First Trust SMID Cp Rising Div Achv ETF’s management team is rated Average, but a solid investment process still helps this strategy retain its Morningstar Medalist Rating of Silver. The portfolio maintains a cost advantage over competitors, priced within the lowest fee quintile among peers.  

 The strategy's effective investment philosophy supports an Above Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a significant overweight position in quality exposure and yield exposure compared with category peers. High quality exposure is attributed to stocks with low financial leverage and strong returns on equity. And a high yield exposure is rooted in holding high dividend-paying or buyback stocks. 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

Jackson Financial

Dell Technologies

Insperity

Mueller Industries

Sylvamo Corp

Crane Holdings Co

Cactus

Magnolia Oil & Gas Corp

Bank OZK

Chesapeake Energy

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 SMID Cp Rising Div Achv ETF earns an Above Average Process Pillar rating. 

The predominant contributor to the rating is the fund's strong long-term risk-adjusted performance. This can be seen in its five-year alpha calculated relative to the category index, which suggests that the managers have shown skill in their allocation of risk. This fund tracks an index, which also increases its process rating. Historical data, such as Morningstar's Active/Passive Barometer, shows that passively managed funds have generally outperformed their active counterparts, especially over longer time horizons. 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.

 This strategy is similar to its Small Value category peers in terms of market-cap and style exposure. Examining additional factor exposure, this strategy has consistently favored high-quality stocks, including those with low financial leverage and solid returns on equity, compared with Morningstar Category peers during recent years. Though it may trail peers during an economic boom, this orientation contributes to helping it weather periods of economic stress better. In recent months, the strategy was more exposed to the Quality factor compared with its Morningstar Category peers as well. This strategy has also displayed a tendency to hold more companies with high dividend or buyback yields than peers over recent years. Higher-yield stocks can provide steady income, but also have their risks. Dividend payers may cut payouts, for instance, if their earnings fall. Compared with category peers, the strategy also had more exposure to the Yield factor in the most recent month. Additionally, the strategy has demonstrated a contrarian approach with relatively low exposure to momentum stocks during these years. Momentum strategies typically bet that stocks that have recently outperformed will continue to do so, and those that have recently underperformed will keep lagging. Avoiding the former and buying the latter could indicate that managers are averse to chasing momentum. In this month, however, the strategy had more exposure to the Momentum factor than its peers. More information on a fund and its respective category's factor exposure can be found in the Factor Profile module within the Portfolio section. 

 The portfolio is overweight in industrials and financial services relative to the category average by 7.4 and 6.4 percentage points, respectively. The sectors with low exposure compared to category peers are healthcare and real estate, underweight the average by 5.6 and 5.0 percentage points of assets, respectively. The portfolio is composed of 100 holdings and its assets are more dispersed than peers in the category. In particular, 11.7% of the strategy's assets are concentrated in the top 10 fund holdings, compared to the category’s 28.1% average. And finally, in terms of portfolio turnover, looking at year-over-year movements, 58% of the fund's holdings have turned over, whether through increasing, decreasing, or changing a position.

Above Average

Process

First Trust’s team is valuable but does not stand out as one of the industry's best, warranting 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 solid long-term prospects. The strategies average a Bronze asset-weighted Morningstar Medalist Rating, indicating a position 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.

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 SMID Cap Rising Dividend Achievers ETF

SDVY tracks an equal-weighted index of small- and mid-cap US companies with historically increasing dividends and that meet various fundamental criteria.

The First Trust SMID Cap Rising Dividend Achievers ETF (SDVY) made its debut on 11/01/2017, and is a smart beta exchange traded fund that provides broad exposure to the Style Box - Mid Cap Value category of the market.

Is First Trust SMID Cap Rising Dividend Achievers ETF (SDVY) a Strong ETF Right Now?

SDVY tracks an equal-weighted basket of small- and mid-cap stocks exhibiting strong historical dividend growth characteristics. Fees are 0.60% and SDVY yields 1.75% (1.55% expected). DGI investors typically seek positive trends in dividend growth and earnings. However, SDVY's requirement only requires positive growth from three years ago. As a result, SDVY holds many high-growth companies from three years ago, but about 50% have negative one-year trailing and expected earnings per share growth.

SDVY: DGI Investors Should Avoid This Small/Mid-Cap Rising Dividend Achievers ETF

The First Trust SMID Cap Rising Dividend Achievers ETF (SDVY) was launched on 11/01/2017, and is a passively managed exchange traded fund designed to offer broad exposure to the Mid Cap Value segment of the US equity market.

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First Trust SMID Cap Rising Dividend Achievers ETF holds 100 small and mid-cap stocks screened on dividend growth, earnings growth, and quality. The SDVY ETF has a well-diversified portfolio but is concentrated in financials and industrials. Since its inception, SDVY has outperformed the S&P MidCap 400 index and two close competitors in total return and dividend growth rate.

SDVY: Best Of Breed Small And Mid-Cap Dividend Growth ETF

SDVY has been mostly a disappointment since the previous note as 80 holdings out of 100 in its portfolio have delivered negative price returns. However, I remain constructive on this vehicle nonetheless and maintain the Buy rating as the factor story remains attractive tactically. SDVY has both quality and value, sporting a low P/E of just 8.7x, a solid debt-adjusted earnings yield of 11.8%, and double-digit capital efficiency indicators.

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SDVY relies on a quality screening process to build a small/mid-cap dividend achievers portfolio. The ETF has demonstrated strong performance since its inception. The factor story together with remarkable dividend growth characteristics beneath the surface makes SDVY a vehicle to consider.

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First Trust Rising Dividend Achievers ETF

Investors looking to diversify their dividend portfolios, which tend to be heavy on large cap equities, may find improving opportunity amongst smaller stocks. The First Trust SMID Cap Rising Dividend Achievers ETF (NASDAQ: SDVY) is an efficient avenue for tapping into that trend.

Need Some Smaller Dividend Exposure?

Income investors usually focus on large cap equities in the hunt for reliable dividends, but smaller stocks offer plenty of payout potential. The First Trust SMID Cap Rising Dividend Achievers ETF (NASDAQ: SDVY) is an exemplary case.

Small Stocks with Big Payouts: The SDVY ETF

Smaller stocks, including both mid- and small-caps, can be overlooked components of solid dividend portfolios. The First Trust SMID Cap Rising Dividend Achievers ETF (NASDAQ: SDVY) helps investors access a basket of dividend payers from both the mid- and small-cap spaces.

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