Lower cost products will produce better results than those with a higher cost, assuming all other metrics remain the same.

With on par with most peer products in the space, this ETF has annual operating expenses of 0.70%.

It's 12-month trailing dividend yield comes in at 0.32%.

Sector Exposure and Top Holdings

Even though ETFs offer diversified exposure that minimizes single stock risk, investors should also look at the actual holdings inside the fund. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.

For AIRR, it has heaviest allocation in the Industrials sector --about 89.70% of the portfolio --while Financials and Energy round out the top three.

Taking into account individual holdings, Proto Labs, Inc. (PRLB) accounts for about 4.24% of the fund's total assets, followed by The Greenbrier Companies, Inc. (GBX) and Rbc Bearings Incorporated (ROLL).

The top 10 holdings account for about 36.28% of total assets under management.

Performance and Risk

So far this year, the ETF has lost about -3.52%, and is up about 12.34% in the last one year (as of 04/19/2018). AIRR has traded between $22.48 and $28.17 in the past 52-week period.

The fund has a beta of 1.33 and standard deviation of 19.56% for the trailing three-year period, which makes AIRR a high choice in this particular space. With about 53 holdings, it effectively diversifies company-specific risk.

Alternatives

First Trust RBA American Industrial Renaissance ETF is a reasonable option for investors seeking to outperform the Industrials ETFs segment of the market. However, there are other ETFs in the space which investors could consider.

Vanguard Industrials ETF (VIS) tracks MSCI US Investable Market Industrials 25/50 Index and the Industrial Select Sector SPDR Fund (XLI) tracks Industrial Select Sector Index. Vanguard Industrials ETF has $3.84 B in assets, Industrial Select Sector SPDR Fund has $12.99 B. VIS has an expense ratio of 0.10% and XLI charges 0.13%.

Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Industrials ETFs.

Bottom Line

To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.


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