This is an actively managed hedged strategy ETF that targets US-listed stocks, taking long positions in companies with high earnings quality and short positions (derivative contracts) in companies with low earnings quality. It does not simply track an index, but relies on the fund manager's stock selection skill.

It suits investors who want to participate in the stock market while cushioning some of the downside risk, as well as investors seeking lower volatility than a traditional long-only ETF.

It is an actively managed ETF launched by First Trust in 2014.

The portfolio management team assesses the earnings quality of US-listed stocks, holding high-quality companies as long positions and companies with weak earnings quality as short positions (short-selling derivative contracts). This structure seeks alpha while reducing exposure (beta) to the overall direction of the market.

• Systematic stock selection based on earnings quality
• Combining long and short positions to partially cushion market direction risk

Assets under management (AUM) stand at $2.6B, and the expense ratio is 1.38% per year.

Given the nature of a long/short strategy, the cash allocation tends to be high, and the cost of maintaining short positions (derivative contracts) pushes the expense ratio above that of a purely passive ETF. Liquidity is relatively good compared with similar long/short ETFs, but lower than that of large index-based ETFs.

Because of the long/short hedging strategy, upside in bull markets can be limited compared with pure equity ETFs, while the fund tends to show relative resilience in bear markets or during periods of rising volatility. The longer a market rally persists, the narrower the conditions for generating alpha become.

When market volatility rises or concerns about downside risk grow, money tends to flow toward defensive strategies. Conversely, if a long-term bull market continues, the fund may become less attractive than plain index-tracking ETFs, so fund flows vary with the market environment.

Its strengths are downside cushioning and a hedged structure, while its weaknesses are a high expense ratio and limited returns in bull markets.

Comparable products in the same category shown in the table include ORR and HFEQ. Both pursue long/short or hedged equity strategies, but they differ in management style and the details of their strategy structure. In addition, investors who want a purely market-neutral strategy could consider BTAL (long low beta, short high beta), those who want lower-volatility large-cap exposure could look at USMV or SPLV, and those who prefer a defensive asset allocation blended with bonds could review AOA or AOM.

Here are the points to review before investing in FTLS. As a hedged strategy ETF, it is important to check the cost structure, strategy fit and compatibility with the market environment in advance.

A long/short strategy may earn less than pure equity ETFs in bull markets, and there is also a risk that short positions (derivative contracts) behave differently than expected. Because the expense ratio is high, it is important to fully consider the cumulative cost impact of holding the fund over the long term.

This ETF can be one option for investors who want to hedge part of the market downside risk while maintaining equity exposure. However, first consider whether you can accept the high fees and limited participation in bull markets, and using it as a satellite holding within a portfolio is the typical approach.