First Trust Low Dur Strat Foc ETF's Average Process Pillar and People Pillar ratings result in a Morningstar Medalist Rating of Neutral. Fees are a weakness here. The strategy's lofty fees are a high hurdle to clear, as it is priced within the second-highest quintile among peers.  

 The strategy earns an Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a significant underweight position in AA rated bonds and government bonds compared with category peers. This management team has a wealth of experience, but still gets an Average People Pillar rating. The strategy's parent organization is industry standard, albeit with some strong attributes like overall reasonable fees, but is held back by low portfolio manager retention. This earns the firm an Average Parent Pillar rating.

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Morningstar's style-agnostic investment process evaluation looks for strategies that should be able to outperform their Morningstar Category index on a risk-adjusted basis over time. First Trust Low Dur Strat Foc ETF earns an Average Process Pillar rating.   The most significant contributor to the rating is the experience of the management team, which averages 18 years at this fund. The size of the portfolio management team also bolsters the rating. 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 31%. 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.

 Compared with other funds in the Short-Term Bond Morningstar Category, this fund takes on significantly higher credit risk. But in terms of long-term interest-rate sensitivity, it hews closely to its average peer. Opening the analysis to additional factors, the portfolio has displayed three biases over time, whether towards or away from certain fixed-income instruments. Relative to the category average, the managers have been substantially underweight AA rated bonds. Additionally, the fund has exhibited a notable sector bias away from government bonds. And finally, the fund leans away from debt with one- to three-year maturities.

 This strategy's 12-month yield is 3.5%, higher than its average peer's 3.1%. It also has a 3.6% 30-day SEC yield (a measure similar to yield-to-maturity). While a higher yield may deliver more income, it also tends to indicate higher credit risk. The portfolio has a lower average credit rating of BBB, compared with the category average's A and its non-investment-grade stake is 13% of assets, compared to its peers' 3%. Strategies with more credit risk may have a higher return, but they are riskier.

Average

Process

The team at First Trust Low Dur Strat Foc ETF has the benefit of an experienced team of portfolio managers and an experienced longest-tenured manager, but is still relatively unexceptional, earning the strategy an Average People Pillar rating. The team is backed by Daniel J. Lindquist, the longest-tenured manager on the strategy, who provides 23 years of portfolio management experience. The average Morningstar Rating of the strategies they currently manage is 2.6 stars, reflecting below-average risk-adjusted performance relative to category peers. Daniel J. Lindquist is supported by an experienced team, being able to draw on four additional listed managers, who average 18 years of portfolio management experience. As a team, they manage two investment vehicles together, with mixed prospects. The asset-weighted average Morningstar Medalist Rating across the strategies is Neutral. This means, in aggregate, they are not positioned to deliver positive alpha.   

 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.

Parent

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