Neither people nor process stand out at First Trust Dorsey Wright DALI 1 ETF, but it gets enough right to help this strategy retain its Morningstar Medalist Rating of Bronze. The strategy charges fees in line with its similarly distributed peers, priced within the middle quintile.  

 The strategy’s management team earns an Average People Pillar rating. The strategy gets an Average Process Pillar rating.  The strategy's parent organization earns the firm an Average Parent Pillar rating, and this rating is inherited from vehicles belonging to the same branding entity and is indirectly assigned by an analyst.

Analyst Rating

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Morningstar's style-agnostic evaluation of this fund's process seeks to understand whether the strategy has a performance objective and sensible, clearly defined, repeatable execution. First Trust Dorsey Wright DALI 1 ETF earns an Average Process Pillar rating.  The most important driver of the rating is that this fund tracks an index. Historical data, such as Morningstar's Active/Passive Barometer, finds that passively managed funds have generally outperformed their active counterparts, especially over longer time horizons. Management team experience, which averages 22 years at this fund, also bolsters the rating. 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 relatively low success ratio suggests that the firm could do better across its fund lineup.

 The investment strategy as stated in the fund's prospectus is as follows: 

 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 Nasdaq Dorsey Wright DALI 1 TM Index.  Under normal conditions, the fund will invest at least 90% of its net assets (including investment borrowings) in the securities that comprise the index. The index has been designed based upon the principle that the asset class exhibiting the highest levels of "relative strength, " based on current prices, and will be the asset class with the best performance over the near term.  

 The portfolio is overweight in technology and industrials relative to the category average by 15.0 and 7.2 percentage points, respectively. The sectors with low exposure compared to category peers are financial services and healthcare, underweight the average by 9.8 and 7.7 percentage points , respectively. The portfolio is overweight in North America by 15.6 percentage points compared with the category average, and Emerging Europe's allocation is similar to its peers. The regions with low exposure compared to their category peers are Developed Europe and Japan, underweight the average by 5.5 percentage points and 2.7 percentage points, respectively.

Average

Process

First Trust’s team is valuable but does not stand out as one of the industry's best, warranting 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: The People Pillar rating is indirectly assigned by an analyst. The longest-tenured manager of the fund also manages a different product rated by an analyst. Their analyst-assigned People Pillar rating is combined here with the People scores (algorithmic or analyst-assigned) for the fund’s other managers on a tenure-weighted basis.

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 Dorsey Wright DALI 1 ETF

DALI tracks an index that uses momentum indicators to rotate between asset classes. The fund holds a single asset class at a time and uses other First Trust ETFs for exposure.

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News for First Trust Dorsey Wright DALI 1 ETF ETF (DALI)