Neither process nor people stand out at FirstTrust S&P500 DvrsDiv AristocratsETF, but it gets enough right to help this strategy retain its Morningstar Medalist Rating of Bronze. The portfolio maintains a cost advantage over competitors, priced within the least expensive fee quintile among peers.  

 The strategy gets an Average Process Pillar. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a significant overweight position in liquidity exposure and yield exposure compared with category peers. High liquidity exposure is attributed to stocks with a high trading volume, lending managers more flexibility. And a high yield exposure is rooted in holding high dividend-paying or buyback stocks. 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

Corning

Texas Instruments

Verizon

Hewlett Packard

QUALCOMM

Microchip Technology

Interpublic Group of Companies

Analog Devices

Morningstar's evaluation of this security's process aims to determine the likelihood that it will outperform its Morningstar Category benchmark on a risk-adjusted basis over the long term. FirstTrust S&P500 DvrsDiv AristocratsETF earns an Average Process Pillar rating. The main 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. Strong risk-adjusted performance also contributes to the process. This can be seen in the fund's five-year alpha calculated relative to the category index, which suggests that the process was successful over that period. 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 outperformed their respective category's median Morningstar Risk-Adjusted Return for the period. The parent's subpar success ratio suggests that the firm could do better across its fund lineup.

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&P 500 Sector-Neutral Dividend Aristocrats.  The fund will normally invest at least 90% of its net assets (plus any borrowings for investment purposes) in the securities that comprise the index. According to the index provider to the new index and the new index measures the performance of companies within the S&P 500 Index that have demonstrated stable or increasing dividend per share amounts. 

 The portfolio is overweight in technology and communication services relative to the category average by 18.1 and 2.9 percentage points, respectively. The sectors with low exposure compared to category peers are financial services and energy, underweight the average by 7.3 and 3.8 percentage points of assets, respectively. The portfolio is composed of 101 holdings and is quite concentrated. More concretely, 29.8% of the portfolio's assets are housed within the top 10 holdings, compared to the category average of 27.4%.

Average

Process

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

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 Exchange-Traded Fund VI First Trust S&P 500 Diversified Dividend Ari

KNGZ tracks a sector-neutral US large-cap index selected and weighted based on dividend history and yield.

ProShares S&P 500 Dividend Aristocrats ETF

KNGZ recently reorganized to become a Defensive Dividend Aristocrat ETF. The ETF mains to mirror the sector exposures of the S&P 500 Index, and is expected to yield 3.00%. This article evaluates whether this new strategy is good enough to take on NOBL, the leading Dividend Aristocrat ETF with nearly $12 billion in assets under management. Though NOBL has its fair share of faults, they're minor compared to KNGZ. KNGZ has weaker dividend consistency and safety scores, no EPS growth, and a high 0.50% expense ratio.

News for First Trust Exchange-Traded Fund VI First Trust S&P 500 Diversified Dividend Ari ETF (KNGZ)