First Trust Enhanced Short Maturity ETF FTSM is led by an experienced group of portfolio managers supported by a growing team, but a turnover in the past several years coupled with an industry-standard straightforward approach limit the strategy’s appeal. It earns a Morningstar Medalist Rating of Neutral.
Todd Larson has managed this strategy with a small but growing team since its inception in August 2014. He leads the investment-grade fixed-income effort at First Trust and has been with the firm since 2007. He works alongside manager Eric Maisel, who joined the firm in 2008 with more than a decade of prior experience in the credit markets. The team recently added Scott Skorownski as a manager here in November 2022. Skorownski previously worked a senior portfolio manager at a Chicago-based investment management firm and brings with him 26 years of experience. While the team experienced meaningful churn in early 2020, turnover has been relatively muted since. The team has not only replaced all positions in a timely fashion, but also added additional members to the team, enhancing the cohort’s strength. Currently, the trio of managers is supported by two additional portfolio managers who handle the securitized sleeve of the portfolio, aside from a group of five research analysts and a senior trader.
This strategy’s investable universe is screened down from three indexes that aggregate short-term U.S. dollar fixed- and floating-rate investment-grade debt. The portfolio will typically hold around 20%-45% of assets in short-term commercial paper, with another 30%-60% in fixed- and floating-rate corporate debt. The balance of the portfolio is invested in securitized debt, government bonds, and cash. The team typically avoids junk-rated bonds and steers clear of emerging-markets issuers and companies with what it views as weak fundamentals.
The strategy’s long-term performance record is mediocre. From its inception in September 2014 through April 2023, the strategy’s 1.3% annualized return lagged more than 60% of its ultrashort bond Morningstar Category peers. Given its proclivity to remain conservative regarding credit quality relative to peers, investors might expect the strategy to outperform in a credit market downturn, but that has not yet played out. That said, the fund’s defensive shorter-duration positioning has helped it outperform in rate-induced selloffs such as 2022’s market turmoil.

Analyst Rating

An undistinguished ultra-short offering

Analyst

Saraja Samant

The strategy’s straightforward approach of investing in higher-quality securities along the shorter end of the yield curve hasn’t yet shown any discernible edge over peers, warranting an Average Process Pillar rating.
Comanagers Todd Larson and Eric Maisel meet with the larger First Trust fixed-ncome investment team quarterly to discuss a variety of macroeconomic factors, and they use that input to guide portfolio decisions. A set of three short-term indexes that aggregate U.S. dollar short-term fixed- and floating-rate investment-grade debt serves as a starting point for this portfolio. The team screens out more-volatile issues, then analysts assess the fundamentals of the bonds selected by the screen, reviewing the adequacy of their overall collateral and covenant structure. Bonds deemed acceptable by the analysts are then reviewed by the portfolio managers, who sort the debt by maturity, credit rating, and call features and assess the relative attractiveness and potential position sizing of each with the team's trader.
The portfolio is limited to holding 25% of assets in any given corporate sector, and at least 80% must be U.S-dollar-denominated fixed- and variable-rate debt. The team typically targets a duration of 1.0 year or less but can move that opportunistically to express its views on interest rates. The team maintained the strategy’s duration shorter than its ultrashort category peer median through 2022, which helped its relative performance over that calendar year. As of April 2023, however, the strategy's 0.4-year duration is on par with its typical rival.

Average

Process

The team’s ranks are stabilizing. While the team experienced moderate turnover in the past three years, the timely addition of adequate personnel has enhanced the cohort’s ability to manage this effort, warranting a People Pillar rating upgrade to Average from Below Average. 
This team has experienced meaningful churn since early 2020; In March 2020 the team lost a portfolio manager, who had just joined the firm several months prior, along with an analyst and a trader. In 2022, another analyst and trader departed, the latter taking an early retirement. In response, experienced personnel were hired to replace all the vacated roles in short order and another portfolio manager, Scott Skowronski, was added this effort. Skowronski joined the firm in November 2022 with 26 years of experience, and previously served as a senior portfolio manager at a Chicago-based investment management firm.
Skowronski joined longtime lead managers Todd Larson and Eric Maisel here, who have comanaged this strategy since its inception in 2014. Both Larson and Maisel joined First Trust in 2007 and 2008, respectively, and bring decades of investment experience to the effort. The managers also do credit research, though these responsibilities will likely be pared back as the team grows. Currently, this trio is supported by two additional managers, James Snyder and Jeremiah Charles—both are responsible for managing the securitized sleeve of the portfolio—as well as five analysts, three of which have more 10 years’ experience. Moreover, with an aim of expanding their supporting cohort, the managers are expecting to hire a junior trader and another associate analyst.

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 Enhanced Short Maturity ETF

FTSM is actively-managed to invest in a variety of fixed income securities with a target maturity of less than three years.

WHEATON, Ill.--(BUSINESS WIRE)--First Trust Advisors L.P. ("FTA") announces the declaration of the Monthly distribution for First Trust Enhanced Short Maturity ETF, a series of First Trust Exchange-Traded Fund IV. The following dates apply to today's distribution declaration:   Expected Ex-Dividend Date: April 30, 2024   Record Date: May 1, 2024   Payable Date: May 3, 2024 Ticker Exchange Fund Name Frequency Ordinary Income Per Share Amount ACTIVELY MANAGED EXCHANGE-TRADED FUNDS First Trust Exc.

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WHEATON, Ill.--(BUSINESS WIRE)--In the first paragraph after the table, FTA's AUM amount should be $212 billion (instead of $223 billion). The updated release reads: FIRST TRUST ADVISORS L.P. ANNOUNCES DISTRIBUTION FOR FIRST TRUST ENHANCED SHORT MATURITY ETF First Trust Advisors L.P. ("FTA") announces the declaration of the Monthly distribution for First Trust Enhanced Short Maturity ETF, a series of First Trust Exchange-Traded Fund IV. The following dates apply to today's distribution declarat

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