The combination of a middling Process Pillar rating and a Below Average People Pillar rating limit  First Trust North Amer Engy InfrasETF to a Morningstar Medalist Rating of Neutral.  The portfolio maintains a sizable cost advantage over competitors, priced within the cheapest fee quintile among peers.  

 The strategy has an experienced management team, but other weaknesses drive the strategy's Below Average People Pillar. The strategy gets an Average Process Pillar rating.  Low yield exposure is attributed to holding fewer stocks with high dividend or buyback yields -- instead, typically holding companies with a stronger focus on growth opposed to returning capital. And low volatility exposure is rooted in stocks that have a lower standard deviation of returns. 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 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 North Amer Engy InfrasFund earns an Average Process Pillar rating. 

The most significant contributor to the rating is the fund's excellent long-term risk-adjusted performance. This can be seen in its ten-year alpha calculated relative to the category average, which suggests that the managers have shown skill in their allocation of risk. The stability of the management team also supports the process. Specifically, the fund has not seen a manager change in the last six years. 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.

 This strategy tends to hold larger, higher-growth companies than its average peer in the Energy Limited Partnership Morningstar Category. Looking at additional factor exposure, the managers have been consistently underweighting yield compared with the Morningstar Category peer over recent 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 the latest month, the strategy was also less exposed to the Yield factor compared with Morningstar Category peers. This strategy has also tilted toward low-volatility stocks in recent years, meaning those that have a lower standard deviation of returns. These companies have historically been a valuable ballast to steady portfolio returns during market downturns. Similarly, in recent months, the strategy also had less exposure to the Volatility factor than peers. Given the high trading volume of holdings, this fund also holds highly liquid assets. This gives the managers more flexibility during bear markets to sell without adversely affecting prices. In this month, the strategy also had more exposure to the Liquidity factor over 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 utilities and industrials relative to the category average by 33.4 and 3.2 percentage points, respectively. The sectors with low exposure compared to category peers are energy and consumer cyclical, with energy underweighting the average portfolio by 36.5 percentage points of assets and consumer cyclical similar to the average. The portfolio is composed of 68 holdings and its assets are more dispersed than peers in the category. In particular, 48.5% of the portfolio's assets are concentrated in the top 10 fund holdings, as opposed to the typical peer's 61.7%. And finally, in terms of portfolio turnover, looking at year-over-year movements, 32% of the fund's holdings have changed, whether through increasing, decreasing, or changing a position.

Average

Process

First Trust North Amer Engy InfrasFund earns a Below Average People Pillar rating. The team is bolstered by the stability of the management team. Specifically, the fund has not seen a manager change in the last six years. However, the rating is limited by the parent firm's five-year success ratio of 39%. The measure indicates the percentage of a firm's funds that survived and beat their respective category's median return for the period. The parent's subpar success ratio suggests that the firm could do better across its fund lineup. The managers' failure to consistently outperform peers at the funds they run, as measured by their combined three-year manager excess returns, also detracts from the team.


James J. Murchie, the longest-tenured manager on the strategy, provides strong guidance, bringing forward 18 years of listed portfolio management experience. The average Morningstar Rating of the strategies they currently manage is 3.8 stars, indicating that their risk-adjusted returns surpassed the category average. Although the team is small, it is a solid supporting cast. Together, the three listed managers boast more than an average of 15 years of listed portfolio management experience.

Below 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 North American Energy Infrastructure Fund

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