First Trust Dow 30 Equal Weight ETF's Average People Pillar and Process Pillar ratings result in a Morningstar Medalist Rating of Neutral. The portfolio maintains a cost advantage over competitors, priced within the cheapest fee quintile among peers.  

 The strategy’s management team earns an Average People Pillar rating. The strategy earns an Average Process Pillar rating.  Low volatility exposure is attributed to stocks with a lower standard deviation of returns. And a low liquidity exposure is rooted in stocks with lower trading volumes, limiting managers' flexibility. 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

Goldman Sachs

Chevron

American Express

Merck

Coca-Cola

Amazon

Caterpillar

JPMorgan Chase & Co

UnitedHealth Group

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. First Trust Dow 30 Equal Weight ETF earns an Average Process Pillar rating. 

The most notable contributor to 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. Excellent risk-adjusted performance also contributes to the process. This can be seen in the fund's five-year alpha calculated relative to the category index, which suggests that the managers have shown skill in their allocation of risk. 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 beat 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.

 This strategy skews toward larger, higher-growth companies than its average peer in the Large Value Morningstar Category. Looking at additional factor exposure, the managers have consistently had exposure to low-volatility stocks over the past few years, or those whose relative returns look best when the markets are their worst. 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 exhibited an overweight liquidity risk tilt, evidenced by holding companies with relatively lower trading volumes than peers in these years. Less-liquid stocks might offer strong returns to compensate for their risks, but they can be harder and more expensive to trade in bear markets. Similarly, in recent months, the strategy also had less exposure to the Liquidity factor than peers. Additionally, this strategy has had lower yield exposure than peers, with the portfolio holding fewer stocks with high dividend or buyback yields over these years. This is demonstrated by the portfolio's low exposure to dividends or buybacks. While companies with high yields provide consistent income payments, they may cut payouts if their earnings decline. In recent months, the strategy also had less Yield factor exposure than its peers. 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 technology and consumer cyclical relative to the category average by 7.1 and 5.9 percentage points, respectively. The sectors with low exposure compared to category peers are utilities and energy, underweight the average by 4.9 and 4.7 percentage points of assets, respectively. The strategy owns 32 securities and is quite concentrated. Specifically, 34.8% of the fund’s assets are housed within the top 10 holdings, compared to the category’s 27.4% average. And in closing, in terms of portfolio turnover, on a year-over-year basis, 16% of the fund's holdings have turned over, whether through increasing, decreasing, or changing a position.

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. 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, indicating the 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.

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 Dow 30 Equal Weight ETF

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