The combination of an Average People Pillar rating and a Below Average Process Pillar rating limit  First Trust Large Cap Val AlphaDEX® ETF to a Morningstar Medalist Rating of Negative.  The portfolio maintains a cost advantage over competitors, priced within the second-cheapest 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 overweight position in liquidity exposure and volatility exposure compared with category peers. High liquidity exposure is attributed to stocks with a high trading volume, lending managers more flexibility. 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

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Con Ed

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 Large Cap Value AlphaDEX® Fd earns a Below Average Process Pillar rating. 

The process benefits from 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 five-year risk-adjusted success ratio of 29% also holds the rating back. 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 relatively low success ratio suggests that the firm could do better across its fund lineup.

 This strategy leans toward smaller, deeper value companies compared with its average peer in the Large Value Morningstar Category. Looking at additional factor exposure, the fund has held stocks with higher trading volumes compared to Morningstar Category Peers in the past few years. Such stocks may have less potential upside than illiquid holdings, but they are easier to trade during market downturns. In recent months, the strategy was more exposed to the Liquidity factor compared with its Morningstar Category peers as well. This strategy has also exhibited a tilt toward high-volatility stocks over these years, meaning it has invested in companies that have a higher historical standard deviation of returns. Such stocks tend to rise faster and fall harder than the broad market. High-volatility exposure contributes to stronger performance during bull markets, but often at the cost of losing more during downturns. Compared with category peers, the strategy also had more exposure to the Volatility factor in the most recent month. Additionally, this strategy's portfolio has held more stocks with high dividend or buyback yields than peers over recent years. Higher-yield stocks can provide dependable income, but also have their risks. Dividend payers may cut payouts, for instance, if their earnings fall. In this month, the strategy also had more exposure to the Yield 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 basic materials relative to the category average by 8.8 and 5.7 percentage points, respectively. The sectors with low exposure compared to category peers are technology and healthcare, underweight the average by 7.4 and 6.6 percentage points of assets, respectively. The portfolio is positioned across 188 holdings and its assets are more dispersed than peers in the category. In particular, 10.0% of the fund’s assets are concentrated in the top 10 fund holdings, compared to the typical peer's 27.4%. And in closing, in terms of portfolio turnover, looking at year-over-year movements, 80% of the fund's holdings have turned over, whether through increasing, decreasing, or changing a position.

Below Average

Process

First Trust’s equity 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, indicating the potential to deliver positive alpha relative to the category median in aggregate. This group has been working together for a while and has been successful in retaining talent compared to peers, with no departures in the last 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 Large Cap Value AlphaDEX Fund

FTA tracks an index that selects and weights value stocks using fundamental factors including sales, book value and cash flows.

Designed to provide broad exposure to the Style Box - Large Cap Value category of the market, the First Trust Large Cap Value AlphaDEX ETF (FTA) is a smart beta exchange traded fund launched on 05/08/2007.

Is First Trust Large Cap Value AlphaDEX ETF (FTA) a Strong ETF Right Now?

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For the First Trust Large Cap Value AlphaDEX Fund ETF (FTA), we found that the implied analyst target price for the ETF based upon its underlying holdings is $61.75 per unit.

Add Up The Parts: The First Trust Large Cap Value AlphaDEX Fund ETF Could Be Worth $62

For the First Trust Large Cap Value AlphaDEX Fund ETF, we found that the implied analyst target price for the ETF based upon its underlying holdings is $61.73 per unit.

Analysts Forecast 11% Upside For The First Trust Large Cap Value AlphaDEX Fund ETF

For the First Trust Large Cap Value AlphaDEX Fund ETF (FTA), we found that the implied analyst target price for the ETF based upon its underlying holdings is $60.81 per unit.

The First Trust Large Cap Value AlphaDEX Fund ETF’s Underlying Holdings Could Mean 11% Gain Potential

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Sum Up The Pieces: The First Trust Large Cap Value AlphaDEX Fund ETF Could Be Worth $61

For the First Trust Large Cap Value AlphaDEX Fund ETF, we found that the implied analyst target price for the ETF based upon its underlying holdings is $60.49 per unit.

News for First Trust Large Cap Value AlphaDEX Fund ETF (FTA)