Weakness in First Trust Innovation Leaders ETF's Process and People Pillar ratings limits this strategy to a Morningstar Medalist Rating of Negative. The strategy charges fees in line with its similarly distributed peers, priced within the middle quintile.  

 The strategy receives 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 an underweight in quality exposure compared with category peers. High liquidity exposure is attributed to stocks with a high trading volume, lending managers more flexibility. And a low quality exposure is rooted in stocks with higher financial leverage and lower profitability. The strategy’s management team earns a Below 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

NVIDIA

Alphabet

Microsoft

Amazon

Uber

ServiceNow

Oracle

Broadcom

Suncor Energy

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 Innovation Leaders ETF earns a Below Average Process Pillar rating. 

The process benefits from the size of its portfolio management team. With four portfolio managers at the helm, the fund is reasonably well-resourced. However, the rating 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 modest success ratio suggests that the firm could do better across its fund lineup. The parent firm's subpar risk-adjusted performance, as shown by its average 10-year Morningstar Rating of 2.7 stars, also holds the rating back. A lower star rating suggests that the firm has struggled to outperform on a risk-adjusted basis.

 This strategy tends to hold smaller, more growth-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. 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. The strategy has also had a defensive tilt, demonstrated by lower exposure to the quality factor than peers in recent years. This means the fund has avoided holding companies that are consistently profitable, growing, and have solid balance sheets. Such positions do not tend to provide much ballast for a portfolio. Similarly, in recent months, the strategy also had less exposure to the Quality factor than peers. In addition, this strategy has exhibited a tilt toward higher-volatility stocks in these years, meaning companies that have a higher historical standard deviation of returns compared with peers. 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. In this month, the strategy also had more exposure to the Volatility 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 technology and healthcare relative to the category average by 13.8 and 3.9 percentage points, respectively. The sectors with low exposure compared to category peers are consumer cyclical and financial services, underweight the average by 8.8 and 5.3 percentage points of assets, respectively. The strategy owns 66 securities and its assets are more dispersed than peers in the category. In particular, 39.1% of the strategy's assets are concentrated in the top 10 fund holdings, as opposed to the typical peer's 54.8%. And finally, in terms of portfolio turnover, on a year-over-year basis, 51% of the fund's holdings have turned over, whether through increasing, decreasing, or changing a position.

Below Average

Process

First Trust Innovation Leaders ETF earns a Below Average People Pillar rating. David G. McGarel’s veteran status, with 24 years of listed portfolio management experience, brings a wealth of experience to the table. The strategies they currently manage have an average Morningstar Rating of 2.5 stars, demonstrating disappointing risk-adjusted performance compared with category peers. David G. McGarel is supported by an experienced team, being able to draw on three additional listed managers, who average 17 years of listed portfolio management experience.  

 Note: The People Pillar rating is indirectly assigned by an analyst. The longest-tenured manager of the fund also manages a different product rated by an analyst. Their analyst-assigned People Pillar rating is combined here with the People scores (algorithmic or analyst-assigned) for the fund’s other managers on a tenure-weighted basis.

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.

Average

Parent

First Trust Innovation Leaders ETF

ILDR is an actively managed fund that seeks capital appreciation by targeting global companies believed to benefit from scientific and technological innovation.

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First Trust TCW ESG Premier Equity ETF

On Wednesday, First Trust Advisors L.P., a leading ETF provider and asset manager, announced the launch of two new actively managed ETFs, the First Trust TCW ESG Premier Equity ETF (NYSE Arca: EPRE) and the First Trust Innovation Leaders ETF (NYSE Arca: ILDR).

News for First Trust Innovation Leaders ETF ETF (ILDR)