The combination of an Average People Pillar rating and a Low Process Pillar rating limit  First Trust Structured Crd Inc Opp ETF 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 gets a Low Process Pillar rating. 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

Morningstar's style-agnostic evaluation of this fund's process seeks to understand whether the strategy has a performance objective and sensible, repeatable execution. First Trust Structured Crd Inc Opp ETF earns a Low Process Pillar rating.    The main detractor from the rating is 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 parent firm's subpar risk-adjusted performance, as shown by its average 10-year Morningstar Rating of 2.7 stars, also weakens the process. 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 67% limits the rating further.

 The investment strategy as stated in the fund's prospectus is as follows: 


The investment seeks to maximize long-term income.  Under normal market conditions, the fund will invest at least 80% of its net assets (plus any borrowings for investment purposes) in structured credit investments. Structured credit investments are created through a securitization process, and in which financial assets such as loans and mortgages are packaged into interest-bearing securities backed by those assets and issued to investors. The fund is non-diversified.

Process

First Trust Structured Crd Inc Opp ETF earns an Average People Pillar rating. The team is backed by James W. Snyder, the longest-tenured manager on the strategy, who provides over 25 years of listed portfolio management experience. The average Morningstar Rating of the strategies they currently manage is 5.0 stars, demonstrating impressive risk-adjusted performance. Although the team is small, it is a solid supporting cast. Together, the three listed managers boast more than an average of 14 years of listed portfolio management experience. As a team, they manage five investment vehicles together, with an asset-weighted average Morningstar Medalist Rating of Neutral. This means, in aggregate, the team falls short and will struggle to produce positive alpha. None of the managers here invest any money in the strategy, which is disappointing, as such investments help align managers' interests with fundholders.

 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.

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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