First Trust Capital Strength ETF's Average Process Pillar and People Pillar ratings result in a Morningstar Medalist Rating of Neutral. The portfolio maintains a sizable cost advantage over competitors, priced within the second-cheapest fee quintile among peers.  

 The strategy gets an Average Process Pillar. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a significant underweight position in volatility exposure and an overweight in quality exposure compared with category peers. Low volatility exposure is attributed to stocks with a lower standard deviation of returns. And a high quality exposure is rooted in holding stocks with low financial leverage and strong returns on equity. 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

Cummins

Chipotle

PACCAR

General Dynamics

Amphenol

Garmin

Copart

Walmart

Elevance Health Inc

Linde

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 Capital Strength ETF earns an Average Process Pillar rating. 

The leading factor in the rating is the stability of the management team. Specifically, the fund has not seen a manager change in the last 11 years. This fund tracks an index, which also increases its process rating. Historical data, like Morningstar's Active/Passive Barometer, shows that passively managed funds have generally outperformed their active counterparts, especially over longer time horizons. 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 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 tends to hold smaller, more value-oriented companies than its average peer in the Large Blend Morningstar Category. Examining additional factor exposure, this strategy has consistently exhibited a tilt toward low-volatility stocks or companies whose shares have a history of lower standard deviation of returns, compared with its Morningstar Category peers in recent years. These companies have historically been a valuable ballast to steady portfolio returns during market downturns. In the latest month, the strategy was also less exposed to the Volatility factor compared with Morningstar Category peers. This strategy also has had a position favoring high-quality stocks in recent years, which could contribute to higher downside risk protection. Though it may trail peers during an economic boom, this orientation contributes to helping it weather periods of economic stress better. Compared with category peers, the strategy also had more exposure to the Quality factor in the most recent month. In addition, this strategy's holdings have included more companies with high dividend or buyback yields than peers over these years. Higher-yield stocks can provide steady 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 industrials and consumer defensive relative to the category average by 12.1 and 11.5 percentage points, respectively. The sectors with low exposure compared to category peers are technology and communication services, underweight the average by 10.1 and 8.1 percentage points of assets, respectively. The portfolio is composed of 51 holdings and is less top-heavy than peers. Specifically, 21.7% of the portfolio's assets are concentrated within the top 10 fund holdings, compared to the category’s 48.8% average.

Average

Process

First Trust’s equity team is good but unexceptional, earning the strategy 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 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.

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 Capital Strength ETF

FTCS tracks an equally weighted US large-cap equity index targeting companies with a strong cash balance, low long-term debt, and high return on equity.

Launched on 07/06/2006, the First Trust Capital Strength ETF (FTCS) is a smart beta exchange traded fund offering broad exposure to the Style Box - Large Cap Blend category of the market.

Is First Trust Capital Strength ETF (FTCS) a Strong ETF Right Now?

First Trust Capital Strength ETF takes a smart-beta, concentrated approach to quality investing. This is an alluring strategy at first blush, yet returns appeared to be not as strong as investors might anticipate from a basket of companies that demonstrate 'capital strength.' Since my September 2023 note, FTCS's factor story has not changed much, yet there are nuances still worth addressing.

FTCS: Cash-Rich Quality Stories Still Lag The Market

Designed to provide broad exposure to the Large Cap Blend segment of the US equity market, the First Trust Capital Strength ETF (FTCS) is a passively managed exchange traded fund launched on 07/06/2006.

Should First Trust Capital Strength ETF (FTCS) Be on Your Investing Radar?

FTCS is an $8.5 billion ETF that somehow flies under the radar. It shouldn't. The market is likely to again reward capital strength over sheer stock size, which bodes well for FTCS in 2024. I recently bought it in one of my investment accounts, and rate it Buy here.

FTCS: Finally, This ETF's Style Is Timely!

Tracking the Capital Strength index, FTCS adheres to the highest standards of quality, representing cash-rich companies with strong capital efficiency. Alas, FTCS has significantly underperformed the S&P 500 index since the previous note. Analyzing how the portfolio has changed since March, I noticed that quality has improved, but valuation characteristics have weakened.

As FTCS Disappoints Again, Let's Discuss The Factor Story

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The Wall Street rally in the first half of 2023 involved a narrow market breadth. Hence, there were many ETF under-performers.

5 ETF Underdogs of 1H Likely to Turnaround in 2H

FTCS selects 50 large-cap stocks with high cash on hand, low debt loads, high returns on equity, and low realized volatility. Since 2006, it's delivered comparable returns to SPY. Quarterly reconstitutions drive 100%+ turnover rates, so FTCS can change on a whim. Today, FTCS offers an attractive growth and valuation combination that may interest short-term traders. FTCS is unique because it selects less-volatile, often smaller large-cap stocks, but still maintains high profitability. It also features strong earnings momentum, something its constituents didn't have last year.

FTCS: How This Capital Strength ETF's Fortunes Improved

FTCS is a solid quality-centered fund I attempt to cover at least on a quarterly basis. Since my December 2022 article, the fund has declined by about 5.6%, partly proving that my assessment of the valuation risks was correct.

FTCS: Grossly Profitable Companies, Yet Short On Value, Not A Buy

FTCS is an index-based fund offering concentrated exposure to U.S. stocks boasting solid cash on the balance sheet, with moderate debt and robust return on equity. FTCS has surprised us to the upside since my previous note, finishing ahead of the bellwether S&P 500 index for four full months in a row.

FTCS: Reassessing Expensive, Quality-Heavy, Growth-Light Equity Mix

FTCS holds 50 large-cap companies in equal weight based on cash on hand, debt as a percentage of market capitalization, return on equity, and volatility. Reconstitutions and rebalancings occur quarterly. The expense ratio is relatively high at 0.55%, but FTCS is one of the few large-cap blend ETFs to outperform the S&P 500 Index over the last ten years.

FTCS: Capital Strength Focused ETF Has Its Flaws

FTCS pursues cash-rich, debt-light large-cap U.S. companies capable of delivering returns on equity of at least 15%. FTCS keeps portfolio risk in check adding a volatility screen to its strategy.

First Trust Capital Strength ETF: Let Us Be Skeptical

Portfolio focuses on stocks with high quality balance sheets, substantial ROE, and low volatility. “Offense sells tickets, defense wins games, rebounding wins championships”. First Trust Capital Strength has $8.2 billion in AUM and is in the top 100 of ETF asset accumulation. The ETF is classified as a Core Large-Cap Strategy.

FTCS: Unique Core Portfolio With Strength Of Capital That You've Never Heard Of

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A slew of strong corporate earnings, especially from the banking sector and many others, coupled with an upbeat retail sales data rekindled investors interest in the stock market.

Investors Return to ETFs: 5 Hot Picks of Last Week

Only the Large Cap Blend, All Cap Value, and All Cap Blend styles earn Attractive-or-better ratings. The primary driver behind an Attractive fund rating is good portfolio management, or good stock picking, with low total annual costs.

Q3 2021 Investment Style Ratings For ETFs And Mutual Funds

When it comes to investment choices, investors can play offense, defense and even neutral market strategies. Rare are the strategies that allow investors to establish offensive and defensive postures under a single, efficient umbrella.

Play Offense and Defense with a Single Capital Strength ETF

The 2020 coronavirus market slide may seem like a distant memory today, but it taught investors some important lessons. One lesson was that when the going gets tough, it's best to side with sturdy companies while eschewing financially flimsy fare.

When Strength Matters, Focus on the FTCS ETF

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Plus, additional ETF changes and the launch of two more actively managed ETFs.

ETF Odds & Ends: Another Fund Converts

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A few ETFs have garnered solid investor interest last week and will continue to be their darlings should the current market trends prevail.

5 Equity ETFs That Were Red-Hot Last Week

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The Large Cap Blend style ranks second in Q1'21. Based on an aggregation of ratings of 61 ETFs and 660 mutual funds in the Large Cap Blend style.

Best And Worst Q1 2021: Large Cap Blend ETFs And Mutual Funds

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Financial advisors weigh in on what ETFs and what themes they seeing working next year.

4 Top Advisor ETF Picks For 2021

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Sometimes it's the little things that bring in the assets. 

Demand For Quality ETFs Uneven

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ETFs overall gathered about $18.5 billion capital last week, bringing year-to-date inflows of $352.6 billion, ahead of the $211.7 billion seen at this same time a year ago.

Weekly ETF Roundup: Broad U.S. Equity Tops

First Trust TCW Opportunistic Fixed Income ETF

First Trust Low Duration Opportunities ETF

First Trust NASDAQ Clean Edge Green Energy Index Fund

In this post-coronavirus environment, the exchange traded fund industry, like many other market segments, has had to adapt to a new stay-at-home mindset. Take, for example, First Trust, which is known for their strength of hundreds of wholesalers and internal consultants, has changed the way it has done business to meet financial advisors whom can’t [.

News for First Trust Capital Strength ETF ETF (FTCS)