First Trust RBA Amer Indl RenaisTM ETF’s management team is rated Average, but a solid investment process still helps this strategy retain its Morningstar Medalist Rating of Bronze. Fees are a weakness here. The strategy's lofty fees are a high hurdle to clear, as it is priced within the second-highest quintile among peers.  

 The strategy's sensible investment philosophy merits an Above Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained an overweight in quality exposure and volatility exposure compared with category peers. High quality exposure is attributed to stocks with low financial leverage and strong returns on equity. And high volatility exposure is rooted in stocks that have a higher standard deviation of returns. The strategy’s management team earns an Average People Pillar rating. The strategy's parent organization earns the firm an Average Parent Pillar rating. People Pillar and Parent Pillar ratings for this strategy are indirectly assigned by a Morningstar analyst rather than algorithmically derived. Please see the notes following each pillar section for more details. The details of assigning methods can be found in each pillar section.

Analyst Rating

Powell Industries

MasTec

Clean Harbors

Mueller Industries

Dycom Industries

MDU Resources Group

EMCOR Group

Comfort Systems USA

Atkore International Group

Morningstar's evaluation of this security's process aims to determine the likelihood that it will outperform its Morningstar Category index on a risk-adjusted basis over the long term. First Trust RBA Amer Indl RenaisTM ETF earns an Above Average Process Pillar rating. The primary contributor to the rating is the fund's excellent long-term risk-adjusted performance. This can be seen in its five-year alpha calculated relative to the category index, which suggests that the process was successful over that period. This fund tracks an index, which also increases its process rating. Historical data, such as Morningstar's Active/Passive Barometer, shows that passively managed funds have generally outperformed their active counterparts, especially over longer time horizons. Lastly, the process is limited by the parent firm's five-year risk-adjusted success ratio of 29%. The measure indicates the percentage of a firm's funds that survived and outperformed their respective category's median Morningstar Risk-Adjusted Return for the period. The parent's modest success ratio suggests that the firm could do better across its fund lineup.

The investment strategy as stated in the fund's prospectus is:  The investment seeks investment results that correspond generally to the price and yield (before the fund's fees and expenses) of an index called the Richard Bernstein Advisors American Industrial Renaissance ® Index (the "index").  The fund will normally invest at least 90% of its net assets (including investment borrowings) in the equity securities that comprise the index. The index is designed to measure the performance of small and mid cap U.S. companies in the industrial and community banking sectors. 

 The portfolio is overweight in financial services and consumer cyclical relative to the category average by 7.6 and 3.9 percentage points, respectively. The sectors with low exposure compared to category peers are industrials and basic materials, with industrials underweighting the average portfolio by 12.9 percentage points of assets and basic materials similar to the average. The strategy owns 49 securities and its assets are more dispersed than the typical peer in the category. In the most recent disclosure, 40.4% of the fund’s assets were concentrated in the top 10 fund holdings, as opposed to the category average's 68.8%. And finally, in terms of portfolio turnover, looking at year-over-year movements, 48% of the fund's holdings have changed, whether through increasing, decreasing, or changing a position.

Above Average

Process

First Trust’s  team is comparable to peers, resulting in an Average People Pillar rating. There’s a sizable bench of seven managers listed on the fund. Experience on the team is abundant, with 22 years of average portfolio management experience. Together, they manage a total of 108 strategies, with solid long-term prospects. The strategies average a Bronze asset-weighted Morningstar Medalist Rating, indicating a position to deliver positive alpha relative to the category median in aggregate.  

 Note: This People Pillar rating is indirectly assigned by an analyst. Morningstar analysts evaluate the People Pillar for passive products at the brand level and may also differentiate by asset class. There is at least one other passive strategy at the firm that is covered by a Morningstar analyst, so the People Pillar rating of the fund is inherited from the rating that the Morningstar analyst assigned to investment vehicles under the same brand name.

Average

People

First Trust meets the industry standard for stewardship, but it could do more to align itself with investors. It earns an Average Parent rating.

This is a team-oriented organization that eschews star managers. While exchange-traded funds represent the bulk of the firm's assets, First Trust bypasses the competitive market for low-cost beta funds, instead opting for complex strategies with higher management fees. However, the firm's focus on ETFs for future product development underpins its commitment to tax efficiency and transparency. Some of its thematic strategies appear trendy, but it stands behind them and rarely liquidates funds. 

The firm is a private partnership, controlled by Jim Bowen, the CEO. Many senior managers are limited partners. This ownership structure helps the firm stay focused on the long term and promotes retention, which has been strong for the investment team. The firm has grown considerably over the past decade and is among the largest providers of actively managed ETFs, as well as unit investment trusts. As it has grown, the firm has expanded its investment team and beefed up its technology infrastructure.

First Trust's focus is on educating advisors and providing them solutions. This may benefit investors indirectly, but First Trust could do more to directly align with investors by cutting fees and limiting trendy strategies.

Parent

First Trust RBA American Industrial Renaissance ETF

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