The combination of an Average People Pillar rating and a Below Average Process Pillar rating limit  First Trust S-Network Glb E-Com ETF to a Morningstar Medalist Rating of Neutral.  The portfolio maintains a cost advantage over competitors, priced within the second-lowest fee quintile among peers.  

 The strategy earns a Below Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained an overweight in volatility exposure and an underweight in liquidity exposure compared with category peers. High volatility exposure is attributed to companies with a higher standard deviation of returns. And a low liquidity exposure is rooted in stocks with lower trading volumes, limiting managers' 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

Coupang

Lululemon Athletica

Walmart

Nuvn PA Mun Val Shs of Benef Interest

Global Payments

Next plc.

FedEx

Fidelity National Information

Expedia

Shopify

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 S-Network Glb E-Com ETF earns a Below Average Process Pillar rating. The process is bolstered by the stability of the management team. Specifically, the fund has not seen a manager change in the last seven years. However, the rating is limited by the fund's weak 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 inferior risk-adjusted performance, as shown by its average 10-year Morningstar Rating of 2.7 stars, also limits the process. A lower star rating suggests that the firm has struggled to outperform on a risk-adjusted basis.

The investment strategy as stated in the fund's prospectus is:  The investment seeks investment results that correspond generally to the price and yield (before the fund’s fees and expenses) of an equity index called the S-Network Global E-Commerce Index.  The fund will normally invest at least 90% of its net assets in the securities that comprise the index. The index seeks to provide exposure to companies with securities listed on major global recognized exchanges that are engaged in the global e-commerce industry. It is non-diversified. 

 The portfolio is overweight in communication services and technology relative to the category average by 25.4 and 11.7 percentage points, respectively. The sectors with low exposure compared to category peers are consumer cyclical and consumer defensive, underweight the average by 47.0 and 2.6 percentage points of assets, respectively. The portfolio is positioned across 62 holdings and its assets are more dispersed than peers in the category. In particular, 19.6% of the strategy's assets are concentrated in the top 10 fund holdings, compared to the category’s 45.5% average. And in closing, in terms of portfolio turnover, on a year-over-year basis, 95% of the fund's holdings have turned over, whether through increasing, decreasing, or changing a position.

Below Average

Process

First Trust’s team is valuable but does not stand out as one of the industry's best, warranting 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, indicating the 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.

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 S-Network E-Commerce ETF

ISHP tracks an index that provides exposure to the global e-commerce industry. Securities are selected by market-cap and weighted equally.

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