The combination of a middling Process Pillar rating and a Below Average People Pillar rating limit  First Trust Multi-Strat Alt ETF to a Morningstar Medalist Rating of Negative.  Fees are a weakness here. The strategy's lofty fees are a high hurdle to clear, as it is priced within the highest quintile among peers.  

 The strategy’s management team earns a Below Average People Pillar rating. The strategy merits an Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a considerable underweight position in the Europe-Developed region and has a significant overweight in developed markets regions compared with category peers. 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

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Morningstar's evaluation of this fund's process seeks to understand management's investment philosophy, and whether it has been applied consistently over time and can add value across the market cycle. First Trust Multi-Strat Alt ETF earns an Average Process Pillar rating. The leading factor in the rating is the experience of the management team, which averages 26 years at this fund. The scale of the portfolio management team also contributes to the process. With five portfolio managers, the fund is well-staffed. 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 beat their respective category's median Morningstar Risk-Adjusted Return for the period. The parent's relatively low success ratio suggests that the firm could do better across its fund lineup.

 Its equity sleeve has exhibited a continual bias to smaller market-cap companies versus the average. Though from a style (value/growth) perspective, it is average. The strategy has three region or sector biases compared to category peers. The most notable is its consistent underexposure to the Developed Europe region. It has also sustained an overweight position in developed markets regions. Lastly, the strategy has a large and consistent overweight in the healthcare sector. 

 The portfolio is overweight in technology and healthcare relative to the category average by 9.5 and 8.8 percentage points, respectively. The sectors with low exposure compared to category peers are real estate and financial services, underweight the average by 8.3 and 6.8 percentage points of assets, respectively. The portfolio is overweight in North America by 38.4 percentage points compared with the category average, and Middle East and Africa's allocation is similar to its peers. The regions with low exposure compared to their category peers are Developed Europe and Japan, underweight the average by 15.7 percentage points and 7.3 percentage points, respectively.

Average

Process

First Trust Multi-Strat Alt ETF earns a Below Average People Pillar rating. Michael A. Petersen, the longest-tenured manager on the strategy, provides strong guidance, bringing forward over 25 years of listed portfolio management experience. They are currently not a named manager on any additional investment vehicles, narrowing their focus to one strategy. The team boasts an experienced corps of listed portfolio managers, with four others supporting Michael A. Petersen. Together, they average over 25 years of listed portfolio management experience.  The highest personal investment by any of the strategy's managers is between $10,000 and $50,000. That is too low to promote alignment of their interests with the fund's investors.

 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.

Below 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

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WHEATON, Ill.--( BUSINESS WIRE )--First Trust Advisors L.P. (“First Trust”), a leading exchange-traded fund (“ETF”) provider and asset manager, announced today that it has launched a new actively managed ETF, the First Trust Multi-Strategy Alternative ETF (NYSE Arca: LALT) (the “fund”). The fund seeks to provide long-term total return. The fund will primarily gain exposure to alternative asset categories and strategies (“alternatives”) by investing in exchange-traded products (“ETPs”) (including ETFs, exchange-traded notes (“ETNs”) and trusts backed by physical commodities or currencies).

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