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

 The strategy receives an 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 quality exposure compared with category peers. High liquidity exposure is attributed to stocks with a high trading volume, lending managers more flexibility. 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

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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 Growth Strength ETF earns an Average Process Pillar rating. 

The most notable 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. Management team experience, which averages 22 years at this fund, also contributes to the process. 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 Growth Morningstar Category. Examining additional factor exposure, the fund has held stocks with higher trading volumes compared to Morningstar Category Peers in the past few 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. In recent months, the strategy was more exposed to the Liquidity factor compared with its Morningstar Category peers as well. This strategy also has tilted in favor of high-quality stocks, those that have demonstrated low financial leverage and solid return on equity, during these years. High exposure to the quality factor means holding companies that are consistently profitable, growing, and have solid balance sheets. Compared with category peers, the strategy also had more exposure to the Quality factor in the most recent month. Additionally, the managers have tended to overweight yield, shown by the portfolio's high exposure to stocks paying dividends or buying back shares. High-yield stocks tend to be connected to more mature companies earning enough cash to return some to shareholders. At times, however, extreme market pressure can force them to cut their dividends, which hurts stock performance. 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 energy and financial services relative to the category average by 8.7 and 5.5 percentage points, respectively. The sectors with low exposure compared to category peers are technology and communication services, underweight the average by 9.8 and 5.0 percentage points of assets, respectively. The portfolio is composed of 51 holdings and its assets are more dispersed than the typical peer in the category. In the most recent disclosure, 22.5% of the fund’s assets were concentrated in the top 10 fund holdings, as opposed to the category’s 54.8% average.

Average

Process

First Trust’s  team is comparable to peers, resulting in an Average People Pillar rating. There’s a sizable 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.  

 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 Growth Strength ETF

FTGS tracks an equal-weighted index of 50 well-capitalized, large-cap companies with strong market positions in the US. The fund uses various fundamental metrics to select growth equities.

The First Trust Growth Strength ETF (FTGS) made its debut on 10/25/2022, and is a smart beta exchange traded fund that provides broad exposure to the Style Box - Large Cap Growth category of the market.

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The First Trust Growth Strength ETF (FTGS) was launched on 10/25/2022, and is a passively managed exchange traded fund designed to offer broad exposure to the Large Cap Growth segment of the US equity market.

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