First Trust Morningstar Div Leaders ETF's Average People Pillar and Process Pillar ratings result in 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’s management team earns an Average People Pillar rating. The strategy earns an Average Process Pillar rating.  Low quality exposure is attributed to stocks with higher financial leverage and lower profitability. And a high yield exposure is rooted in holding high dividend-paying or buyback stocks. 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

Chevron

Verizon

AbbVie

Pfizer

Philip Morris

Altria

Citigroup

Pioneer Natural Resources

Duke Energy

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 Morningstar Dividend Ldrs Fd earns an Average Process Pillar rating. 

The primary contributor to the rating is that this fund tracks 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. Noteworthy risk-adjusted performance also influences the rating. 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. 

 This strategy skews toward smaller, deeper value companies compared with its average peer in the Large Value Morningstar Category. Analyzing additional factors, this strategy tilts consistently toward stocks with lower quality or the shares of companies with more financial leverage and lower profitability, compared with Morningstar Category peers over the past few years. Such positions do not tend to provide much ballast for a portfolio. In the latest month, the strategy was also less exposed to the Quality factor compared with Morningstar Category peers. This strategy's portfolio also has had exposure to more stocks with high dividend or buyback yields over peers in these years. High-yield stocks tend to be associated with more mature, profitable businesses that can grow as well as provide a stream of income. Such stocks could suffer, however, if setbacks force them to cut their dividends. Compared with category peers, the strategy also had more exposure to the Yield factor in the most recent month. In addition, this strategy has exhibited a tilt toward liquid assets, evidenced by consistently holding companies with relatively higher trading volumes. Such stocks may have less potential upside than illiquid holdings, but they are easier to trade during market downturns. 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 energy and utilities relative to the category average by 9.2 and 4.0 percentage points, respectively. The sectors with low exposure compared to category peers are industrials and technology, underweight the average by 9.4 and 7.2 percentage points of assets, respectively. The strategy owns 93 securities and is relatively concentrated. In particular, 58.0% of the fund’s assets are housed within the top 10 holdings, as opposed to the category’s 27.4% average.

Average

Process

First Trust’s equity  team is comparable to peers, resulting in 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. This group has successfully retained management talent, with no departures in the past five years. 

 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 Morningstar Dividend Leaders Index Fund

FDL tracks a dividend-weighted index of US companies with consistent and sustained dividend payments. The fund holds roughly 100 securities and excludes REITs.

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