The combination of an Average People Pillar rating and a Low Process Pillar rating limit  First Trust Alerian US NextGen InfrasETF to a Morningstar Medalist Rating of Negative.  The strategy charges fees in line with its similarly distributed peers, priced within the middle quintile.  

 The strategy receives a Low Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained an overweight in quality exposure and volatility exposure compared with category peers. A high quality exposure means holding stocks that are consistently profitable, growing, and have solid balance sheets. And high volatility exposure is rooted in stocks that have a higher standard deviation of returns. 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 index on a risk-adjusted basis over the long term. First Trust Alerian US NextGen InfrasETF earns a Low Process Pillar rating. The main driver of the rating is the fund's mediocre 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 disappointing risk-adjusted performance, as shown by its average 10-year Morningstar Rating of 2.7 stars, also holds the process back. A lower star rating suggests that the firm has struggled to outperform on a risk-adjusted basis. The parent firm's five-year retention rate of 68% detracts from the rating further.

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 Alerian U.S. NextGen Infrastructure Index.  The fund will normally invest at least 90% of its net assets in the common stocks and real estate investment trusts (“ REITs ”) that comprise the index. The index seeks to provide exposure to U.S. infrastructure companies with securities listed on recognized U.S. securities exchanges that build and operate and own infrastructure assets. 

 The portfolio is overweight in utilities and energy relative to the category average by 30.7 and 7.6 percentage points, respectively. The sectors with low exposure compared to category peers are industrials and consumer cyclical, with industrials underweighting the average portfolio by 51.9 percentage points of assets and consumer cyclical similar to the average. The portfolio is composed of 102 holdings and its assets are more dispersed than the typical peer in the category. In the most recent disclosure, 10.9% of the strategy's assets were concentrated in the top 10 fund holdings, as opposed to the category average's 70.5%.

Process

First Trust’s equity team is good but unexceptional, earning the strategy an Average People Pillar rating. There’s a deep bench of seven managers listed on the fund. Experience on the team is abundant, with 20 years of average portfolio management experience. Together, they manage a total of 107 strategies, with a Bronze asset-weighted average Morningstar Medalist Rating, demonstrating their potential to deliver positive alpha relative to the category median in aggregate. This group has had relatively low management turnover, providing a stable environment and continuity for the strategies. 

 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 Alerian US NextGen

RBLD tracks an equal-weighted index that comprises 100 of the largest US infrastructure companies selected by market capitalization.

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