First Trust High Income Long/Short Fund (FSD) Stock Analysis

First Trust High Income Long/Short Fund (FSD) Financial Services Profile

First Trust High Income Long/Short Fund (FSD) is a closed-end fund specializing in high-yield, below-investment-grade fixed-income securities globally. Managed by First Trust Advisors and co-managed by MacKay Shields LLC, FSD employs a long/short strategy, benchmarking its performance against the Bank of America Merill Lynch U.S. High Yield Master II Constrained Index.

What Is the Investment Thesis for FSD?

First Trust High Income Long/Short Fund presents an investment opportunity for those seeking exposure to high-yield fixed-income securities with active management. The fund's strategy of employing both long and short positions aims to generate income while mitigating downside risk in fluctuating market conditions. With a dividend yield of 10.31%, FSD offers an attractive income stream. The fund's focus on below-investment-grade securities provides higher yield potential compared to investment-grade bonds. The fund's relatively low beta of 0.75 suggests lower volatility compared to the broader market. Key considerations include the fund's ability to effectively manage credit risk within its high-yield portfolio and the potential impact of interest rate changes on its fixed-income holdings.

Based on FMP financials and quantitative analysis

FSD Key Highlights

Market Cap of $407M indicates the fund's size and relative significance within the closed-end fund market.

• P/E ratio of 21.3 reflects the fund's valuation relative to its earnings.
• Profit Margin of 96.7% demonstrates efficient management and strong profitability from its investment strategies.
• Gross Margin of 68.3% indicates the fund's ability to generate revenue after accounting for the direct costs of its investments.
• Dividend Yield of 10.31% provides an attractive income stream for investors seeking high-yield opportunities.

Who Are FSD's Competitors?

FSD is benchmarked below against 8 industry peers on price, market cap, and our AI MoonshotScore.

AI Score by Stock Expert AI · Price data: FMP / Yahoo Finance

What Are FSD's Key Strengths?

High dividend yield of 10.31% provides attractive income.

• Experienced management team with First Trust Advisors and MacKay Shields LLC.
• Long/short strategy offers potential downside protection.
• Established track record since 2010.

What Are FSD's Weaknesses?

Exposure to below-investment-grade securities increases credit risk.

• Closed-end fund structure can lead to trading at a discount to NAV.
• Sensitivity to interest rate changes.
• Reliance on active management for performance.

What Could Drive FSD Stock Higher?

Active management of the portfolio to capitalize on market inefficiencies.

• High dividend yield attracts income-seeking investors.
• Long/short strategy provides flexibility in varying market conditions.

What Are the Key Risks for FSD?

Financial-distress signal — its Altman Z-Score of 1.13 sits in the distress zone (elevated bankruptcy risk).

• Credit risk associated with below-investment-grade securities.
• Interest rate risk impacting fixed-income valuations.
• Market volatility affecting fund performance.
• Dependence on the expertise of the management team.

What Are the Growth Opportunities for FSD?

• Expansion into New Geographies: The fund could explore opportunities to invest in high-yield debt in emerging markets. This could potentially increase returns, although it would also introduce additional risks related to currency fluctuations and political instability. Successfully navigating these markets could significantly boost FSD's portfolio performance and attract investors seeking higher yields. The timeline for this expansion would depend on thorough market research and risk assessment, potentially unfolding over the next 2-3 years.
• Increased Focus on ESG Investing: Integrating environmental, social, and governance (ESG) factors into its investment process could attract a growing segment of investors focused on sustainable investing. By incorporating ESG criteria, FSD can potentially identify companies with better long-term prospects and lower risk profiles. This would involve developing a robust ESG framework and integrating it into the fund's fundamental analysis. The timeline for full integration could span 1-2 years, requiring dedicated resources and expertise.
• Leveraging Technology for Enhanced Analysis: Implementing advanced data analytics and AI-driven tools can improve the fund's ability to identify and assess investment opportunities. This could lead to more informed investment decisions and better risk management. By leveraging technology, FSD can potentially gain a competitive edge in the market. The implementation of these technologies could be phased in over the next year, starting with pilot programs and gradually expanding to full-scale deployment.
• Strategic Partnerships with Institutional Investors: Collaborating with institutional investors, such as pension funds and endowments, can provide access to larger pools of capital and enhance the fund's credibility. These partnerships could also lead to co-investment opportunities and knowledge sharing. Building these relationships would require a dedicated outreach effort and a tailored approach to meet the specific needs of institutional investors. The timeline for establishing strategic partnerships could range from 6 months to a year.
• Development of New Investment Products: Creating new investment products, such as thematic funds focused on specific sectors or industries, can diversify the fund's offerings and attract new investors. This would involve identifying emerging trends and developing investment strategies that align with these trends. The development of new products would require market research, product design, and regulatory approvals. The timeline for launching new products could vary depending on the complexity of the product and the regulatory environment, potentially taking 1-2 years.

What Threats Does FSD Face?

• Economic downturn could increase default rates on high-yield debt.
• Rising interest rates could decrease the value of fixed-income holdings.
• Increased competition from other high-yield funds.
• Regulatory changes impacting fixed-income investments.

What Are FSD's Competitive Advantages?

• Established track record in managing high-yield fixed-income portfolios.
• Experienced management team with expertise in fundamental analysis and long/short strategies.
• Access to the research and resources of First Trust Advisors, L.P. and MacKay Shields LLC.

What Does FSD Do?

First Trust High Income Long/Short Fund (FSD) was established on June 18, 2010, and is domiciled in the United States. Managed by First Trust Advisors, L.P., with co-management from MacKay Shields LLC, the fund operates as a closed-end, fixed-income mutual fund. FSD focuses on investing in global fixed-income markets, with a primary emphasis on high-yield corporate fixed-income securities. These securities typically have varying maturities and are rated below investment grade, including corporate bonds, debentures, notes, and commercial papers. The fund employs a fundamental analysis approach combined with a long/short strategy to construct its portfolio. This involves evaluating factors such as the type, size, and cost of a security, the financial statements of the issuer, the credit quality and cash flow of the issuer, and an assessment of market forces. FSD benchmarks its performance against the Bank of America Merill Lynch U.S. High Yield Master II Constrained Index, providing a benchmark for investors to gauge its relative performance in the high-yield market. The fund's investment strategy aims to deliver high income while managing risk through its long/short approach and rigorous fundamental analysis.

What Products and Services Does FSD Offer?

• Invests in global fixed-income markets.
• Focuses on high-yield corporate fixed-income securities.
• Targets securities rated below investment grade.
• Utilizes a long/short investment strategy.
• Employs fundamental analysis to evaluate investments.
• Benchmarks performance against the Bank of America Merill Lynch U.S. High Yield Master II Constrained Index.
• Manages a portfolio of corporate bonds, debentures, notes, and commercial papers.

How Does FSD Make Money?

• Generates income through interest payments from fixed-income securities.
• Aims to profit from both long and short positions in the market.
• Charges management fees based on assets under management (AUM).

What Industry Does FSD Operate In?

First Trust High Income Long/Short Fund operates within the asset management industry, specifically focusing on fixed-income investments. The industry is characterized by a diverse range of investment strategies and products, catering to various risk appetites and investment objectives. The fund competes with other closed-end funds and ETFs that focus on high-yield debt. The competitive landscape includes firms like BIATX (BlackRock Income Allocation Trust), EGOHX (Eaton Vance Global Opportunities High Income Fund), FEI (First Trust Energy Income and Growth Fund), FEN (First Trust Energy Infrastructure Fund), and GTCGX (Gabelli Global Small and Mid Cap Value Trust). The fund's long/short strategy differentiates it from passively managed high-yield funds, offering potential downside protection in volatile markets.

Who Are FSD's Key Customers?

• Individual investors seeking high-yield income.
• Institutional investors looking for fixed-income exposure.
• Retirement savers seeking income-generating assets.

First Trust High Income Long/Short Fund's Piotroski F-Score is 5/9, a 9-point checklist of profitability, leverage and efficiency — a middling fundamental profile. Its Altman Z-Score of 1.13 places it in the distress zone, a signal of elevated financial risk.

FSD Financials

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First Trust High Income Long/Short Fund Financial Services Stock: Key Questions Answered

Disclaimer: This content is for informational purposes only and does not constitute investment advice. Always do your own research and consult a financial advisor.

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