First Trust AsiaPac ex-Jpn AlphaDEX® 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 second-cheapest fee quintile among peers.  

 The strategy’s management team earns an Average People Pillar rating. The strategy earns an Average Process Pillar rating.  High yield exposure is attributed to holding high dividend-paying or buyback stocks, and is suitable for income seekers outside of fixed-income. And a high liquidity exposure is rooted in stocks with higher trading volumes, lending managers more 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

IAMGOLD

Statoil ASA Sponsored

Blackstone/GSO Senior Floating Rate Term Fund

Rio Tinto plc Sponsored

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Western Gas Partners

Sunoco

Avis Budget Group

NEXTDC Limited

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 Asia Pac ex-Jpn AlphaDEX® Fd earns an Average Process Pillar rating. 

The largest 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. The stability of the management team also bolsters the process. Specifically, the fund has not seen a manager change in the last ten 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 modest success ratio suggests that the firm could do better across its fund lineup.

 This strategy leans toward smaller, more undervalued companies compared with its average peer in the Pacific/Asia ex-Japan Stk Morningstar Category. Examining additional factor exposure, the managers have consistently overweighted yield-paying companies compared with Morningstar Category peers in recent years, shown by the portfolio's high exposure to stocks paying dividends or buying back shares. Higher-yield stocks can provide dependable income, but also have their risks. Dividend payers may cut payouts, for instance, if their earnings fall. In recent months, the strategy was more exposed to the Yield factor compared with its Morningstar Category peers as well. This strategy has also been exposed to liquid stocks during these years. 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. Compared with category peers, the strategy also had more exposure to the Liquidity factor in the most recent month. Additionally, this strategy has demonstrated a preference for high-momentum stocks in these years. Momentum approaches bet that rising stocks will continue to rise and that lagging stocks will continue to lag. In this month, the strategy also had more exposure to the Momentum 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 industrials and energy relative to the category average by 22.0 and 7.4 percentage points, respectively. The sectors with low exposure compared to category peers are technology and financial services, underweight the average by 18.1 and 7.2 percentage points of assets, respectively. The strategy owns 105 securities and its assets are more dispersed than the typical peer in the category. In the most recent disclosure, 18.3% of the fund’s assets were concentrated in the top 10 fund holdings, compared to the category’s 29.4% average. And in closing, in terms of portfolio turnover, looking at year-over-year movements, 90% 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 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. This group has had relatively low management turnover, providing a stable environment and continuity for the strategies. 

 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 Asia Pacific ex-Japan AlphaDEX Fund

FPA tracks an index that selects and weights 100 stocks from the S&P Asia Pacific Ex-Japan BMI Index based on their growth and value factors.

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News for First Trust Asia Pacific ex-Japan AlphaDEX Fund ETF (FPA)