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

If you’re focused on growth investing and looking for a strategy that captures the momentum of top-performing stocks, the Innovator IBD 50 ETF, commonly known as FFTY, might be a compelling choice. This ETF offers the potential for significant capital appreciation by focusing on a dynamically changing portfolio of leading growth stocks. In this post, we'll explore what FFTY is, its pros and cons, and effective strategies for incorporating it into your investment portfolio.

What is FFTY?

FFTY stands for the Innovator IBD 50 ETF. Managed by Innovator Capital Management, this ETF aims to track the IBD 50 Index, which is compiled and published by Investor's Business Daily (IBD). This index is composed of 50 high-growth stocks that are selected based on IBD’s proprietary stock-picking methodology.

Key Features of FFTY

• Focus on High Growth: The IBD 50 Index consists of companies showcasing strong earnings growth, significant return on equity, and positive stock price performance.
• Dynamic Stock Selection: Stocks are reviewed and rebalanced weekly, ensuring that the index always includes the top 50 growth stocks.
• Stringent Screening Criteria: Selection involves multiple factors including earnings momentum, sales growth, and industry leadership.

FFTY Composition

FFTY includes a diverse range of high-growth companies, primarily from sectors that tend to exhibit rapid expansion, such as technology, healthcare, and consumer services. The composition of FFTY can vary significantly due to its weekly rebalancing, but it typically includes companies that are sector leaders and have exhibited strong recent performance.

Pros of FFTY

Potential for High Returns

FFTY’s focus on high-growth stocks means that it has the potential to deliver significant capital appreciation. If you're looking for an ETF that can outperform the broader market, FFTY offers this possibility by continuously investing in companies that are showing the strongest performance metrics.

Dynamic Management

By rebalancing its holdings weekly, FFTY ensures that it always invests in the top-performing stocks. This dynamic approach can help capture growth opportunities and adapt to market changes more quickly than ETFs that rebalance less frequently.

Diversification of Growth Stocks

Although focused on growth, FFTY provides diversification within this category by holding stocks from various sectors and industries. This can help mitigate the risk associated with investing in individual growth stocks while providing exposure to a wide array of high-growth opportunities.

Cons of FFTY

High Volatility

Due to its focus on high-growth stocks, FFTY tends to be more volatile than broader market ETFs. While this can result in substantial gains during bullish market conditions, it also means that FFTY may experience steeper declines during market downturns.

Higher Expense Ratio

FFTY’s active management and frequent rebalancing come with relatively higher costs. The expense ratio of FFTY is 0.80%, which is higher than many other ETFs. This can erode returns over the long term, particularly during periods of low market performance.

Not Ideal for Income Investors

FFTY focuses on capital appreciation rather than income, making it unsuitable for investors seeking regular dividend payments. Many of the companies in FFTY reinvest their earnings to fuel growth, resulting in lower dividend yields.

FFTY Investment Strategies

FFTY can be a valuable component of a well-rounded investment strategy, particularly for those focused on growth investing and willing to accept higher volatility for the potential of higher returns.

Long-term Growth Strategy

Investors with a long-term horizon who can withstand market fluctuations may find FFTY to be a suitable choice. The ETF’s focus on top-performing growth stocks aims to capture substantial capital appreciation over the long run. Consider investing in FFTY as part of a diversified portfolio and holding through market cycles to benefit from compound growth over time.

Tactical Allocation

Due to its dynamic nature and potential for high returns, FFTY can also be employed as a tactical allocation within a broader investment portfolio. By periodically increasing exposure to FFTY during bullish market conditions and reducing it during downturns, investors can capitalize on market trends while managing risk.

Pairing with Defensive Assets

Given FFTY's volatility, pairing it with more defensive assets such as bonds or dividend-paying ETFs can help balance the overall portfolio risk. This approach ensures that while you participate in high-growth opportunities, you also have the stability provided by more conservative investments.

Conclusion

FFTY offers a compelling investment option for those interested in high-growth stocks and willing to embrace the associated volatility. Its dynamic selection process and focus on market leaders aim to provide significant capital appreciation, making it an attractive choice for growth-oriented investors. However, the higher expense ratio and increased volatility necessitate careful consideration of its role within a diversified portfolio. Employing a mix of long-term commitment and strategic allocation can maximize the potential benefits of investing in FFTY.