First Trust Indxx Aerspc & Defns ETF's Average Process Pillar and People Pillar ratings result in 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 receives an Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained an underweight position in yield exposure and an overweight in quality exposure compared with category peers. Low yield exposure is attributed to holding fewer stocks with high dividend or buyback yields -- instead, typically holding companies with a stronger focus on growth opposed to returning capital. And a high quality exposure is rooted in holding stocks with low financial leverage and strong returns on equity. 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

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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. First Trust Indxx Aerspc & Defns ETF 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. Management team experience, which averages 22 years at this fund, also contributes to the process. 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 modest 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 of an equity index called the Indxx US Aerospace & Defense Index.  The fund will invest at least 80% of its net assets in the common stocks that comprise the index. The index is a rules-based index, however, the index Provider reserves the right to use qualitative judgment to include, exclude, adjust, and or postpone the inclusion of a stock in the index which is the ordinary course discretion that the index Provider has to modify which securities qualify for inclusion in the index in accordance with the rules of its selection methodology. It is non-diversified. 

 The portfolio is overweight in technology by 10.4 percentage points in terms of assets compared with the category average, and its communication services allocation is similar to the category. The sectors with low exposure compared to category peers are industrials and consumer cyclical, with industrials underweighting the average portfolio by 6.6 percentage points of assets and consumer cyclical similar to the average. The portfolio is positioned across 34 holdings and is less top-heavy than peers. Specifically, 59.2% of the strategy's assets are concentrated within the top 10 fund holdings, compared to the typical peer's 69.8%.

Average

Process

First Trust’s  team is comparable to peers, resulting in an Average People Pillar rating. There’s a sizable bench of seven managers listed on the fund. Experience on the team is abundant, with 22 years of average 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 Indxx Aerospace & Defense ETF

MISL tracks a market cap-weighted index of 50 US companies involved in advanced and traditional aerospace and defense.

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First Trust Advisors has launched a new exchange traded fund, the First Trust Indxx Aerospace & Defense ETF (NYSE Arca: MISL). According to the asset manager, the fund seeks investment results that correspond generally to the price and yield, before the fund's fees and expenses, of the Indxx US Aerospace & Defense Index.

First Trust Launches Aerospace & Defense ETF With MISL

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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 ETF, the First Trust Indxx Aerospace & Defense ETF (NYSE Arca: MISL) (the “fund”). The fund seeks investment results that correspond generally to the price and yield (before the fund's fees and expenses) of an index called the Indxx US Aerospace & Defense Index (the “index”)

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