FLRG - AFLG: Strong Multi-Factor ETF With A Premium Price

2025-04-24 16:07:16 ET

Summary

• AFLG is an actively managed large-cap fund aiming to outperform the S&P 500 Index using a proprietary multi-factor model. Its expense ratio is 0.55% and AFLG has $237 million in assets.
• AFLG underperformed shortly after its launch, but returns in recent years have been pretty solid. My fundamental analysis reveals that AFLG now trades at a 20% discount to SPY.
• One strength is that AFLG still has many of the features that make SPY such a great long-term investment, including strong historical and forecasted growth rates and high-profit margins.
• However, the challenge is that other factor funds offer the same but have lower expense ratios and, in some cases, better long-term track records. I'll highlight three of them below.
• Overall, I like AFLG's approach but not the fees, which are common for First Trust ETFs. Therefore, I've limited my rating to a solid "hold" with an analysis comparing it with SPY, JQUA, ROUS, and FLRG below.

Investment Thesis

The First Trust Active Factor Large Cap ETF ( AFLG ) seeks to outperform S&P 500 Index ETFs using a proprietary quantitative model that tilts stocks according to their value, momentum, quality, and low volatility features, whichever is most appropriate for the current environment. Having launched just prior to the COVID-19 pandemic, AFLG got off to a poor start, with the model incorrectly predicting which stocks would perform best during this once-in-a-lifetime event. However, it has succeeded in recent years, and my analysis reveals a fundamentally strong portfolio today....

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