FTLS
1. Summary
- FTLS is an actively managed U.S. long/short equity ETF run by First Trust since 2014. It ranks stocks with the Sabrient Earnings Quality Rank model plus First Trust's own research, then optimizes a long book and a short book together.
- By policy it is 80% to 100% long and 0% to 50% short, so gross can't exceed 1.5x. On September 30, 2026 it was 93.93% long and 33.66% short: 1.28x gross and 60.27% net.
- It shorts stocks directly (borrowed from a third party) and pays margin interest. It says it won't use short sale proceeds to lever up the long book. It may use index futures for up to 20% of net assets, but no document says it holds any.
- Most relevant for us: FTLS is not a path to 3.0x. Its value is cost visibility. Margin interest and short dividends sit inside its 1.38% expense ratio, lumped together at about 0.41% to 0.51% a year from fiscal 2021 to 2025. Its sibling NTRL, from the same adviser, gets 3.6x through swaps instead.
2. Key facts
| Item | Detail | Source |
|---|---|---|
| Name and ticker | First Trust Long/Short Equity ETF (FTLS) | FTLS-FS, page 1, header and "Fund Facts" |
| Exchange | NYSE Arca | FTLS-FS, page 1, "Fund Facts"; FTLS-PR, page 1, cover |
| CUSIP | 33739P103 | FTLS-FS, page 1, "Fund Facts" |
| Inception date | September 8, 2014 ("9/8/14") | FTLS-FS, page 1, "Fund Facts"; FTLS-PR, page 10, "Average Annual Total Returns" |
| Trust | First Trust Exchange-Traded Fund III, a Massachusetts business trust organized January 9, 2008. It is First Trust's own trust, not a multi-client platform (my inference): the board oversees the "First Trust Fund Complex" under a "unitary" board structure. The fund is a "diversified series." | FTLS-PR, page 1, cover; FTLS-SAI, page 3, "General Description of the Trust and the Fund"; FTLS-SAI, page 14, board structure |
| Fiscal year end | October 31 | FTLS-PR, page 30, "Financial Highlights"; FTLS-SAI, page 1, cover |
| Net assets and NAV | $2,097,443 thousand and NAV $70.86 per share at October 31, 2025. The fact sheet gives neither. | FTLS-PR, page 30, "Financial Highlights" |
| Morningstar category and rating | US Fund Long-Short Equity. Four stars for 3 years (of 82 funds), 5 years (of 77) and 10 years (of 57). The overall rating shows as a four-star graphic (read from page image). | FTLS-FS, page 1, "Overall Morningstar Rating" |
| Number of long and short positions | 268 long, 247 short, at September 30, 2026 | FTLS-FS, page 2, "Portfolio Information – Long Exposure" and "– Short Exposure" |
| Distribution frequency | Income "declared and paid quarterly"; capital gains "at least annually" | FTLS-PR, page 25, "Dividends, Distributions and Taxes"; FTLS-SAI, page 39, "Dividends and Distributions" |
| Creations and redemptions | In Creation Units. The fund "may, under certain circumstances, effect a portion of creations and redemptions for cash, rather than in-kind securities" (a non-principal risk). So mainly in kind, with some cash (my inference). | FTLS-PR, page 1, cover; FTLS-PR, page 21, "Cash Transactions Risk" |
3. Service providers
| Role | Firm | Source |
|---|---|---|
| Adviser | First Trust Advisors L.P. (Wheaton, Illinois) | FTLS-PR, page 23, "Management of the Fund" |
| Sub-adviser | Not stated (none named) | |
| Portfolio managers | John Gambla, CFA, FRM, PRM and Rob A. Guttschow, CFA, both Senior Portfolio Managers and co-heads of First Trust's Alternatives Investment Team. Each has managed the fund since 2014. | FTLS-PR, page 10, "Management"; FTLS-PR, page 23; FTLS-FS, page 1, "Fund Advisor" |
| Administrator | The Bank of New York Mellon ("BNY") | FTLS-PR, page 29, "Fund Service Providers"; FTLS-SAI, page 22, "Administrator" |
| Fund accountant | The Bank of New York Mellon | FTLS-PR, page 29; FTLS-SAI, page 22 |
| Custodian | The Bank of New York Mellon | FTLS-PR, page 29; FTLS-SAI, page 23, "Custodian" |
| Transfer agent | The Bank of New York Mellon | FTLS-PR, page 29; FTLS-SAI, page 23, "Transfer Agent" |
| Distributor | First Trust Portfolios L.P., an affiliate of the adviser | FTLS-SAI, page 23, "Distributor"; FTLS-PR, page 23 |
| Auditor | Deloitte & Touche LLP (Chicago) | FTLS-SAI, page 40, "Independent Registered Public Accounting Firm"; FTLS-PR, page 30 |
| Prime broker | Not stated. The prospectus says only that shorted stock is "borrowed from a third party." | FTLS-PR, page 4, "Principal Investment Strategies" |
| Swap counterparties | Not stated (no swaps described) | |
| Securities lending agent | Not stated. The SAI refers only to "the First Trust Fund's lending agent." | FTLS-SAI, page 10, "Lending of Portfolio Securities" |
Legal counsel is Chapman and Cutler LLP (FTLS-PR, page 29).
4. Strategy
- Objective and benchmark. "to seek to provide investors with long-term total return" (FTLS-PR, page 3, "Investment Objective"). The objective is fundamental (FTLS-PR, page 12). The comparison index is the S&P 500 Index (FTLS-PR, page 10; FTLS-FS, page 1).
- Universe. At least 80% of net assets (including investment borrowings) exposed to U.S. exchange-listed equity securities and/or U.S. ETFs, long and short. This can include non-U.S. issuers listed in the U.S., such as depositary receipts, plus MLPs and REITs (FTLS-PR, pages 3 and 4, "Principal Investment Strategies"). Any market cap: "companies with various market capitalizations" (FTLS-PR, page 4). At September 30, 2026, median market cap was $28.43 billion long and $11.62 billion short (FTLS-FS, page 2). Largest sector was information technology at 34.90% long and -5.11% short (FTLS-FS, page 2).
- How it picks stocks. Both quantitative and fundamental. The adviser "analyzes fundamental, market-related, technical and statistical attributes" and uses "a variety of quantitative tools." Preliminary rankings rely on the "Sabrient Systems Earnings Quality Rank (EQR) model" and the adviser's research. "Long and short baskets are then integrated and optimized to build a final portfolio" (FTLS-PR, page 4). The fact sheet calls the model "Sabrient/Gradient's Earnings Quality Rank (EQR)" and adds "quantitative and fundamental analysis" for sizing the short book (FTLS-FS, page 1, "Fund Description").
- Neutrality targets. None. The long and short books are optimized "to seek to balance the risk and return between the long and short positions relative to the general equity market" (FTLS-FS, page 1). No beta, dollar or sector neutrality target is stated.
- Net exposure. Not targeted as a number. It follows from 80% to 100% long and 0% to 50% short, so net could range from 30% to 100% (my arithmetic). The fund "will not have a net long exposure of greater than 100%" (FTLS-PR, page 4). The short book "may be reduced significantly or eliminated temporarily" (FTLS-PR, page 4).
- Limits on position size. Diversified fund: with respect to 75% of total assets, no more than 5% in one issuer and no more than 10% of an issuer's voting securities. No 25% or more in one industry (FTLS-SAI, page 6, fundamental policies 7 and 8). The largest long on September 30, 2026 was NVIDIA at 6.56%. The largest short was Skyworks Solutions at -0.24% (FTLS-FS, page 2).
5. Exposure and leverage
- Measured exposure, September 30, 2026 (FTLS-FS, page 2, "Fund Exposure (%)"):
- Long 93.93%, short -33.66%, net 60.27% (stated).
- Gross 127.59%, or about 1.28x (my arithmetic).
- Stated ranges. "80 to 100% invested in long positions and 0% to 50% invested in short positions" (FTLS-PR, page 4; FTLS-FS, page 1). So gross can't exceed 150% (my arithmetic).
- How it gets exposure above 100%. It doesn't, on the long side. "The Fund will not use proceeds from the short positions to add leverage to the long positions, and as such, the Fund will not have a net long exposure of greater than 100% and may hold a large cash position" (FTLS-PR, page 4). Short sale cash "typically will be held in money market instruments" (FTLS-PR, page 4). Index futures are allowed up to 20% of net assets, for long or short exposure (FTLS-PR, page 4). No document says the fund holds futures.
- Sector totals don't match exposure. The long sector weights add to 90.31% against 93.93% long exposure. The short sector weights add to -23.28% against -33.66% short exposure (my arithmetic, FTLS-FS, page 2). About 10 points of short exposure has no sector. It may be ETF or futures shorts (my inference). The documents don't say.
- Borrowing limits. Bank borrowing only "for temporary or emergency purposes (but not for leverage or the purchase of investments)." Bank borrowing and other borrowing-like deals together may not exceed 33⅓% of total assets (FTLS-SAI, page 5, fundamental policy 2). Asset coverage of at least 300% on bank borrowing (FTLS-SAI, page 6; FTLS-PR, page 21, "Borrowing and Leverage Risk"). No line of credit is named.
- Leverage disclosure. The SAI says "Short-selling is considered "leverage"" (FTLS-SAI, page 9, "Short Sales"). For EU purposes, First Trust "is not obliged to set a maximum permitted level of leverage" and posts the leverage used on its website (FTLS-SAI, page 29, "Information Regarding the Use of Leverage and Collateral").
6. Shorting, financing and collateral
- How it shorts. Direct short sales: "Short selling involves selling a security that has been borrowed from a third party with the intention of buying an identical security back at a later date to return to that third party" (FTLS-PR, pages 3 and 4). The fee table charges "margin interest expense and dividend expense on investments sold short" (FTLS-PR, page 3). So it uses a broker margin account (my inference). No split between methods is given. No swaps are described.
- Who lends the stock and who holds collateral. Not stated. The lender is "a third party" (FTLS-PR, page 4) or "the lender of the security" (FTLS-SAI, page 9). No prime broker is named.
- What is posted. Not stated. The documents don't say whether cash, Treasuries or long stocks are pledged.
- Short sale proceeds used to buy longs. No: "The Fund will not use proceeds from the short positions to add leverage to the long positions" (FTLS-PR, page 4).
- Segregated or tri-party account. Not stated. BNY is "generally responsible for the safekeeping of the Fund's assets" (FTLS-SAI, page 23, "Custodian"). Where short sale cash and the money market holdings sit (BNY or the broker) is not stated.
- Margin interest. Charged, but not explained. With longs at 93.93% and short proceeds not used for longs, a broker debit balance seems unlikely (my inference). The charge may be interest on the short positions themselves or on some other debit. The documents don't say.
- Securities lending. Permitted as "a non-principal investment strategy," up to 33⅓% of total assets, with cash, U.S. government securities or other high-grade debt as collateral of at least 100%, marked to market daily (FTLS-SAI, pages 9 and 10, "Lending of Portfolio Securities"). The documents don't say whether FTLS actually lends.
- Permitted only. Index futures (up to 20% of net assets), options, forwards and options on futures "to attempt to hedge the Fund's holdings" (FTLS-PR, page 12, "Derivative Instruments"). Reverse repurchase agreements appear only as a general example in the EU leverage section (FTLS-SAI, page 29).
7. Derivatives and Rule 18f-4
- Derivatives used. Not stated as held. Permitted: up to 20% of net assets in derivatives, "including U.S. exchange-listed equity index futures contracts," plus options, forwards and options on futures for hedging (FTLS-PR, page 12). The fund "will not be used to seek to achieve a multiple or inverse multiple of an index" (FTLS-PR, page 12).
- Limited derivatives user or full program. Not stated. The prospectus says only: "To the extent the Fund enters into derivatives transactions, it will do so pursuant to Rule 18f-4" and that the rule requires policies "dependent upon the Fund's level of exposure to derivative instruments" (FTLS-PR, page 13). The SAI has no 18f-4 section.
- VaR test and reference portfolio. Not stated. (VaR, or value at risk, estimates the most a fund could lose over a set period at a set confidence level.)
- Commodity pool status (CFTC Rule 4.5). Not stated.
8. Costs
| Item | Amount | Source |
|---|---|---|
| Management fee | 0.95%. Unitary: First Trust pays transfer agency, custody, administration, legal and audit costs. Breakpoints cut the fee above $2.5 billion of net assets (0.92625% to $5 billion, falling to 0.855% above $10 billion). | FTLS-PR, page 3, fee table; FTLS-PR, page 24, "Management Fee"; FTLS-SAI, page 20 |
| Other expenses | 0.43%. "Other Expenses consist of margin interest expense and dividend expense on investments sold short." "Expenses have been restated to reflect the current fiscal year." | FTLS-PR, page 3, footnotes 1 and 2; FTLS-FS, page 1, "Fees and Expenses" |
| Dividend and interest expense on short sales | Included in the 0.43% above, not split | FTLS-PR, page 3 |
| Borrowing costs | Not stated separately. "Margin interest expense" is part of the 0.43%. | FTLS-PR, page 3 |
| Acquired fund fees | Not stated (no line in the fee table) | FTLS-PR, page 3 |
| Gross and net expense ratio | 1.38% and 1.38% (no waiver line) | FTLS-PR, page 3; FTLS-FS, page 1 |
| Fee waivers or caps | None on the management fee. The 12b-1 plan allows up to 0.25%, but "the Fund will not pay 12b-1 fees any time before February 28, 2027." | FTLS-SAI, page 23, "12b-1 Plan"; FTLS-PR, page 3 |
| Stated financing spreads or rates | Not stated | |
| Where financing costs are reported | In the expense ratio, lumped with short dividends | FTLS-PR, page 3; FTLS-PR, page 30, "Financial Highlights" |
Short costs by fiscal year (FTLS-PR, page 30, "Financial Highlights"). Total expense ratio minus the ratio "excluding dividend expense and margin interest expense" (my arithmetic):
| Fiscal year to October 31 | Total | Excluding short costs | Short dividends plus margin interest |
|---|---|---|---|
| 2025 | 1.38% | 0.96% | 0.42% |
| 2024 | 1.38% | 0.95% | 0.43% |
| 2023 | 1.46% | 0.95% | 0.51% |
| 2022 | 1.41% | 0.95% | 0.46% |
| 2021 | 1.36% | 0.95% | 0.41% |
The 2025 ratios include extraordinary expenses. Without them they would be 1.37% and 0.95%, still a 0.42% gap (FTLS-PR, page 30, footnote d; my arithmetic).
- Who pays what. First Trust pays most operating costs from the 0.95% fee. The fund pays the fee plus "interest, taxes, acquired fund fees and expenses, if any, brokerage commissions and other expenses connected with the execution of portfolio transactions, expenses associated with short sales transactions," 12b-1 fees and extraordinary expenses (FTLS-PR, page 24). Conflict: the SAI's list of exclusions leaves out acquired fund fees and short sale expenses (FTLS-SAI, page 20). The prospectus and the fee table both treat short costs as fund expenses.
- Unitary fees paid. $18,138,035 (2025), $11,272,429 (2024), $6,212,134 (2023) (FTLS-SAI, page 20). At 0.95%, this implies average net assets of about $1,909 million in fiscal 2025 (my arithmetic). So short dividends and margin interest cost about $8.0 million that year (my arithmetic, 0.42% of $1,909 million).
- Brokerage commissions. $1,581,081 (2025), $1,271,547 (2024), $925,779 (2023) (FTLS-SAI, page 22, "Brokerage Commissions"). That is about 0.08%, 0.11% and 0.14% of implied average net assets (my arithmetic). Commissions sit outside the expense ratio (FTLS-PR, page 3).
- Portfolio turnover. 245% (2025), 235% (2024), 280% (2023), 223% (2022), 250% (2021) (FTLS-PR, page 30; FTLS-SAI, page 9).
- Expense example. $140 (1 year), $437 (3 years), $755 (5 years), $1,657 (10 years) per $10,000 (FTLS-PR, page 3).
- Gap between expense ratio and management fee. 1.38% minus 0.95% is 0.43% (my arithmetic). All of it is short dividends plus margin interest (FTLS-PR, page 3, footnote 1). The documents don't say how much is dividends and how much is interest.
9. Performance and risk
Returns to September 30, 2026, annualized for periods over one year (FTLS-FS, page 1, "Performance Summary (%)"):
| Period | NAV | Market price | S&P 500 Index |
|---|---|---|---|
| 3 months | 4.24% | 4.36% | 2.30% |
| Year to date | 8.52% | 8.55% | 12.75% |
| 1 year | 10.75% | 10.80% | 15.74% |
| 3 years | 14.51% | 14.53% | 22.89% |
| 5 years | 10.96% | 10.97% | 13.79% |
| 10 years | 9.72% | 9.73% | 15.33% |
| Since inception | 9.02% | 9.03% | 13.72% |
- Calendar-year returns at NAV (FTLS-FS, page 1; same 2016 to 2025 figures in FTLS-PR, page 9): 2016 6.84%, 2017 14.10%, 2018 -4.79%, 2019 16.48%, 2020 2.36%, 2021 19.47%, 2022 -5.19%, 2023 17.02%, 2024 18.56%, 2025 9.14%, 2026 to September 30 8.52%. The S&P 500 fell 18.11% in 2022 against FTLS's -5.19% (FTLS-FS, page 1).
- Best and worst quarter (2016 to 2025): 9.78% (quarter to June 30, 2020) and -12.59% (quarter to March 31, 2020) (FTLS-PR, page 10).
- Average annual returns to December 31, 2025, before taxes: 1 year 9.14%, 5 years 11.39%, 10 years 9.03%, since inception 8.86% (FTLS-PR, page 10).
- Risk statistics, 3 years to September 30, 2026 (FTLS-FS, page 1, "3-Year Statistics"; the page header says "As of 9/30/26"): standard deviation 6.85% (S&P 500 12.42%), alpha 1.09, beta 0.49, Sharpe ratio 1.39 (S&P 500 1.38), correlation 0.89. No drawdown or capture figures are given.
10. History and structural changes
- Predecessor funds. None stated.
- Reorganizations and 351 conversions. None stated. "351" and "predecessor" have no hits in either document.
- Diversification change. "The Fund was previously classified as non-diversified. As a result of ongoing operations, the Fund is now classified as a diversified investment company" (FTLS-SAI, page 3). No date is given.
- Name, ticker, adviser or trust changes. None stated. The portfolio managers have served since 2014 (FTLS-PR, page 10).
- Document dates. The prospectus and SAI are dated March 2, 2026, with no supplements found. The fact sheet is as of September 30, 2026. The latest audited figures are for the year ended October 31, 2025. Net assets in this profile are from that date, 11 months before the fact sheet.
- Conflicts between documents.
- Model name: "Sabrient Systems Earnings Quality Rank (EQR) model" (FTLS-PR, page 4) versus "Sabrient/Gradient's Earnings Quality Rank (EQR) model" (FTLS-FS, page 1).
- Unitary fee exclusions: the prospectus excludes "expenses associated with short sales transactions" and acquired fund fees (FTLS-PR, page 24). The SAI list does not mention them (FTLS-SAI, page 20).
- Derivatives limit: the summary allows up to 20% "in U.S. exchange-listed equity index futures contracts" (FTLS-PR, page 4). The longer section allows up to 20% "in derivative instruments, including" those futures, plus options and forwards for hedging (FTLS-PR, page 12).
11. Principal risks
Summary list: FTLS-PR, pages 4 to 9, "Principal Risks". Longer descriptions: FTLS-PR, pages 13 to 21.
- Authorized Participant Concentration Risk (page 4).
- Counterparty Risk (page 4). Flag: counterparties. A counterparty's failure "may result in significant financial loss to the Fund."
- Current Market Conditions Risk (pages 4 and 5).
- Cyber Security Risk (page 5).
- Depositary Receipts Risk (page 5).
- Derivatives Risk (pages 5 and 6). Flag: leverage and counterparties. "The low margin deposits normally required in trading derivatives, including futures contracts, permit a high degree of leverage."
- Equity Securities Risk (page 6).
- ETF Risk (page 6).
- Futures Contracts Risk (page 6). Flag: leverage. Losses can be large relative to margin posted.
- Index or Model Constituent Risk (page 6).
- Information Technology Companies Risk (page 6).
- Large Capitalization Companies Risk (page 7).
- Leverage Risk (page 7). Flag: leverage. Losses may "exceed the amount originally invested."
- Liquidity Risk (page 7).
- Management Risk (page 7).
- Market Maker Risk (page 7).
- Market Risk (page 7).
- MLP Risk (page 7).
- Money Market/Short-Term Securities Risk (page 8). Relevant because short sale cash sits in money market instruments (my inference).
- Non-U.S. Securities Risk (page 8).
- Operational Risk (page 8). Flag: counterparties. Names errors of "service providers, counterparties or other third-parties" and reliance on third parties for custody and securities lending.
- Portfolio Turnover Risk (page 8).
- Premium/Discount Risk (page 8).
- REIT Risk (page 8).
- Short Sales Risk (page 8; longer form page 20). Flag: shorting. Loss is "theoretically unlimited." The longer form adds that "the third party to the short sale may fail to honor its contract terms" and that the fund "may not be able to fully or partially implement its short selling strategy" in adverse conditions.
- Significant Exposure Risk (pages 8 and 9).
- Smaller Companies Risk (page 9).
- Trading Issues Risk (page 9).
- Valuation Risk (page 9).
- Volatility Risk (page 9).
Non-principal risks of note: Borrowing and Leverage Risk (page 21, flag: leverage), Cash Transactions Risk (page 21), Securities Lending Risk (pages 22 and 23, flag: counterparties).
No principal risk names the prime broker or borrow recalls (a lender demanding its stock back).
12. Relevance to our fund
- How close is its structure and leverage? Not close (my inference). FTLS is a net long fund (60% net) capped at 1.5x gross, running 1.28x. We plan 150/150 at zero net. It is on First Trust's own trust, not Tidal. What it shares with us: a 40 Act ETF, direct shorting, a broad book (268 longs, 247 shorts) and a quantitative ranking process.
- What does it show about 3.0x gross in a 40 Act ETF? (my inference)
- Little directly. FTLS bars itself from using short proceeds to buy longs, and its fundamental policy bans bank borrowing "for leverage or the purchase of investments" (FTLS-SAI, page 5). So it stays well inside the Reg T cap of about 2.0x in
fund_context.md. - The contrast with NTRL is the useful point. Per
fund_context.md, First Trust's NTRL runs 3.6x through total return swaps. So the same sponsor uses direct shorts for its low-leverage fund and swaps for its high-leverage one. That supports Tidal's view that direct shorting alone won't reach 150/150 without portfolio margin. - FTLS shows that a 247-name direct short book is workable in an ETF at $2.1 billion. That matters for our 75 to 150 shorts.
- Little directly. FTLS bars itself from using short proceeds to buy longs, and its fundamental policy bans bank borrowing "for leverage or the purchase of investments" (FTLS-SAI, page 5). So it stays well inside the Reg T cap of about 2.0x in
- What does it show about financing, collateral, custody and costs? (my inference)
- Custody: BNY holds the fund's assets. The prime broker, the collateral and where short sale cash sits are all unstated. FTLS gives no precedent for how shorts are "custodied away" (O10, O11 in
fund_context.md). - Cost visibility: unlike a unitary-fee fund that hides short costs outside its headline ratio, FTLS puts short dividends and margin interest in its expense ratio. That makes its 1.38% look high next to peers that report short costs differently.
- Cost size: short costs ran 0.41% to 0.51% of net assets a year from 2021 to 2025, with shorts at a stated 0% to 50% of net assets. But the figure lumps dividends with interest. Since short dividends are not a real financing cost, the true financing cost is lower and can't be isolated from these documents.
- Scaling: if most of the 0.42% were short dividends on a book about one-third short, a 150% short book would carry about 4.5 times the dividend line, and our expense ratio would look very large even if financing were cheap. We should plan to report dividends and financing separately.
- Using the formulas in
fund_context.md: FTLS's structure is close to $34 × c + $34 × b per $100 (no broker debit), against $150 × c + $50 × d + $150 × b for our 150/150.
- Custody: BNY holds the fund's assets. The prime broker, the collateral and where short sale cash sits are all unstated. FTLS gives no precedent for how shorts are "custodied away" (O10, O11 in
13. Gaps and open questions
What the documents don't answer, for a 150/150 fund:
- The prime broker's name and the margin type (Reg T or portfolio margin).
- Where short sale cash and money market holdings sit, what is pledged as collateral, and whether a tri-party or special custody arrangement with BNY exists.
- Why the fund pays margin interest when it doesn't borrow to buy longs.
- The split of the 0.42% to 0.43% between short dividends and margin interest, and any borrow fees.
- Whether the fund held futures or other derivatives, and what the roughly 10 points of short exposure without a sector are.
- Rule 18f-4 status: limited derivatives user or full program, VaR test and reference portfolio.
- Whether the fund lends securities, and the lending agent's name.
- Net assets and NAV at the fact sheet date.
Questions to ask:
- To First Trust: Who is FTLS's prime broker, and is the account Reg T or portfolio margin?
- To First Trust: Are FTLS's shorts and their collateral held at the broker under Rule 17f-1, or at BNY under a tri-party control agreement?
- To First Trust: What is the "margin interest expense" charged on, given that short proceeds are not used for longs?
- To First Trust: In fiscal 2025, how much of the 0.42% was short dividends, how much margin interest and how much borrow fees? The annual report (Form N-CSR for the year ended October 31, 2025) should split these, but it wasn't attached.
- To First Trust: Why does FTLS use direct shorts at 1.28x while NTRL uses swaps at 3.6x? Did First Trust consider portfolio margin for NTRL?
- To Tidal: Will Tidal report short dividends and financing costs inside the expense ratio, as FTLS does, or outside a unitary fee?
Search terms tried for fields left "Not stated":
- Prime broker, collateral and margin type: prime broker, borrow, margin, Regulation T, Reg T, portfolio margin, collateral, segregat, earmark, pledg, tri-party, control agreement, Rule 17f.
- Leverage cost split: short sale, sold short, margin, interest, borrowing, line of credit, credit facility, swap, box spread, reverse repurchase.
- Derivatives and 18f-4: futures, options, swap, counterparty, 18f-4, value at risk, VaR, derivatives risk manager, limited derivatives user, commodity pool, 4.5.
- Securities lending agent: securities lending, lending agent, lend.
- History: predecessor, reorganiz, 351.
- Fact sheet net assets: NAV, net assets (fact sheet gives neither).
14. Documents used
| Code | Document | Date | Pages | Pages read | File name |
|---|---|---|---|---|---|
| FTLS-FS | Fact sheet | As of September 30, 2026 (PDF created October 16, 2026) | 2 | 1 and 2 (all, text plus page images) | a5246429-FTLS_fact_sheet.pdf |
| FTLS-PR | Prospectus, FTLS only, no supplements found | March 2, 2026 | 32 | In full: 1 to 13, 21, 23, 24, 29, 30. Keyword passages only: 16, 17, 20, 22, 25. | 4ad3ce82-FTLS_prospectus.pdf |
| FTLS-SAI | Statement of Additional Information, FTLS only, no supplements found | March 2, 2026 | 44 | In full: 1 to 3, 6, 9, 22, 23. Partly: 4, 5, 10, 20, 21, 28 to 30. Keyword passages only: 8, 12, 13, 14, 17, 18, 31 to 35, 37 to 40, 42. | 2bff7d26-FTLS_SAI.pdf |
Page numbering.
- FTLS-FS: no printed page numbers. PDF page 1 is performance and fees; PDF page 2 is holdings and exposure.
- FTLS-PR: PDF pages 1 (cover) and 2 (contents) have no printed number. PDF pages 3 to 31 carry printed numbers equal to the PDF page. PDF page 32 is the unnumbered back cover.
- FTLS-SAI: PDF page 1 is the cover and PDF page 2 the contents (printed "i"). From PDF page 3 on, PDF page = printed page + 2, through PDF page 40 (printed 38). PDF pages 41 to 44 are exhibits printed A-1 and B-1 to B-3.
15. Snapshot sources
- Ticker: FTLS-FS, page 1, "Fund Facts" ("Fund Ticker FTLS").
- Fund name: FTLS-FS, page 1, header.
- As of date: "As of 9/30/26" (FTLS-FS, pages 1 and 2, header).
- Adviser: FTLS-FS, page 1, "Fund Advisor"; FTLS-PR, page 10, "Management".
- Platform: the fund is "a series of First Trust Exchange-Traded Fund III" (FTLS-PR, page 1, cover), a trust whose board oversees the "First Trust Fund Complex" (FTLS-SAI, page 14). Own trust (my inference).
- Exchange: "Primary Listing NYSE Arca" (FTLS-FS, page 1, "Fund Facts").
- Inception: "Fund Inception Date 9/8/14" (FTLS-FS, page 1, "Fund Facts").
- Net assets: "$2,097,443" thousand at October 31, 2025 (FTLS-PR, page 30, "Financial Highlights"). The fact sheet gives no net assets figure. This date is 11 months before the As of date.
- Strategy type: (my inference) from 80% to 100% long and 0% to 50% short (FTLS-PR, page 4) and 60.27% net (FTLS-FS, page 2). Morningstar category is "US Fund Long-Short Equity" (FTLS-FS, page 1).
- Long %: "Long Exposure 93.93" at September 30, 2026 (FTLS-FS, page 2, "Fund Exposure (%)").
- Short %: "Short Exposure -33.66" at September 30, 2026 (FTLS-FS, page 2, "Fund Exposure (%)").
- Gross: 93.93% plus 33.66% is 127.59%, about 1.28x (my arithmetic).
- Above 2.0x: 1.28x (my arithmetic). Policy caps gross at 150% (80 to 100% long, 0% to 50% short, FTLS-PR, page 4; my arithmetic).
- Net: "Net Exposure 60.27" (FTLS-FS, page 2, "Fund Exposure (%)").
- Short method: "selling a security that has been borrowed from a third party" (FTLS-PR, page 4, "Principal Investment Strategies").
- Prime broker or counterparty: the lender is only "a third party" (FTLS-PR, page 4). No firm is named.
- Custodian: FTLS-PR, page 29, "Fund Service Providers"; FTLS-SAI, page 23, "Custodian".
- Management fee: "Management Fees 0.95%" (FTLS-PR, page 3, fee table; FTLS-FS, page 1). It is a unitary fee (FTLS-PR, page 24).
- Total expense ratio: "Total Annual Fund Operating Expenses 1.38%" (FTLS-PR, page 3); "Total Expense Ratio 1.38%" (FTLS-FS, page 1). No waiver line.
- Short costs in expense ratio: "Other Expenses consist of margin interest expense and dividend expense on investments sold short" (FTLS-PR, page 3, footnote 1; FTLS-FS, page 1).
- 3-month return: 4.24% at NAV, 3 months to September 30, 2026 (FTLS-FS, page 1, "Performance Summary (%)").
- 1-year return: 10.75% at NAV, 1 year to September 30, 2026 (FTLS-FS, page 1, "Performance Summary (%)").
- Beta: 0.49 (FTLS-FS, page 1, "3-Year Statistics").
- Beta benchmark: (my inference) the S&P 500 Index is the comparison row in the same table, with beta 1.00 (FTLS-FS, page 1, "3-Year Statistics"). The fact sheet defines beta only as "price variability relative to the market" (FTLS-FS, page 2, "Definitions").
- Beta period: "3-Year Statistics" (FTLS-FS, page 1).
- Leverage Method: "Short selling involves selling a security that has been borrowed from a third party" (FTLS-PR, pages 3 and 4) and "margin interest expense and dividend expense on investments sold short" (FTLS-PR, page 3). No exposure above 100% on either side: "The Fund will not use proceeds from the short positions to add leverage to the long positions" (FTLS-PR, page 4). No document says Reg T, Regulation T or portfolio margin. Index futures are permitted only (FTLS-PR, page 4), so they are not listed.
- Leverage cost: "Other Expenses 0.43%", consisting of "margin interest expense and dividend expense on investments sold short," with expenses "restated to reflect the current fiscal year" (FTLS-PR, page 3). The current fiscal year at the March 2, 2026 prospectus date is the one ending October 31, 2026 (my inference). Audited fiscal 2025 equivalent: 1.38% minus 0.96% is 0.42% (my arithmetic, FTLS-PR, page 30).
- Short dividend expense: combined with margin interest in the same line (FTLS-PR, page 3, footnote 1; FTLS-PR, page 30, "excluding dividend expense and margin interest expense").
- Ranking properties (Rank to Score): from the ranking of the 27 LS peers prepared November 11, 2026, using only the project's fund profiles. Each of the seven criteria scores Yes = 1, Partly = 0.5, No or Not stated = 0. Funds sort first by Portfolio margin (YES, LIKELY, POSSIBLE, UNLIKELY, NO), then by Score, then Tidal funds first, then higher gross exposure (my inference).
- Rank: 10 of 27, as of November 11, 2026.
- Long/short: 80% to 100% long and 0% to 50% short (FTLS-PR, page 4); 268 long and 247 short positions on September 30, 2026 (FTLS-FS, page 2).
- Portfolio margin: POSSIBLE. The fund shorts directly and pays "margin interest expense" (FTLS-PR, page 3), and no document says Reg T or portfolio margin.
- Cross-collateral: Not stated. The documents don't say whether cash, Treasuries or long stocks are pledged (see section 6).
- Outside Reg T: Not stated.
- Short costs (includes dividends): Partly. 0.43%, "restated to reflect the current fiscal year", combining margin interest and short dividends (FTLS-PR, page 3).
- Over 2.0x: No. 1.28x on September 30, 2026 (FTLS-FS, page 2; my arithmetic).
- Tidal: No. The fund is a series of First Trust Exchange-Traded Fund III (FTLS-PR, page 1, cover).
- Score: 1.5 (my arithmetic).