Why We Downgraded This Dividend ETF
Plus, a new team leads to an upgrade for a floating-rate fund.
First Trust Value Line Dividend ETF’s FVD sector concentration and high turnover led to a Process Pillar rating downgrade in January 2025 that dropped its Morningstar Medalist Rating to Neutral from Bronze.
This strategy’s process aims to identify stable, large-cap firms that pay dividends and rank high on price stability and financial strength in a proprietary safety ranking. This set the exchange-traded fund in a defensive posture, so it often lags competitors and the Russell 1000 Value Index during rising markets. The portfolio favors utilities stocks at the expense of the healthcare and energy sectors. Historical performance has been strong during drawdowns but not strong enough during positive market environments in recent years to keep up with competitors over the long term.
The equal-weighted portfolio that rebalances on a monthly basis minimizes single-stock risk, but it also generates higher turnover, increasing transaction costs and eating into returns. Turnover in the fund has surpassed 60% annually, which is slightly higher than the Morningstar Category norm and almost 4 times greater than the Russell 1000 Value index.
Key Morningstar Metrics for First Trust Value Line Dividend ETF
Morningstar Medalist Rating: Neutral
Process Pillar: Average
People Pillar: Average
Parent Pillar: Average
Team Merger Bolsters Fund
A revamped bank-loan team earned Putnam Floating Rate Income PFLRX a People Pillar upgrade to Average from Below Average and boosted the A shares’ Medalist Rating to Neutral from Negative.
Franklin Templeton made significant changes to this strategy’s team after its January 2024 acquisition of Putnam. The fund’s former longtime comanagers Norman Boucher and Robert Salvin withdrew, and Scott D’Orsi took over with Reema Agarwal, Franklin’s director of floating-rate strategies. Franklin veterans Margaret Chiu and Justin Ma also joined as named managers.
The combination of Putnam and Franklin personnel led to a threefold increase in dedicated bank-loan analysts to 14 with two dedicated bank-loan traders. The fund’s process has not changed with the personnel.
Key Morningstar Metrics for Putnam Floating Rate Income
Morningstar Medalist Rating: Neutral
Process Pillar: Average
People Pillar: Average
Parent Pillar: Average
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.
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