The combination of an Average People Pillar rating and a Below Average Process Pillar rating limit  First Trust Expanded Technology ETF to a Morningstar Medalist Rating of Neutral.  The portfolio maintains a cost advantage over competitors, priced within the second-cheapest fee quintile among peers.  

 The strategy earns a Below Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a significant underweight position in liquidity exposure and an overweight in quality exposure compared with category peers. Low liquidity risk exposure is attributed to stocks with a low trading volume, limiting managers' flexibility. 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

Alphabet

NVIDIA

Microsoft

Visa

Mastercard

Broadcom

Apple

Disney

salesforce.com

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 Expanded Technology ETF earns a Below Average Process Pillar rating. 

The process benefits from the experience of the management team, which averages 19 years at this fund. However, the rating 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 outperformed 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 parent firm's inferior risk-adjusted performance, as shown by its average 10-year Morningstar Rating of 2.7 stars, also holds the rating back. A lower star rating suggests that the firm has struggled to outperform on a risk-adjusted basis.

 This strategy hews closely to the market cap and investment style of its Technology category peers. Analyzing additional factors, this strategy continually held some stocks with low trading volume over the last few years. Less-liquid stocks might offer strong returns to compensate for their risks, but they can be harder and more expensive to trade in bear markets. In the latest month, the strategy was also less exposed to the Liquidity factor compared with Morningstar Category peers. This strategy also has had a defensive tilt, with exposure to higher-quality stocks compared with peers in recent years. This means that the fund holds companies that are profitable, growing, and have solid balance sheets. Such holdings could cause it to trail peers during economic booms, but help it better withstand busts. Compared with category peers, the strategy also had more exposure to the Quality factor in the most recent month. In addition, this strategy has an underweight bias to the volatility factor, meaning investing in stocks that have a lower standard deviation of returns. These companies have historically been a valuable ballast to steady portfolio returns during market downturns. In recent months, the strategy also had less Volatility factor exposure 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 communication services and financial services relative to the category average by 9.6 and 6.3 percentage points, respectively. The sectors with low exposure compared to category peers are technology and consumer cyclical, underweight the average by 6.5 and 4.4 percentage points of assets, respectively. The portfolio is composed of 51 holdings and is less top-heavy than peers. Specifically, 46.7% of the portfolio's assets are concentrated within the top 10 fund holdings, as opposed to the typical peer's 52.3%. And in closing, in terms of portfolio turnover, looking at year-over-year movements, 81% of the fund's holdings have turned over, whether through increasing, decreasing, or changing a position.

Below Average

Process

First Trust Expanded Technology ETF earns an Average People Pillar rating. Roger F. Testin’s veteran status, with 24 years of listed portfolio management experience, brings a wealth of experience to the table. The average Morningstar Rating of the strategies they currently manage is 2.5 stars, reflecting below-average risk-adjusted performance in comparison to category peers. A large cast of seven additional named managers adds to the team's appeal, averaging 19 years of listed portfolio management experience.  

 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

First Trust Expanded Technology ETF

XPND actively invests in US stocks whose businesses are derived from or dependent on technology.

First Trust Dow Jones Internet Index Fund

MicroSectors FANG+ ETN

iShares Evolved U.S. Technology ETF

iShares North American Tech ETF

Roundhill Ball Metaverse ETF

Invesco NASDAQ Internet ETF

iShares U.S. Tech Breakthrough Multisector ETF

Strong corporate earnings has resulted in strong gains for tech ETFs, with many hitting a new one-year high.

Tech ETFs Riding the Wave of Strong Earnings

On Tuesday, First Trust Advisors L.P., a leading exchange traded fund provider and asset manager, announced the launch of the First Trust Expanded Technology ETF (NYSE Arca: XPND).

News for First Trust Expanded Technology ETF ETF (XPND)