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

 The strategy gets 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 yield exposure and liquidity exposure compared with category peers. High yield exposure is attributed to holding high dividend-paying or buyback stocks, and is suitable for income seekers outside of fixed-income. And a high liquidity exposure is rooted in stocks with higher trading volumes, lending managers more flexibility. 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

Macy's

Uber

Royal Caribbean Cruises

PulteGroup

D.R. Horton

Under Armour

DraftKings

Lennar

Toll Brothers

Tapestry

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 Consumer Discret 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 unremarkable 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 retention rate of 68% also weakens the process.

 This strategy tends to hold smaller, more undervalued companies compared with its average peer in the Consumer Cyclical Morningstar Category. Looking at additional factor exposure, this strategy has continually had more high-yield exposure than the Morningstar Category average during recent years, with the portfolio holding more stocks with high dividend or buyback yields. 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 recent months, the strategy was more exposed to the Yield factor compared with its Morningstar Category peers as well. Given the high trading volume of holdings, this strategy has been exposed to liquid assets during these 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. Compared with category peers, the strategy also had more exposure to the Liquidity factor in the most recent month. Additionally, the strategy had less exposure to high-momentum stocks compared with Morningstar Category peers in recent months. Momentum investors tend to expect stocks that have done well recently to continue to do so in the short term. Momentum approaches can entail higher turnover and trading costs since the top stocks can often change.  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 communication services and technology relative to the category average by 6.9 and 2.5 percentage points, respectively. The sectors with low exposure compared to category peers are consumer cyclical and basic materials, with consumer cyclical underweighting the average portfolio by 9.4 percentage points of assets and basic materials similar to the average. The strategy owns 122 securities and its assets are more dispersed than peers in the category. In particular, 14.7% of the portfolio's assets are concentrated in the top 10 fund holdings, as opposed to the category average's 50.8%. And in closing, in terms of portfolio turnover, this portfolio trades more frequently than the average peer in its category, which may result in higher trading costs for investors and cause a drag on performance.

Below 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 20 years of average portfolio management experience. Together, they manage a total of 107 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 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 Consumer Discretionary AlphaDEX Fund

FXD tracks an index of large- and mid-cap US consumer discretionary stocks. The underlying index uses multi-factor selection and tiered equal-weighting.

Disney

Fidelity MSCI Consumer Discretionary ETF

Johnson & Johnson

Vanguard Consumer Discretionary ETF

Consumer Discretionary Select Sector SPDR Fund

The reopening of the U.S. economy, coronavirus vaccine rollout and additional stimulus are expected to increasingly drive investors toward the consumer discretionary sector.

Consumer Discretionary ETFs to Ride Stimulus & Vaccine Optimism

The moderate improvement in consumer confidence is likely to boost the consumer discretionary sector, which attracts a major portion of consumer spending.

Will ETFs Rally as US Consumer Confidence Improves in February?

The moderate improvement in the consumer confidence can help the consumer discretionary sector, which attracts a major portion of consumer spending.

Will ETFs Gain as US Consumer Confidence Improves in January?

Dwindling consumer confidence can hurt the consumer discretionary sector, which attracts a major portion of consumer spending.

Will ETFs Suffer as US Consumer Confidence Drops in December?

If you're adding consumer discretionary ETFs to your portfolio, you may not be buying exactly what you think you are.

Rotating Into Consumer Discretionary? This 1 Stock Is Making it Harder

ProShares Long Online/Short Stores ETF

VanEck Video Gaming and eSports ETF

Amplify Online Retail ETF

ETFMG Prime Mobile Payments ETF

iShares Transportation Average ETF

Tortoise Digital Payments Infrastructure Fund

Here we highlight some ETF areas that are well-positioned to gain from a busy shopping season this year despite the coronavirus crisis.

ETF Areas to Gain From the Holiday Shopping Season

Let's look at the impact of positive preliminary U.S. consumer sentiment data on the consumer discretionary sector, which attracts a major portion of consumer spending.

Will ETFs Gain on Upbeat US Consumer Sentiments in October?

Invesco S&P 500 Equal Weight Consumer Discretionary ETF

Coronavirus concerns batter travel stocks and ETFs Exchange-traded funds with heavy travel industry exposure fell Friday, as President Donald Trump's COVID-19 diagnosis offered a stark reminder of the severity of the virus.

Coronavirus concerns batter travel stocks and ETFs

Strengthening consumer confidence can benefit the consumer discretionary sector, which attracts a major portion of consumer spending.

ETFs to Gain on Upbeat US Consumer Confidence in September

Let's look at the impact of positive U.S. consumer sentiment data on the consumer discretionary sector, which attracts a major portion of consumer spending.

Will ETFs Gain on Upbeat U.S. Consumer Sentiments in August?

It is being believed that given the uncertainty surrounding the coronavirus pandemic and another round of federal stimulus package, consumer spending might not rise in the near term at least.

ETFs at Risk as U.S. Consumer Confidence Slips to Six-Year Low

Let's look at the impact of stable U.S. consumer sentiment data on the consumer discretionary sector, which attracts a major portion of consumer spending.

Will ETFs Gain on Steady U.S. Consumer Sentiment in August?

It is being believed that given the uncertainty surrounding the coronavirus pandemic, consumer spending might not rise in the near term at least.

ETFs at Risk as U.S. Consumer Confidence Takes a Hit in July

With the number of coronavirus cases spiking again throughout the country, leisure companies are once again concerned about how the spread of the virus will affect their business. Cruise lines and airlines have been hit hard during the pandemic, and now Royal Caribbean Cruises (RCL) and  Norwegian Cruise Line (NCLH) have contracted a panel of top health [.

ETF With Norwegian Struggles Tuesday Amid Cruise Woes

Strengthening consumer confidence can help the consumer discretionary sector, which attracts a major portion of consumer spending.

ETFs That Can Ride High on Improving Consumer Confidence

Here we discuss whether the consumer discretionary ETFs will suffer if there is a second wave of the coronavirus outbreak.

What's in Store for Consumer Discretionary ETFs as Virus Spreads?

Norwegian Cruise Line

ETFMG Travel Tech ETF

US Global Jets ETF

Exchange-traded funds with exposure to travel and tourism underperformed Wednesday

Travel and consumer ETFs on track for first day in a week after Norwegian Cruise Lines extends voyage suspensions

June witnessed the second straight monthly increase in the consumer sentiment in the United States.

Will ETFs Gain as U.S. Consumer Sentiment Improves in June?

First Trust NASDAQ Global Auto Index Fund

First Trust Nasdaq Retail ETF

Proshares Online Retail ETF

SPDR S&P Retail ETF

Consumer confidence and spending started to pick up from May. The related funds should go higher in June.

Consumer Discretionary ETFs to Bet on in June

John Hancock Multifactor Consumer Discretionary ETF

Consumer spending is very important for U.S. economic well-being as it contributes 70% of the U.S.

Time for Consumer ETFs as Americans Are Regaining Confidence?

The pandemic has largely impacted the consumer discretionary sector, which attracts a major portion of consumer spending. However, the reopening of US states has come as a ray of hope for the sector.

Consumer Discretionary ETFs in Focus as US Readies to Reopen

Just a day after Warren Buffett announced that Berkshire Hathaway has relinquished all airline holdings in the company’s portfolio, Norwegian Cruise Line stock is plummeting, as the company admonished investors and analysts on Tuesday that it may seek bankruptcy protection. The cruise company stated that there is “substantial doubt” about its ability to subsist given how the coronavirus [.

Travel Sector Woes Due To Norwegian Cruise Lines Bankruptcy Concerns

U.S. consumer confidence takes a sharp hit as the measures to control the coronavirus pandemic disrupts the job market and consumer spending.

ETFs at Risk as US Consumer Confidence Sinks to Near 6-Year Low

The coronavirus outbreak hits U.S. consumer sentiment in early April, as the nation grapples with a huge number of infected cases.

ETFs at Risk as U.S. Consumer Sentiment Sees a Steep Decline

iShares U.S. Home Construction ETF

VanEck Mortgage REIT Income ETF

Invesco Dynamic Semiconductors ETF

Given the signs of stabilization in the deaths and infections caused by COVID-19, many corners of the stock market rallied. We have highlighted five ETFs from various industries that were at the forefront of the rally.

News for First Trust Consumer Discretionary AlphaDEX Fund ETF (FXD)