The combination of an Average People Pillar rating and a Below Average Process Pillar rating limit  First Trust US Equity Opportunities ETF to a Morningstar Medalist Rating of Neutral.  The portfolio maintains a sizable cost advantage over competitors, priced within the lowest fee quintile among peers.  

 The strategy earns a Below Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a significant underweight position in quality exposure and an overweight in volatility exposure compared with category peers. Low quality exposure is attributed to stocks with higher financial leverage and lower profitability. And high volatility exposure is rooted in stocks that have a higher standard deviation of returns. The strategy’s management team earns an Average People Pillar rating. 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

Samsara

Airbnb

Carrier Global

Regeneron Pharmaceuticals

Uber

Constellation Energy Corp

DoorDash

Otis Worldwide

Block

Symbotic Inc

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 US Equity Opportunities ETF earns a Below Average Process Pillar rating. The process is strengthened by the stability of the management team. Specifically, the fund has not seen a manager change in the last 11 years. However, the rating is weakened by the fund's mediocre long-term risk-adjusted performance. This can be seen in its five-year alpha calculated relative to the category index, which suggests that the process has struggled over that period. The parent firm's subpar risk-adjusted performance, as shown by its average 10-year Morningstar Rating of 2.7 stars, also limits 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:  The investment seeks investment results that correspond generally to the price and yield (before the fund's fees and expenses) of an equity index called the IPOX®-100 U.S. Index.  The fund will normally invest at least 90% of its net assets (including investment borrowings) in the securities that comprise the index. The index seeks to measure the performance of equity securities of the 100 typically largest and most liquid initial public offerings ("IPOs") (including spin-offs and equity carve-outs) of U.S. companies. It is non-diversified. 

 The portfolio is overweight in technology and industrials relative to the category average by 12.7 and 4.5 percentage points, respectively. The sectors with low exposure compared to category peers are healthcare and financial services, underweight the average by 8.0 and 4.3 percentage points of assets, respectively. The portfolio is positioned across 101 holdings and is quite concentrated. In particular, 49.5% of the strategy's assets are housed within the top 10 holdings, as opposed to the category’s 26.1% average.

Below Average

Process

First Trust’s equity team is good but unexceptional, earning the strategy an Average People Pillar rating. There’s a deep 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 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 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.

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 US Equity Opportunities ETF

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