On Monday, First Manhattan started off the week with the launch of the FM Compounders Equity ETF (FMCE).
FMCE is an actively managed fund with a net expense ratio of 0.70%. The fund aims to offer capital appreciation with a long-term lens for its investors.
“FMCE offers a compelling opportunity to invest in companies that have demonstrated an ability to generate durable and recurring free cash flow, as well as the capacity to deploy their free cash flow to create shareholder value over time,” said Zachary Wydra, First Manhattan CEO.
Building a Long-Term Portfolio
The fund constructs its portfolio with a focus on reliable companies with a historical precedent for delivering good cash flow. Additionally, the fund may invest in some companies that are currently deeply undervalued by the broader market. Traditionally, FMCE expects its portfolio to consist of 25–35 U.S. stocks.
When it comes to selecting companies to invest in, FMCE utilizes a research approach that focuses on strong fundamentals. This fundamental research strategy focuses on a few key factors.
Sought-after companies for the fund are expected to have valuable anticipated returns over a period of three years or more. Additionally, FMCE seeks quality companies in quality industries, with good competitive advantages.
High-caliber management is also a highly sought-after factor in FMCE’s portfolio. This includes an evaluation of incentives and executive compensation. Lastly, the fund will also examine companies to better evaluate their revenue and overall margins.
An active portfolio team can greatly benefit a long-term fund such as FMCE. By not focusing on a particular index, the fund can stick to stocks with great fundamentals, helping FMCE mitigate some of the overconcentration risk found in index-based funds.
With FMCE now readily available, First Manhattan currently has two ETFs listed within the United States. The first fund released by First Manhattan was the FM Focus Equity ETF (FMCX ), which has over $100 million in assets under management.
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