What is AZTD? (Pros, Cons, and Strategies)

Investors are constantly on the lookout for diversified opportunities to grow their wealth, and exchange-traded funds (ETFs) present a versatile option. One such ETF that has garnered attention is the Aztlan Global Stock Selection DM SMID ETF, commonly known by its ticker symbol, AZTD. In this blog post, we’ll delve into what AZTD is, its advantages and disadvantages, and effective strategies for investing in it.

What is AZTD?

AZTD stands for Aztlan Global Stock Selection DM SMID ETF, an ETF that focuses on small and mid-cap international developed market stocks. The aim of AZTD is to capture growth potential beyond the U.S. by targeting lesser-known companies with robust fundamentals in developed international markets.

AZTD leverages a quantitative model to select stocks based on various factors such as earnings growth, valuation, and quality metrics. The focus on small and mid-cap firms provides diversified exposure to stocks that may not be on the radar of many large-cap focused funds.

Key Features of AZTD

• Focus on Developed Markets: Concentrates on developed international markets beyond the U.S.
• Small and Mid-Cap Coverage: Targets dynamic small and mid-cap stocks.
• Quantitative Selection Model: Utilizes a model that evaluates companies based on earnings growth, profitability, and valuation metrics.

This selection process helps identify companies with strong fundamentals and growth potential that are often overlooked in traditional investment portfolios.

AZTD Composition

AZTD includes a diverse range of small and mid-cap companies from developed markets outside the U.S. These companies span various industries such as technology, healthcare, industrials, and consumer discretionary. By focusing on financially stable enterprises with significant growth potential, AZTD aims to offer a balanced mix of stability and expansion.

Pros of AZTD

Growth Potential

AZTD’s focus on small and mid-cap stocks in developed markets provides an opportunity for significant growth. These companies often experience faster revenue and earnings growth compared to large-cap counterparts, offering substantial upside potential.

Diversification

By investing in AZTD, you gain exposure to diverse industries and international markets, reducing the overall risk associated with U.S.-centric portfolios. The ETF includes stocks from multiple sectors, enhancing diversification and helping to buffer against market volatility.

Quantitative Approach

The quantitative selection model ensures that only companies with strong fundamentals and growth prospects are included. This systematic approach minimizes the emotional biases associated with stock picking and emphasizes data-driven decisions.

Moderate Expense Ratio

With an annual expense ratio competitive within its category, AZTD offers cost-effective exposure to international small and mid-cap stocks. Keeping expenses low is crucial for maximizing long-term returns.

Cons of AZTD

Higher Volatility

Small and mid-cap stocks generally exhibit higher volatility compared to large-cap stocks. As a result, AZTD may experience more significant price fluctuations, making it less suitable for risk-averse investors.

Limited Yield

Given its growth-centric focus, AZTD typically offers lower dividend yields compared to dividend-focused ETFs. Investors seeking regular income might find the yield less attractive.

Emerging Investment

AZTD is relatively new in the ETF space, with a shorter track record compared to more established funds. Investors might prefer funds with longer performance histories for added reassurance.

AZTD Investment Strategies

Understanding the pros and cons of AZTD is essential to developing a well-rounded investment strategy. Here are some strategies to consider:

Long-term Growth Investment

AZTD is best suited for investors with a long-term investment horizon. By holding the ETF for an extended period, investors can benefit from the growth potential of small and mid-cap stocks. Given the higher volatility, a holding period of 5 to 10 years or more allows for the smoothing out of short-term market fluctuations and capitalizes on long-term growth trends.

Diversification Play

If your portfolio is heavily weighted toward U.S. large-cap stocks, AZTD offers an effective way to diversify. By adding international small and mid-cap exposure, you can balance your portfolio and reduce country-specific risks.

Dollar-Cost Averaging

To manage volatility and invest consistently, consider a dollar-cost averaging strategy. Regularly investing a fixed amount in AZTD, regardless of market conditions, can help average out the purchase price over time and mitigate the impact of short-term market movements.

Combining with High-Yield ETFs

If income is also a goal, consider combining AZTD with high-yield dividend ETFs. This approach can provide a balanced portfolio that captures growth opportunities while ensuring a steady income stream. For example, pairing AZTD with a high-yield ETF like JEPI can offer both growth and income, catering to a broader range of investment objectives.

Conclusion

AZTD is an intriguing ETF for investors seeking growth outside the U.S. through small and mid-cap stocks in developed markets. While it offers significant growth potential and diversification benefits, it also comes with higher volatility and limited yield. By incorporating AZTD into a well-rounded investment strategy, you can capitalize on its strengths and mitigate its weaknesses, creating a dynamic and diversified portfolio poised for long-term success.