The combination of an Average People Pillar rating and a Below Average Process Pillar rating limit  FirstTrustDorseyWrightMomt&LwVolatil ETF to a Morningstar Medalist Rating of Negative.  The portfolio maintains a cost advantage over competitors, priced within the second-lowest fee quintile among peers.  

 The strategy receives a Below Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a significant underweight position in volatility exposure and an overweight in momentum exposure compared with category peers. Low volatility exposure is attributed to stocks with a lower standard deviation of returns. And momentum exposure is rooted in holding stocks currently on a winning streak. 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

Republic Services

Walmart

Visa

Marsh & McLennan

CoreSite Realty

AMETEK

Frank's

Mastercard

Otis Worldwide

Morningstar's evaluation of this security's process aims to determine the likelihood that it will outperform its Morningstar Category benchmark on a risk-adjusted basis over the long term. FirstTrustDorseyWrightMomt&LwVolatil ETF earns a Below Average Process Pillar rating. 

The process benefits from tracking an index. Historical data, like Morningstar's Active/Passive Barometer, finds that passively managed funds have generally outperformed their active counterparts, especially over longer time horizons. However, the rating is held back by the fund's weak 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 has struggled over that period. The parent firm's five-year risk-adjusted success ratio of 29% also holds the rating back. The measure indicates the percentage of a firm's funds that survived and beat their respective category's median Morningstar Risk-Adjusted Return for the period. The parent's subpar success ratio suggests that the firm could do better across its fund lineup.

 This strategy targets smaller plays than its peers’ average in the Large Blend Morningstar Category. But in terms of investment style, it is on par with peers. Analyzing additional factors, this strategy has consistently exhibited a tilt toward low-volatility stocks or companies whose shares have a history of lower standard deviation of returns, compared with its Morningstar Category peers in recent years. Such holdings can limit a strategy's downside, but cause it to lag in bull markets. In the latest month, the strategy was also less exposed to the Volatility factor compared with Morningstar Category peers. This strategy has also demonstrated more exposure to high-momentum stocks over peers in recent years. Momentum is based on the premise that market outperformers will continue to outperform, and laggards will continue to lag. This means that managers are overweighting stocks currently on a winning streak. Compared with category peers, the strategy also had more exposure to the Momentum factor in the most recent month. Given the high trading volume of holdings, this fund also tilts toward liquid assets. More-liquid assets contribute to more-flexible exit strategies without price changes and tend to be a ballast during market selloffs. For example, if the portfolio faces successive redemptions in a short period of time, it will be less likely to suffer from a significant loss. Nevertheless, the fund's Liquidity exposure was in line with peers in the latest month. More information on a fund and its respective category's factor exposure can be found in the Factor Profile module within the Portfolio section. 

 The portfolio is overweight in industrials and financial services relative to the category average by 23.0 and 8.8 percentage points, respectively. The sectors with low exposure compared to category peers are technology and communication services, underweight the average by 15.4 and 8.1 percentage points of assets, respectively. The strategy owns 51 securities and is less top-heavy than peers. Specifically, 29.8% of the portfolio's assets are concentrated within the top 10 fund holdings, compared to the category average's 48.8%. And finally, in terms of portfolio turnover, on a year-over-year basis, 150% of the fund's holdings have changed, whether through increasing, decreasing, or changing a position.

Below Average

Process

First Trust’s  team is comparable to peers, resulting in an Average People Pillar rating. There’s a deep bench of seven managers listed on the fund. The team is well equipped, with an average of 22 years of portfolio management experience. Together, they manage a total of 108 strategies, with a Bronze asset-weighted average Morningstar Medalist Rating, demonstrating their potential 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 Dorsey Wright Momentum & Low Volatility ETF

DVOL tracks an index of 50 large- and mid-cap, low-volatility stocks exhibiting relative strength. Holdings are weighted by the inverse of their volatility.

Volatility can open up opportunities for investors willing to ride it out, but for those who don't have an iron stomach, there are low-volatility strategies that can be built into an exchange traded fund (ETF). Inflation fears combined with geopolitical tensions between Russia and Ukraine are certainly fueling market movements in 2022.

Build Off Market Momentum and Maintain Low Volatility With This ETF

iShares MSCI USA Momentum Factor ETF

Invesco DWA Technology Momentum ETF

Invesco DWA Healthcare Momentum ETF

These high-momentum ETFs and stocks could be good ways to play the latest optimism in the market.

High Momentum ETFs & Stocks to Bet on

Global X SuperDividend US ETF

First Trust Horizon Managed Volatility Domestic ETF

Legg Mason Low Volatility High Dividend ETF

Invesco S&P 500 Low Volatility ETF

Low-beta products exhibit greater levels of stability than their market-sensitive counterparts and will usually lose less when the market is crumbling.

Bet on Low-Beta ETFs in an Uncertain Market

Investors seeking to remain invested in the equity world could consider low beta ETFs.

News for First Trust Dorsey Wright Momentum & Low Volatility ETF ETF (DVOL)