Weakness in First Trust Alt Abs Ret Strat ETF's Process and People Pillar ratings limits this strategy to a Morningstar Medalist Rating of Negative. The strategy charges fees in line with its similarly distributed peers, priced within the middle quintile.  

 The strategy earns a Below Average Process Pillar rating. The longest-tenured manager has a wealth of experience, but other weaknesses limit it to a Below Average People 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 evaluation of this fund's process aims to determine how repeatable, consistent, and reliable it is, and whether management maintains a competitive advantage. First Trust Alt Abs Ret Strat ETF earns a Below Average Process Pillar rating. The process is bolstered by the stability of the management team. Specifically, the fund has not seen a manager change in the last eight years. However, the rating 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. The parent firm's disappointing risk-adjusted performance, as shown by its average 10-year Morningstar Rating of 2.7 stars, also weakens the process. A lower star rating suggests that the firm has struggled to outperform on a risk-adjusted basis.

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

 The investment seeks to provide investors with long-term total return.  The fund is an actively managed exchange-traded fund that seeks to achieve long-term total return through long and short investments in exchange-traded commodity futures contracts ("Commodity Futures") through a wholly-owned subsidiary of the fund organized under the laws of the Cayman Islands (the "Subsidiary"). It does not invest directly in Commodity Futures. The advisor gains exposure to these investments exclusively by investing in the Subsidiary. The Subsidiary is advised by First Trust Advisors L.P., the fund's investment advisor.

Below Average

Process

First Trust Alt Abs Ret Strat ETF earns a Below Average People Pillar rating. The team is strengthened by the stability of the management team. Specifically, the fund has not seen a manager change in the last eight 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 outperformed their respective category's median return for the period. The parent's relatively low success ratio suggests that the firm could do better across its fund lineup. The parent firm's five-year retention rate of 67% also weakens the team.


John W. Gambla, the longest-tenured manager on the strategy, provides strong guidance, bringing forward over 25 years of listed portfolio management experience. The average Morningstar Rating of the strategies they manage is 3.7 stars, demonstrating above-average risk-adjusted performance relative to category peers. Despite having a small team, the two listed managers boast over 25 years of listed portfolio management experience.

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.

Average

Parent

First Trust Alternative Absolute Return Strategy ETF

FAAR is an actively-managed fund that, through a subsidiary, provides broad long/short exposure to commodity futures contracts.

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