UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-21774
First Trust Exchange-Traded Fund
(Exact name of registrant as specified in charter)
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
(Address of principal executive offices) (Zip code)
W. Scott Jardine, Esq.
First Trust Portfolios L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
(Name and address of agent for service)
Registrant's telephone number, including area code: (630) 765-8000
Date of fiscal year end: December 31
Date of reporting period: June 30, 2023
Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget ("OMB") control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.
Item 1. Report to Stockholders.
| (a) | | The registrant's semi-annual report transmitted to shareholders pursuant to Rule 30e-1 under the Investment Company Act of 1940 is as follows: |
Semi-Annual Report
For the Six Months Ended
June 30, 2023
First Trust Exchange-Traded Fund
First Trust Dow Jones Select MicroCap Index Fund (FDM) |
First Trust Morningstar Dividend Leaders Index Fund (FDL) |
First Trust US Equity Opportunities ETF (FPX) |
First Trust NYSE® Arca® Biotechnology Index Fund (FBT) |
First Trust Dow Jones Internet Index Fund (FDN) |
First Trust Capital Strength ETF (FTCS) |
First Trust Value Line® Dividend Index Fund (FVD) |
First Trust Exchange-Traded Fund
Semi-Annual Report
June 30, 2023
Caution Regarding Forward-Looking Statements
This report contains certain forward-looking statements within the meaning of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. Forward-looking statements include statements regarding the goals, beliefs, plans or current expectations of First Trust Advisors L.P. (“First Trust” or the “Advisor”) and its representatives, taking into account the information currently available to them. Forward-looking statements include all statements that do not relate solely to current or historical fact. For example, forward-looking statements include the use of words such as “anticipate,” “estimate,” “intend,” “expect,” “believe,” “plan,” “may,” “should,” “would” or other words that convey uncertainty of future events or outcomes.
Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of any series of First Trust Exchange-Traded Fund (the “Trust”) described in this report (each such series is referred to as a “Fund” and collectively, as the “Funds”) to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. When evaluating the information included in this report, you are cautioned not to place undue reliance on these forward-looking statements, which reflect the judgment of the Advisor and its representatives only as of the date hereof. We undertake no obligation to publicly revise or update these forward-looking statements to reflect events and circumstances that arise after the date hereof.
Performance and Risk Disclosure
There is no assurance that any Fund described in this report will achieve its investment objective. Each Fund is subject to market risk, which is the possibility that the market values of securities owned by the Fund will decline and that the value of the Fund’s shares may therefore be less than what you paid for them. Accordingly, you can lose money by investing in a Fund. See “Risk Considerations” in the Additional Information section of this report for a discussion of certain other risks of investing in the Funds.
Performance data quoted represents past performance, which is no guarantee of future results, and current performance may be lower or higher than the figures shown. For the most recent month-end performance figures, please visit www.ftportfolios.com or speak with your financial advisor. Investment returns, net asset value and share price will fluctuate and Fund shares, when sold, may be worth more or less than their original cost.
The Advisor may also periodically provide additional information on Fund performance on each Fund’s webpage at www.ftportfolios.com.
How to Read This Report
This report contains information that may help you evaluate your investment. It includes details about each Fund and presents data and analysis that provide insight into each Fund’s performance and investment approach.
By reading the market overview by Robert F. Carey, Chief Market Strategist of the Advisor, you may obtain an understanding of how the market environment affected the performance of each Fund. The statistical information that follows may help you understand each Fund’s performance compared to that of relevant market benchmarks.
It is important to keep in mind that the opinions expressed by personnel of the Advisor are just that:informed opinions. They should not be considered to be promises or advice. The opinions, like the statistics, cover the period through the date on the cover of this report. The material risks of investing in each Fund are spelled out in its prospectus, statement of additional information, and other Fund regulatory filings.
First Trust Exchange-Traded Fund
Semi-Annual Letter from the Chairman and CEO
June 30, 2023
Dear Shareholders,
First Trust is pleased to provide you with the semi-annual report for certain series of the First Trust Exchange-Traded Fund (the “Funds”), which contains detailed information about the Funds for the six months ended June 30, 2023.
One economic topic that continues to dominate headlines is whether the Federal Reserve (the “Fed”) will be able to pull off a “soft landing” for the U.S. economy, raising interest rates just high enough to curb inflation, but not so high that they stunt economic growth and cause a recession. Historically, soft landings are exceedingly rare. Over the past 60 years, the Fed has only been able to orchestrate this phenomenon once. This occurred between February 1994 and February 1995 when the Fed doubled the Federal Funds target rate (upper bound), raising it from 3.0% to 6.0%. For comparative purposes, the Federal Funds target rate (upper bound) stood at 5.25% on June 30, 2023, a full 500 basis points above its most recent low of 0.25% on March 15, 2022. Inflation, as measured by the rate of change in the Consumer Price Index (“CPI”), appears to be declining. The CPI stood at 3.0% on June 30, 2023, substantially lower than its most recent peak of 9.1% on June 30, 2022. Despite the Fed’s tighter monetary policy, the U.S. economy continues to show resilience, with gross domestic product (“GDP”) growing in each of the past three quarters.
I am continually amazed by the efficiencies that technological advances can have on production. Take, for example, the recent interest in artificial intelligence (“AI”). The U.S. Census Bureau reported that construction spending by manufacturers in the U.S. has more than doubled in the past year, reaching an annual rate of nearly $190 billion in April 2023, according to Bloomberg. Manufacturing now accounts for close to 13% of all non-government construction, its highest share on record. A portion of the growth in U.S. manufacturing is due to the CHIPS and Science Act, which provided nearly $280 billion in funding to boost domestic research and manufacturing of semiconductors in the U.S. We have also seen the excitement regarding developments in AI drive the S&P 500® Index (the “Index”) higher this year. Year-to-date through June 30, 2023, the Index posted a total return of 16.89%. When the stock market increases by 20% or more from its most recent low, it is often referred to as a “bull market.” On June 8, 2023, the Index closed at 4,293.93, 20.04% above its most recent low of 3,577.03 (which occurred on October 12, 2022).
The U.S. economy has been resilient, posting positive changes to GDP even as monetary policy tightened significantly. That said, there are also economic indicators that point to the potential for weakness over the coming quarters. The Conference Board, a
non-profit business membership and research group organization, reported that its Leading Economic Index, which is composed of 10 economic indicators whose changes tend to precede changes in the overall economy, fell by 0.7% to a reading of 106.1 in June 2023, according to Reuters. The result represents the fifteenth consecutive monthly decline in the index, the longest streak of
month-over-month decreases since just before the financial crisis in 2007. From our perspective, even if the Fed can pull off a soft landing, it is likely to be a very bumpy ride.
Thank you for giving First Trust the opportunity to play a role in your financial future. We value our relationship with you and will report on the Funds again in six months.
Sincerely,
James A. Bowen
Chairman of the Board of Trustees
Chief Executive Officer of First Trust Advisors L.P.
First Trust Exchange-Traded Fund
Semi-Annual Report
June 30, 2023
Robert F. Carey, CFA
Senior Vice President and Chief Market Strategist
First Trust Advisors L.P.
Mr. Carey is responsible for the overall management of research and analysis of the First Trust product line. Mr. Carey has more than 30 years of experience as an Equity and Fixed-Income Analyst and is a recipient of the Chartered Financial Analyst (“CFA”) designation. He is a graduate of the University of Illinois at Champaign-Urbana with a B.S. in Physics. He is also a member of the Investment Analysts Society of Chicago and the CFA Institute. Mr. Carey has appeared as a guest on such programs as Bloomberg TV, CNBC, and WBBM Radio, and has been quoted by several publications, including The Wall Street Journal, The Wall Street Reporter, Bloomberg News Service and Registered Rep.
State of the Economy/Investing
As we head into the second half of 2023, a hot topic of discussion appears to be whether the Federal Reserve (the “Fed”) will resume interest rate hikes at their upcoming meeting on July 26, 2023. Central to this discussion is the pace of inflation. Inflation, as measured by the trailing 12-month rate of change in the Consumer Price Index, stood at 3.0% on June 30, 2023, a significant decline from its high of 9.1% where it stood on June 30, 2022 (the year prior), according to the U.S. Bureau of Labor Statistics. In what is known as a “soft landing,” the Fed intends to tighten monetary policy just enough to reduce inflation to 2.0%, but not so much that they cause a retraction in economic growth.
The latest growth forecast from the International Monetary Fund (“IMF”) released in July 2023 sees U.S. real gross domestic product (“GDP”) rising by 1.8% in 2023, up from its April 2023 estimate of 1.6%. The IMF notes that July’s upwardly revised real GDP reflects resilient consumer consumption in the first quarter of 2023, a trend they are quick to note is not likely to last. The IMF estimates that in 2024, U.S. real GDP could fall to just 1.0%. Overall, Advanced Economies are projected to register a 1.5% growth rate in 2023, before declining to 1.4% in 2024. Emerging Market and Developing Economies are projected to grow faster than Advanced Economies. The IMF estimates their growth rate to register 4.0% and 4.1% in 2023 and 2024, respectively.
U.S. Stocks and Bonds
The major U.S. stock indices delivered positive results over the past six months. The S&P 500®, S&P MidCap 400® and S&P SmallCap 600® Indices posted total returns of 16.89%, 8.84% and 6.03%, respectively, for the six-month period ended June 30, 2023. Seven of the eleven major sectors that comprise the S&P 500® Index were up on a total return basis. The top performer was the Information Technology sector, which was up 42.77%, while the worst showing came from the Utilities sector, which was down 5.69%.
Results were also positive in the U.S. bond market over the period. The top performing major debt group we track was long-term municipal bonds. The Bloomberg Municipal Bond:Long Bond (22+) Index posted a total return of 4.96% for the six-month period ended June 30, 2023. The worst-performing U.S. debt group that we track was intermediate U.S. Treasuries. The Bloomberg U.S. Treasury:Intermediate Index posted a total return of 1.10%. The yield on the benchmark 10-Year Treasury Note (“T-Note”) fell by just 4 basis points in the period to close at 3.84% on June 30, 2023, according to Bloomberg. For comparative purposes, the average yield on the 10-Year T-Note was 2.90% for the 10-year period ended June 30, 2023.
Foreign Stocks and Bonds
The broader foreign stock indices posted positive total returns over the past six months. Between December 30, 2022, and June 30, 2023, the MSCI World ex USA and MSCI Emerging Markets equity indices posted total returns of 11.29% (USD) and 4.89% (USD), respectively, according to Bloomberg. The major foreign bond indices were also up over the same period. The Bloomberg Global Aggregate Index of higher quality debt posted a total return of 1.43% (USD), while the Bloomberg EM Hard Currency Aggregate Index of emerging markets debt increased by 3.55% (USD), according to Bloomberg. The U.S. Dollar fell by just 0.59% over the past six months against a basket of major currencies, as measured by the U.S. Dollar Index.
Fund Performance Overview (Unaudited)
First Trust Dow Jones Select MicroCap Index Fund (FDM)
The First Trust Dow Jones Select MicroCap Index Fund (the “Fund”) seeks investment results that correspond generally to the price and yield (before the Fund’s fees and expenses) of an equity index called the Dow Jones Select MicroCap IndexSM (the “Index”). The Fund will normally invest at least 90% of its net assets (including investment borrowings) in the securities that comprise the Index. The Index is designed to measure the performance of micro-cap stocks issued by U.S. companies that are comparatively liquid and have strong fundamentals relative to the micro-cap segment as a whole. The Index is rebalanced quarterly and reconstituted annually and the Fund will make corresponding changes to its portfolio shortly after the Index changes are made public. The Fund’s shares are listed for trading on the NYSE Arca, Inc. (“NYSE Arca”). The first day of secondary market trading in shares of the Fund was September 30, 2005.
|
| | | Average Annual Total Returns | |
| | | | | Inception
(9/27/05)
to 6/30/23 | | | Inception
(9/27/05)
to 6/30/23 |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Dow Jones Select MicroCap | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
(See Notes to Fund Performance Overview on page 18.)
| % of Total
Long-Term
Investments |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| % of Total
Long-Term
Investments |
Sitio Royalties Corp., Class A | |
| |
John B Sanfilippo & Son, Inc. | |
National Western Life Group, Inc., Class A | |
Thermon Group Holdings, Inc. | |
| |
| |
| |
Collegium Pharmaceutical, Inc. | |
| |
| |
Dow Jones Select MicroCap IndexSM (“Index”) is a product of S&P Dow Jones Indices LLC or its affiliates (“SPDJI”) and has been licensed for use by First Trust. S&P® is a registered trademark of Standard & Poor’s Financial Services LLC (“S&P”); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”); and these trademarks have been licensed for use by SPDJI and sublicensed for certain purposes by First Trust. The Fund is not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, or their respective affiliates and none of such parties make any representation regarding the advisability of investing in such product nor do they have any liability for any errors, omissions, or interruptions of the Index.
Fund Performance Overview (Unaudited) (Continued)
First Trust Dow Jones Select MicroCap Index Fund (FDM) (Continued)
| Performance figures assume reinvestment of all distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund’s past performance does not predict future performance. |
Frequency Distribution of Discounts and Premiums
Information showing the number of days the market price of the Fund’s shares was greater (at a premium) and less (at a discount) than the Fund’s net asset value for the most recently completed year, and the most recently completed calendar quarters since that year (or life of the Fund, if shorter) is available at https://www.ftportfolios.com/Retail/etf/home.aspx.
Fund Performance Overview (Unaudited) (Continued)
First Trust Morningstar Dividend Leaders Index Fund (FDL)
The First Trust Morningstar Dividend Leaders Index Fund (the “Fund”) seeks investment results that correspond generally to the price and yield (before the Fund’s fees and expenses) of an equity index called the Morningstar® Dividend Leaders IndexSM (the “Index”). The Fund will normally invest at least 90% of its net assets (including investment borrowings) in the securities that comprise the Index. The Index is designed to measure the performance of the 100 highest-yielding stocks that have a consistent record of dividend payment and have the ability to sustain their dividend payments. The securities comprising the Morningstar® US Market IndexSM serve as the Fund’s selection universe. The Index is rebalanced quarterly and reconstituted annually and the Fund will make corresponding changes to its portfolio shortly after the Index changes are made public. The Fund’s shares are listed for trading on the NYSE Arca. The first day of secondary market trading in shares of the Fund was March 15, 2006.
|
| | | Average Annual Total Returns | |
| | | | | Inception
(3/9/06)
to 6/30/23 | | | Inception
(3/9/06)
to 6/30/23 |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Russell 1000® Value Index | | | | | | | | |
(See Notes to Fund Performance Overview on page 18.)
| % of Total
Long-Term
Investments |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| % of Total
Long-Term
Investments |
Verizon Communications, Inc. | |
| |
| |
| |
Philip Morris International, Inc. | |
| |
International Business Machines Corp. | |
| |
| |
Pioneer Natural Resources Co. | |
| |
Morningstar® and Morningstar® Dividend Leaders IndexSM are registered trademarks and service marks of Morningstar, Inc. (“Morningstar”) and have been licensed for use by First Trust on behalf of the Fund. The Fund is not sponsored, endorsed, issued, sold or promoted by Morningstar and Morningstar makes no representation regarding the advisability of investing in the Fund.
Fund Performance Overview (Unaudited) (Continued)
First Trust Morningstar Dividend Leaders Index Fund (FDL) (Continued)
| Performance figures assume reinvestment of all distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund’s past performance does not predict future performance. |
Frequency Distribution of Discounts and Premiums
Information showing the number of days the market price of the Fund’s shares was greater (at a premium) and less (at a discount) than the Fund’s net asset value for the most recently completed year, and the most recently completed calendar quarters since that year (or life of the Fund, if shorter) is available at https://www.ftportfolios.com/Retail/etf/home.aspx.
Fund Performance Overview (Unaudited) (Continued)
First Trust US Equity Opportunities ETF (FPX)
The First Trust US Equity Opportunities ETF (the “Fund”) seeks investment results that correspond generally to the price and yield (before the Fund’s fees and expenses) of an equity index called the IPOX®-100 U.S. Index (the “Index”). The Fund will normally invest at least 90% of its net assets (including investment borrowings) in the securities that comprise the Index. The Index seeks to measure the performance of the equity securities of the 100 typically largest and most liquid initial public offerings (“IPOs”) (including spin-offs and equity carve-outs) of U.S. companies. The Index is rebalanced and reconstituted quarterly and the Fund will make corresponding changes to its portfolio shortly after the Index changes are made public. The Fund’s shares are listed for trading on the NYSE Arca. The first day of secondary market trading in shares of the Fund was April 13, 2006.
|
| | | Average Annual Total Returns | |
| | | | | Inception
(4/12/06)
to 6/30/23 | | | Inception
(4/12/06)
to 6/30/23 |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
(See Notes to Fund Performance Overview on page 18.)
| % of Total
Long-Term
Investments |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| % of Total
Long-Term
Investments |
| |
| |
| |
| |
| |
GE HealthCare Technologies, Inc. | |
| |
| |
Warner Bros Discovery, Inc. | |
Bentley Systems, Inc., Class B | |
| |
IPOX® and IPOX®-100 U.S. Index are registered international trademarks and service marks of IPOX® Schuster LLC (“IPOX”) and have been licensed for use by First Trust. The Fund is not sponsored, endorsed, sold or promoted by IPOX, and IPOX makes no representation regarding the advisability of trading in such Fund.
Fund Performance Overview (Unaudited) (Continued)
First Trust US Equity Opportunities ETF (FPX) (Continued)
| Performance figures assume reinvestment of all distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund’s past performance does not predict future performance. |
Frequency Distribution of Discounts and Premiums
Information showing the number of days the market price of the Fund’s shares was greater (at a premium) and less (at a discount) than the Fund’s net asset value for the most recently completed year, and the most recently completed calendar quarters since that year (or life of the Fund, if shorter) is available at https://www.ftportfolios.com/Retail/etf/home.aspx.
Fund Performance Overview (Unaudited) (Continued)
First Trust NYSE® Arca® Biotechnology Index Fund (FBT)
The First Trust NYSE® Arca® Biotechnology Index Fund (the “Fund”) seeks investment results that correspond generally to the price and yield (before the Fund’s fees and expenses) of an equity index called the NYSE® Arca® Biotechnology Index (the “Index”). The Fund will normally invest at least 90% of its net assets (including investment borrowings) in the securities that comprise the Index. The Index is an equal-dollar weighted index designed to measure the performance of a cross section of small, mid and large capitalization companies in the biotechnology industry that are primarily involved in the use of biological processes to develop products or provide services. Such processes include, but are not limited to, recombinant DNA technology, molecular biology, genetic engineering, monoclonal antibody-based technology, lipid/liposome technology and genomics. The Index is rebalanced and reconstituted quarterly and the Fund will make corresponding changes to its portfolio shortly after the Index changes are made public. The Fund’s shares are listed for trading on the NYSE Arca. The first day of secondary market trading in shares of the Fund was June 23, 2006.
|
| | | Average Annual Total Returns | |
| | | | | Inception
(6/19/06)
to 6/30/23 | | | Inception
(6/19/06)
to 6/30/23 |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
NYSE® Arca® Biotechnology Index | | | | | | | | |
S&P Composite 1500® Health Care Index | | | | | | | | |
Nasdaq® Biotechnology Index | | | | | | | | |
| | | | | | | | |
(See Notes to Fund Performance Overview on page 18.)
Source ICE Data Indices, LLC, is used with permission. “NYSE®” is a service/trade mark of ICE Data Indices, LLC or its affiliates. This trademark has been licensed, along with the NYSE® Arca® Biotechnology Index (the “Index”) for use by First Trust Portfolios L.P. in connection with the First Trust NYSE® Arca® Biotechnology Index Fund (the “Product”). Neither First Trust Portfolios L.P., First Trust Exchange-Traded Fund (the “Trust”) nor the Product, as applicable, is sponsored, endorsed, sold or promoted by ICE Data Indices, LLC, its affiliates or its Third Party Suppliers (“ICE Data and its Suppliers”). ICE Data and its Suppliers make no representations or warranties regarding the advisability of investing in securities generally, in the Product particularly, the Trust or the ability of the Index to track general market performance. Past performance of an Index is not an indicator of or a guarantee of future results.ICE DATA AND ITS SUPPLIERS DISCLAIM ANY AND ALL WARRANTIES AND REPRESENTATIONS, EXPRESS AND/OR IMPLIED, INCLUDING ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, INCLUDING THE INDICES, INDEX DATA AND ANY INFORMATION INCLUDED IN, RELATED TO, OR DERIVED THEREFROM (“INDEX DATA”). ICE DATA AND ITS SUPPLIERS SHALL NOT BE SUBJECT TO ANY DAMAGES OR LIABILITY WITH RESPECT TO THE ADEQUACY, ACCURACY, TIMELINESS OR COMPLETENESS OF THE INDICES AND THE INDEX DATA, WHICH ARE PROVIDED ON AN “AS IS” BASIS AND YOUR USE IS AT YOUR OWN RISK.
Fund Performance Overview (Unaudited) (Continued)
First Trust NYSE® Arca® Biotechnology Index Fund (FBT) (Continued)
| % of Total
Long-Term
Investments |
| |
Life Sciences Tools & Services | |
| |
| % of Total
Long-Term
Investments |
| |
Agios Pharmaceuticals, Inc. | |
| |
ACADIA Pharmaceuticals, Inc. | |
| |
Ionis Pharmaceuticals, Inc. | |
Ultragenyx Pharmaceutical, Inc. | |
| |
Vertex Pharmaceuticals, Inc. | |
Charles River Laboratories International, Inc. | |
| |
| Performance figures assume reinvestment of all distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund’s past performance does not predict future performance. |
Frequency Distribution of Discounts and Premiums
Information showing the number of days the market price of the Fund’s shares was greater (at a premium) and less (at a discount) than the Fund’s net asset value for the most recently completed year, and the most recently completed calendar quarters since that year (or life of the Fund, if shorter) is available at https://www.ftportfolios.com/Retail/etf/home.aspx.
Fund Performance Overview (Unaudited) (Continued)
First Trust Dow Jones Internet Index Fund (FDN)
The First Trust Dow Jones Internet Index Fund (the “Fund”) seeks investment results that correspond generally to the price and yield (before the Fund’s fees and expenses) of an equity index called the Dow Jones Internet Composite IndexSM (the “Index”). The Fund will normally invest at least 90% of its net assets (including investment borrowings) in the securities that comprise the Index. The Index is designed to measure the performance of the largest and most actively traded securities issued by U.S. companies in the Internet industry. The Index is rebalanced and reconstituted quarterly and the Fund will make corresponding changes to its portfolio shortly after the Index changes are made public. The Fund’s shares are listed for trading on the NYSE Arca. The first day of secondary market trading in shares of the Fund was June 23, 2006.
|
| | | Average Annual Total Returns | |
| | | | | Inception
(6/19/06)
to 6/30/23 | | | Inception
(6/19/06)
to 6/30/23 |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Dow Jones Internet Composite | | | | | | | | |
S&P Composite 1500® Information Technology Index | | | | | | | | |
| | | | | | | | |
(See Notes to Fund Performance Overview on page 18.)
| % of Total
Long-Term
Investments |
| |
| |
| |
| |
| |
| |
| |
| % of Total
Long-Term
Investments |
| |
Meta Platforms, Inc., Class A | |
| |
| |
| |
| |
| |
| |
| |
| |
| |
Dow Jones Internet Composite IndexSM (“Index”) is a product of S&P Dow Jones Indices LLC or its affiliates (“SPDJI”) and has been licensed for use by First Trust. S&P® is a registered trademark of Standard & Poor’s Financial Services LLC (“S&P”); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”); and these trademarks have been licensed for use by SPDJI and sublicensed for certain purposes by First Trust. The Fund is not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, or their respective affiliates and none of such parties make any representation regarding the advisability of investing in such product nor do they have any liability for any errors, omissions, or interruptions of the Index.
Fund Performance Overview (Unaudited) (Continued)
First Trust Dow Jones Internet Index Fund (FDN) (Continued)
| Performance figures assume reinvestment of all distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund’s past performance does not predict future performance. |
Frequency Distribution of Discounts and Premiums
Information showing the number of days the market price of the Fund’s shares was greater (at a premium) and less (at a discount) than the Fund’s net asset value for the most recently completed year, and the most recently completed calendar quarters since that year (or life of the Fund, if shorter) is available at https://www.ftportfolios.com/Retail/etf/home.aspx.
Fund Performance Overview (Unaudited) (Continued)
First Trust Capital Strength ETF (FTCS)
The First Trust Capital Strength ETF (the “Fund”) seeks investment results that correspond generally to the price and yield (before the Fund’s fees and expenses) of an equity index called The Capital StrengthTM Index (the “Index”). The Fund will normally invest at least 90% of its net assets (including investment borrowings) in the securities that comprise the Index. The Index seeks to provide exposure to well-capitalized companies with strong market positions that have the potential to provide their stockholders with a greater degree of stability and performance over time. The Index is rebalanced and reconstituted quarterly and the Fund will make corresponding changes to its portfolio shortly after the Index changes are made public. The Fund’s shares are listed for trading on The Nasdaq Stock Market LLC. The first day of secondary market trading in shares of the Fund was July 11, 2006.
|
| | | Average Annual Total Returns | |
| | | | | Inception
(7/6/06)
to 6/30/23 | | | Inception
(7/6/06)
to 6/30/23 |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| On June 4, 2013, the Fund’s underlying index changed from the Credit Suisse U.S. Value Index, Powered by HOLTTM to The Capital Strength IndexSM. On June 18, 2010, the Fund’s underlying index changed from the Deutsche Bank CROCI® US+ IndexTM to the Credit Suisse U.S. Value Index, Powered by HOLTTM. Since the Fund’s new underlying index had an inception date of March 20, 2013, it was not in existence for some of the periods disclosed. |
(See Notes to Fund Performance Overview on page 18.)
| % of Total
Long-Term
Investments |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| % of Total
Long-Term
Investments |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
Nasdaq® and The Capital StrengthTM Index are registered trademarks and service marks of Nasdaq, Inc. (together with its affiliates hereinafter referred to as the “Corporations”) and are licensed for use by First Trust. The Fund has not been passed on by the Corporations as to its legality or suitability. The Fund is not issued, endorsed, sold or promoted by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE FUND.
Fund Performance Overview (Unaudited) (Continued)
First Trust Capital Strength ETF (FTCS) (Continued)
| Performance figures assume reinvestment of all distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund’s past performance does not predict future performance. |
Frequency Distribution of Discounts and Premiums
Information showing the number of days the market price of the Fund’s shares was greater (at a premium) and less (at a discount) than the Fund’s net asset value for the most recently completed year, and the most recently completed calendar quarters since that year (or life of the Fund, if shorter) is available at https://www.ftportfolios.com/Retail/etf/home.aspx.
Fund Performance Overview (Unaudited) (Continued)
First Trust Value Line® Dividend Index Fund (FVD)
The First Trust Value Line® Dividend Index Fund (the “Fund”) seeks investment results that correspond generally to the price and yield (before the Fund’s fees and expenses) of an equity index called the Value Line® Dividend Index (the “Index”). The Fund will normally invest at least 90% of its net assets (including investment borrowings) in the securities that comprise the Index. The Index seeks to measure the performance of the securities ranked #1 or #2 according to Value Line Publishing, LLC’s proprietary Value Line® SafetyTM Ranking System that are also still expected to provide above-average dividend yield. The Index is rebalanced and reconstituted monthly and the Fund will make corresponding changes to its portfolio shortly after the Index changes are made public. The Fund’s shares are listed for trading on the NYSE Arca.
|
| | | Average Annual Total Returns | |
| | | | | Inception
(8/19/03)
to 6/30/23 | | | Inception
(8/19/03)
to 6/30/23 |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Value Line® Dividend Index(1) | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| On December 15, 2006, the Fund acquired the assets and adopted the financial and performance history of First Trust Value Line® Dividend Fund (the “Predecessor FVD Fund,” a closed-end fund), which had an inception date of August 19, 2003. The inception date total returns at net asset value (“NAV”) include the sales load of $0.675 per share on the initial offering. The investment goals, strategies and policies of the Fund are substantially similar to those of the Predecessor FVD Fund. The inception date of the Index was July 3, 2006. Returns for the Index are only disclosed for those periods in which the Index was in existence for the entire period. The cumulative total returns for the period from the reorganization date (December 15, 2006) through period end (June 30, 2023) were 262.27% and 263.91% at NAV and Market Price, respectively. That compares to an Index return of 312.92% for the same period. The average annual total returns for the period from the reorganization date (December 15, 2006) through period end (June 30, 2023) were 8.09% and 8.12% at NAV and Market Price, respectively. That compares to an Index return of 8.95% for the same period.
NAV and Market Price returns assume that all distributions have been reinvested in the Fund at NAV and Market Price, respectively. Prior to December 15, 2006, NAV and Market Price returns assumed that all distributions were reinvested at prices obtained by the Dividend Reinvestment Plan of the Predecessor FVD Fund and the price used to calculate Market Price return was the AMEX (now known as the NYSE American) closing market price of the Predecessor FVD Fund.
|
| Performance data is not available for all the periods shown in the table for the index because performance data does not exist for some of the entire periods. |
(See Notes to Fund Performance Overview on page 18.)
Value Line® and Value Line® Dividend Index are trademarks or registered trademarks of Value Line, Inc. (“Value Line”) and have been licensed for use for certain purposes by First Trust. The Fund is not sponsored, endorsed, recommended, sold or promoted by Value Line and Value Line makes no representation regarding the advisability of investing in products utilizing such strategy.
Fund Performance Overview (Unaudited) (Continued)
First Trust Value Line® Dividend Index Fund (FVD) (Continued)
| % of Total
Long-Term
Investments |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| % of Total
Long-Term
Investments |
| |
| |
| |
| |
| |
| |
| |
T. Rowe Price Group, Inc. | |
| |
Robert Half International, Inc. | |
| |
| Performance figures assume reinvestment of all distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund’s past performance does not predict future performance. |
Frequency Distribution of Discounts and Premiums
Information showing the number of days the market price of the Fund’s shares was greater (at a premium) and less (at a discount) than the Fund’s net asset value for the most recently completed year, and the most recently completed calendar quarters since that year (or life of the Fund, if shorter) is available at https://www.ftportfolios.com/Retail/etf/home.aspx.
Notes to Fund Performance Overview (Unaudited)
Total returns for the periods since inception are calculated from the inception date of each Fund. “Average Annual Total Returns” represent the average annual change in value of an investment over the periods indicated. “Cumulative Total Returns” represent the total change in value of an investment over the periods indicated. The total returns would have been lower if certain fees had not been waived and expenses reimbursed by the Advisor.
Each Fund’s per share net asset value (“NAV”) is the value of one share of the Fund and is computed by dividing the value of all assets of the Fund (including accrued interest and dividends), less all liabilities (including accrued expenses and dividends declared but unpaid), by the total number of outstanding shares. The price used to calculate market return (“Market Price”) is determined by using the midpoint of the national best bid and offer price (“NBBO”) as of the time that the Fund’s NAV is calculated. Under SEC rules, the NBBO consists of the highest displayed buy and lowest sell prices among the various exchanges trading the Fund at the time the Fund’s NAV is calculated. Prior to January 1, 2019, the price used was the midpoint between the highest bid and the lowest offer on the stock exchange on which shares of the Fund were listed for trading as of the time that the Fund’s NAV was calculated. Since shares of each Fund did not trade in the secondary market until after the Fund’s inception, for the period from inception to the first day of secondary market trading in shares of the Fund, the NAV of each Fund is used as a proxy for the secondary market trading price to calculate market returns. NAV and market returns assume that all distributions have been reinvested in each Fund at NAV and Market Price, respectively.
An index is a statistical composite that tracks a specified financial market or sector. Unlike each Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by each Fund. These expenses negatively impact the performance of each Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The total returns presented reflect the reinvestment of dividends on securities in the indices. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. The investment return and principal value of shares of each Fund will vary with changes in market conditions. Shares of each Fund may be worth more or less than their original cost when they are redeemed or sold in the market. Each Fund’s past performance is no guarantee of future performance.
First Trust Exchange-Traded Fund
Understanding Your Fund Expenses
June 30, 2023 (Unaudited)
As a shareholder of First Trust Dow Jones Select MicroCap Index Fund, First Trust Morningstar Dividend Leaders Index Fund, First Trust US Equity Opportunities ETF, First Trust NYSE® Arca® Biotechnology Index Fund, First Trust Dow Jones Internet Index Fund, First Trust Capital Strength ETF or First Trust Value Line® Dividend Index Fund (each a “Fund” and collectively, the “Funds”), you incur two types of costs: (1) transaction costs; and (2) ongoing costs, including management fees, distribution and/or service (12b-1) fees, if any, and other Fund expenses. This Example is intended to help you understand your ongoing costs of investing in the Funds and to compare these costs with the ongoing costs of investing in other funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held through the six-month period ended June 30, 2023.
Actual Expenses
The first line in the following table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During the Six-Month Period” to estimate the expenses you paid on your account during this six-month period.
Hypothetical Example for Comparison Purposes
The second line in the following table provides information about hypothetical account values and hypothetical expenses based on each Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not each Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Funds and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs such as brokerage commissions. Therefore, the second line in the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
| Beginning
Account Value
January 1, 2023 | Ending
Account Value
June 30, 2023 | Annualized
Expense Ratio
Based on the
Six-Month
Period (a) | Expenses Paid
During the
Six-Month
Period (b) |
First Trust Dow Jones Select MicroCap Index Fund (FDM) |
| | | | |
Hypothetical (5% return before expenses) | | | | |
First Trust Morningstar Dividend Leaders Index Fund (FDL) |
| | | | |
Hypothetical (5% return before expenses) | | | | |
First Trust US Equity Opportunities ETF (FPX) |
| | | | |
Hypothetical (5% return before expenses) | | | | |
First Trust NYSE® Arca® Biotechnology Index Fund (FBT) |
| | | | |
Hypothetical (5% return before expenses) | | | | |
First Trust Dow Jones Internet Index Fund (FDN) |
| | | | |
Hypothetical (5% return before expenses) | | | | |
First Trust Capital Strength ETF (FTCS) |
| | | | |
Hypothetical (5% return before expenses) | | | | |
First Trust Exchange-Traded Fund
Understanding Your Fund Expenses (Continued)
June 30, 2023 (Unaudited)
| Beginning Account Value January 1, 2023 | Ending Account Value June 30, 2023 | Annualized Expense Ratio Based on the Six-Month Period (a) | Expenses Paid During the Six-Month Period (b) |
First Trust Value Line® Dividend Index Fund (FVD) |
| | | | |
Hypothetical (5% return before expenses) | | | | |
| These expense ratios reflect expense caps for certain Funds. See Note 3 in the Notes to Financial Statements. |
| Expenses are equal to the annualized expense ratio as indicated in the table multiplied by the average account value over the period (January 1, 2023 through June 30, 2023), multiplied by 181/365 (to reflect the six-month period). |
First Trust Dow Jones Select MicroCap Index Fund (FDM)
Portfolio of Investments
June 30, 2023 (Unaudited)
| | |
|
| Aerospace & Defense — 0.6% | |
| National Presto Industries, Inc. | |
| Air Freight & Logistics — | |
| Radiant Logistics, Inc. (a) | |
| | |
| Modine Manufacturing Co. (a) | |
| | |
| | |
| Amalgamated Financial Corp. | |
| | |
| Bankwell Financial Group, Inc. | |
| | |
| Carter Bankshares, Inc. (a) | |
| Coastal Financial Corp. (a) | |
| CrossFirst Bankshares, Inc. (a) | |
| Esquire Financial Holdings, Inc. | |
| Farmers & Merchants Bancorp, Inc. | |
| Fidelity D&D Bancorp, Inc. (b) | |
| First Bancshares (The), Inc. | |
| First Business Financial Services, Inc. | |
| | |
| First Guaranty Bancshares, Inc. | |
| First of Long Island (The) Corp. | |
| | |
| | |
| | |
| HomeTrust Bancshares, Inc. | |
| | |
| John Marshall Bancorp, Inc. (b) | |
| Metrocity Bankshares, Inc. | |
| Midland States Bancorp, Inc. | |
| | |
| Orrstown Financial Services, Inc. | |
| Peapack-Gladstone Financial Corp. | |
| | |
| Republic First Bancorp, Inc. (a) | |
| | |
| Southern Missouri Bancorp, Inc. | |
| | |
| | |
| | |
| | |
| Eagle Pharmaceuticals, Inc. (a) | |
| Selecta Biosciences, Inc. (a) | |
| | |
| | |
|
| | |
| | |
| | |
| Bridge Investment Group Holdings, Inc., Class A | |
| GCM Grosvenor, Inc., Class A | |
| Silvercrest Asset Management Group, Inc., Class A | |
| | |
| | |
| Alto Ingredients, Inc. (a) (b) | |
| | |
| Intrepid Potash, Inc. (a) | |
| | |
| | |
| | |
| | |
| Liquidity Services, Inc. (a) | |
| | |
| | |
| | |
| | |
| Cambium Networks Corp. (a) | |
| | |
| Construction & Engineering | |
| | |
| | |
| | |
| | |
| Consumer Portfolio Services, Inc. (a) (b) | |
| EZCORP, Inc., Class A (a) (b) | |
| | |
| Consumer Staples Distribution | |
| Natural Grocers by Vitamin Cottage, Inc. | |
| | |
| | |
| Diversified Consumer Services | |
| American Public Education, Inc. (a) | |
| | |
| Universal Technical Institute, Inc. (a) | |
| | |
See Notes to Financial Statements
First Trust Dow Jones Select MicroCap Index Fund (FDM)
Portfolio of Investments (Continued)
June 30, 2023 (Unaudited)
| | |
COMMON STOCKS (Continued) |
| | |
| | |
| Electrical Equipment — 3.1% | |
| Babcock & Wilcox Enterprises, Inc. (a) | |
| Preformed Line Products Co. | |
| Thermon Group Holdings, Inc. (a) | |
| | |
| Electronic Equipment, Instruments & Components | |
| | |
| Kimball Electronics, Inc. (a) | |
| Richardson Electronics Ltd. | |
| Vishay Precision Group, Inc. (a) | |
| | |
| | |
| Reservoir Media, Inc. (a) (b) | |
| Sciplay Corp., Class A (a) | |
| | |
| Financial Services — 3.6% | |
| Acacia Research Corp. (a) | |
| A-Mark Precious Metals, Inc. | |
| Cass Information Systems, Inc. | |
| Ocwen Financial Corp. (a) (b) | |
| | |
| | |
| | |
| John B Sanfilippo & Son, Inc. | |
| Seneca Foods Corp., Class A (a) | |
| Whole Earth Brands, Inc. (a) | |
| | |
| | |
| Covenant Logistics Group, Inc. | |
| | |
| | |
| Sensus Healthcare, Inc. (a) | |
| | |
| | |
| Hotels, Restaurants & Leisure | |
| Chuy’s Holdings, Inc. (a) | |
| | |
| El Pollo Loco Holdings, Inc. | |
| Nathan’s Famous, Inc. (b) | |
| RCI Hospitality Holdings, Inc. | |
| | |
| | |
|
| Household Durables — 3.7% | |
| Bassett Furniture Industries, Inc. | |
| Beazer Homes USA, Inc. (a) | |
| Dream Finders Homes, Inc., Class A (a) (b) | |
| Ethan Allen Interiors, Inc. | |
| | |
| | |
| | |
| National Western Life Group, Inc., Class A | |
| | |
| | |
| Hackett Group (The), Inc. | |
| Information Services Group, Inc. | |
| | |
| | |
| | |
| | |
| Johnson Outdoors, Inc., Class A | |
| MasterCraft Boat Holdings, Inc. (a) | |
| | |
| | |
| Commercial Vehicle Group, Inc. (a) (b) | |
| Manitowoc (The) Co., Inc. (a) | |
| | |
| | |
| Pangaea Logistics Solutions Ltd. (b) | |
| | |
| Entravision Communications Corp., Class A | |
| PubMatic, Inc., Class A (a) | |
| | |
| | |
| | |
| Haynes International, Inc. | |
| | |
| Ramaco Resources, Inc., Class A (b) | |
| Ramaco Resources, Inc., Class B (a) | |
| | |
| | |
| | |
| | |
| | |
See Notes to Financial Statements
First Trust Dow Jones Select MicroCap Index Fund (FDM)
Portfolio of Investments (Continued)
June 30, 2023 (Unaudited)
| | |
COMMON STOCKS (Continued) |
| Mortgage Real Estate Investment Trusts (Continued) | |
| | |
| Granite Point Mortgage Trust, Inc. | |
| | |
| | |
| | |
| | |
| | |
| Oil, Gas & Consumable Fuels | |
| Centrus Energy Corp., Class A (a) | |
| | |
| | |
| Evolution Petroleum Corp. | |
| Ring Energy, Inc. (a) (b) | |
| | |
| Sitio Royalties Corp., Class A (b) | |
| | |
| | |
| | |
| Atea Pharmaceuticals, Inc. (a) | |
| Collegium Pharmaceutical, Inc. (a) | |
| Phibro Animal Health Corp., Class A | |
| ProPhase Labs, Inc. (a) (b) | |
| | |
| Professional Services — 3.1% | |
| Barrett Business Services, Inc. | |
| Heidrick & Struggles International, Inc. | |
| RCM Technologies, Inc. (a) | |
| | |
| | |
| | |
| | |
| | |
| RMR Group (The), Inc., Class A | |
| | |
| | |
| Urstadt Biddle Properties, Inc., Class A | |
| | |
|
| Semiconductors & Semiconductor Equipment | |
| | |
| | |
| | |
| | |
| | |
| Build-A-Bear Workshop, Inc. | |
| | |
| Destination XL Group, Inc. (a) | |
| Haverty Furniture Cos., Inc. | |
| | |
| Lazydays Holdings, Inc. (a) | |
| OneWater Marine, Inc., Class A (a) | |
| | |
| Technology Hardware, Storage | |
| | |
| Textiles, Apparel & Luxury | |
| | |
| | |
| | |
| | |
| DXP Enterprises, Inc. (a) | |
| Hudson Technologies, Inc. (a) | |
| Rush Enterprises, Inc., Class B (b) | |
| Titan Machinery, Inc. (a) | |
| | |
| | |
| Artesian Resources Corp., Class A | |
| | |
| | |
MONEY MARKET FUNDS — 2.2% |
| Goldman Sachs Financial Square Treasury Obligations Fund - Institutional Class - 4.99% (c) (d) | |
| | |
See Notes to Financial Statements
First Trust Dow Jones Select MicroCap Index Fund (FDM)
Portfolio of Investments (Continued)
June 30, 2023 (Unaudited)
| | |
REPURCHASE AGREEMENTS — 7.5% |
| BNP Paribas S.A., 5.01% (c), dated 06/30/23, due 07/03/23, with a maturity value of $11,613,651. Collateralized by U.S. Treasury Securities, interest rates of 1.25% to 1.50%, due 08/15/26 to 11/30/26. The value of the collateral including accrued interest is $11,854,364. (d) | |
| | |
|
|
| Total Investments — 109.7% | |
| | |
| Net Other Assets and Liabilities — (9.7)% | |
| | |
| Non-income producing security. |
| All or a portion of this security is on loan (see Note 2D - Securities Lending in the Notes to Financial Statements). The remaining contractual maturity of all of the securities lending transactions is overnight and continuous. The aggregate value of such securities, including those sold and pending settlement, is $14,660,003 and the total value of the collateral held by the Fund is $15,052,805. |
| Rate shown reflects yield as of June 30, 2023. |
| This security serves as collateral for securities on loan. |
Valuation InputsA summary of the inputs used to value the Fund’s investments as of June 30, 2023 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements):
| | | Level 2
Significant
Observable
Inputs | Level 3
Significant
Unobservable
Inputs |
| | | | |
| | | | |
| | | | |
| | | | |
| See Portfolio of Investments for industry breakout. |
Offsetting Assets and Liabilities
Offsetting assets and liabilities requires entities to disclose both gross and net information about instruments and transactions eligible for offset, and to disclose instruments and transactions subject to master netting or similar agreements (see Note 2C - Offsetting on the Statements of Assets and Liabilities in the Notes to Financial Statements).
The Fund’s loaned securities were all subject to an enforceable Securities Lending Agency Agreement. Securities lent in accordance with the Securities Lending Agency Agreement on a gross basis were as follows:
Securities Lending Agency Agreement |
Total gross amount presented on the Statements of Assets and Liabilities(1) | |
| |
| |
| The amount presented on the Statements of Assets and Liabilities, which is included in “Investments, at value,” is not offset and is shown on a gross basis. |
| At June 30, 2023, the value of the collateral received from each borrower exceeded the value of the related securities loaned. This amount is disclosed on the Portfolio of Investments. |
The Fund’s investments in repurchase agreements were all subject to an enforceable Master Repurchase Agreement. Repurchase Agreements on a gross basis were as follows:
|
Total gross amount presented on the Statements of Assets and Liabilities(3) | |
| |
| |
| The amount is included in “Investments, at value” on the Statements of Assets and Liabilities. |
| At June 30, 2023, the value of the collateral received from each seller exceeded the value of the repurchase agreements. |
See Notes to Financial Statements
First Trust Morningstar Dividend Leaders Index Fund (FDL)
Portfolio of Investments
June 30, 2023 (Unaudited)
| | |
|
| | |
| | |
| | |
| | |
| Atlantic Union Bankshares Corp. | |
| | |
| | |
| | |
| | |
| Citizens Financial Group, Inc. | |
| Columbia Banking System, Inc. | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| First Interstate BancSystem, Inc., Class A | |
| | |
| Huntington Bancshares, Inc. | |
| | |
| | |
| | |
| New York Community Bancorp, Inc. | |
| | |
| PNC Financial Services Group (The), Inc. | |
| | |
| Simmons First National Corp., Class A | |
| | |
| | |
| | |
| | |
| United Community Banks, Inc. | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Carlyle Group (The), Inc. | |
| | |
| | |
| Janus Henderson Group PLC | |
| | |
|
| Capital Markets (Continued) | |
| | |
| T. Rowe Price Group, Inc. | |
| | |
| | |
| | |
| International Flavors & Fragrances, Inc. | |
| LyondellBasell Industries N.V., Class A | |
| Scotts Miracle-Gro (The) Co. | |
| | |
| Construction & Engineering | |
| MDU Resources Group, Inc. | |
| | |
| | |
| | |
| | |
| Consumer Staples Distribution | |
| Walgreens Boots Alliance, Inc. | |
| | |
| | |
| Packaging Corp. of America | |
| | |
| Diversified Telecommunication | |
| Verizon Communications, Inc. | |
| Electric Utilities — 8.5% | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Pinnacle West Capital Corp. | |
| | |
| | |
| Financial Services — 0.3% | |
| | |
| | |
| Southwest Gas Holdings, Inc. | |
| | |
| | |
| | |
See Notes to Financial Statements
First Trust Morningstar Dividend Leaders Index Fund (FDL)
Portfolio of Investments (Continued)
June 30, 2023 (Unaudited)
| | |
COMMON STOCKS (Continued) |
| Hotels, Restaurants & Leisure | |
| | |
| Cracker Barrel Old Country Store, Inc. | |
| | |
| Household Durables — 0.4% | |
| | |
| | |
| | |
| Industrial Conglomerates — | |
| | |
| | |
| Fidelity National Financial, Inc. | |
| | |
| | |
| Prudential Financial, Inc. | |
| | |
| | |
| International Business Machines Corp. | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Oil, Gas & Consumable Fuels | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Pioneer Natural Resources Co. | |
| Williams (The) Cos., Inc. | |
| | |
| | |
| | |
| Professional Services — 0.1% | |
| | |
| | |
| | |
| | |
|
| Specialty Retail (Continued) | |
| | |
| | |
| | |
| Technology Hardware, Storage | |
| | |
| Textiles, Apparel & Luxury | |
| | |
| | |
| | |
| Philip Morris International, Inc. | |
| | |
|
|
| Total Investments — 99.8% | |
| | |
| Net Other Assets and Liabilities — 0.2% | |
| | |
Valuation InputsA summary of the inputs used to value the Fund’s investments as of June 30, 2023 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements):
| | | Level 2
Significant
Observable
Inputs | Level 3
Significant
Unobservable
Inputs |
| | | | |
| See Portfolio of Investments for industry breakout. |
See Notes to Financial Statements
First Trust US Equity Opportunities ETF (FPX)
Portfolio of Investments
June 30, 2023 (Unaudited)
| | |
|
| Aerospace & Defense — 0.9% | |
| | |
| | |
| | |
| Air Freight & Logistics — | |
| | |
| | |
| | |
| Mobileye Global, Inc., Class A (a) | |
| | |
| | |
| Rivian Automotive, Inc., Class A (a) | |
| | |
| Vita Coco (The) Co., Inc. (a) | |
| | |
| Apellis Pharmaceuticals, Inc. (a) | |
| | |
| Karuna Therapeutics, Inc. (a) | |
| Legend Biotech Corp., ADR (a) | |
| Morphic Holding, Inc. (a) | |
| Regeneron Pharmaceuticals, Inc. (a) | |
| United Therapeutics Corp. (a) | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| AssetMark Financial Holdings, Inc. (a) | |
| Owl Rock Capital Corp. (b) | |
| | |
| | |
| | |
| ACV Auctions, Inc., Class A (a) | |
| | |
| Extreme Networks, Inc. (a) | |
| | |
|
| Construction & Engineering | |
| | |
| WillScot Mobile Mini Holdings Corp. (a) | |
| | |
| | |
| | |
| Diversified Consumer Services | |
| | |
| Electric Utilities — 3.2% | |
| Constellation Energy Corp. | |
| | |
| | |
| Electrical Equipment — 1.0% | |
| Array Technologies, Inc. (a) | |
| | |
| | |
| NEXTracker, Inc., Class A (a) | |
| Shoals Technologies Group, Inc., Class A (a) | |
| | |
| Electronic Equipment, Instruments & Components | |
| Insight Enterprises, Inc. (a) | |
| | |
| | |
| Energy Equipment & Services | |
| | |
| | |
| Endeavor Group Holdings, Inc., Class A (a) | |
| Liberty Media Corp.-Liberty Formula One, Class C (a) | |
| Madison Square Garden Entertainment Corp. (a) | |
| ROBLOX Corp., Class A (a) | |
| Sciplay Corp., Class A (a) | |
| Warner Bros Discovery, Inc. (a) | |
| | |
| Financial Services — 3.8% | |
| | |
| Corebridge Financial, Inc. | |
| | |
| | |
| Rocket Cos., Inc., Class A (a) (b) | |
See Notes to Financial Statements
First Trust US Equity Opportunities ETF (FPX)
Portfolio of Investments (Continued)
June 30, 2023 (Unaudited)
| | |
COMMON STOCKS (Continued) |
| Financial Services (Continued) | |
| Shift4 Payments, Inc., Class A (a) | |
| | |
| | |
| | |
| | |
| | |
| | |
| Uber Technologies, Inc. (a) | |
| | |
| | |
| Bausch + Lomb Corp. (a) (b) | |
| GE HealthCare Technologies, Inc. | |
| Shockwave Medical, Inc. (a) | |
| TransMedics Group, Inc. (a) | |
| | |
| | |
| | |
| Hotels, Restaurants & Leisure | |
| Airbnb, Inc., Class A (a) | |
| DoorDash, Inc., Class A (a) | |
| DraftKings, Inc., Class A (a) | |
| | |
| Life Time Group Holdings, Inc. (a) | |
| | |
| | |
| F&G Annuities & Life, Inc. | |
| Ryan Specialty Holdings, Inc. (a) | |
| | |
| | |
| Cloudflare, Inc., Class A (a) | |
| Snowflake, Inc., Class A (a) | |
| Squarespace, Inc., Class A (a) | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| | |
| Integral Ad Science Holding Corp. (a) | |
| | |
| BellRing Brands, Inc. (a) | |
| | |
| | |
| Professional Services — 0.4% | |
| | |
| | |
| Phillips Edison & Co., Inc. | |
| Semiconductors & Semiconductor Equipment | |
| Allegro MicroSystems, Inc. (a) | |
| Credo Technology Group Holding Ltd. (a) | |
| GLOBALFOUNDRIES, Inc. (a) | |
| ON Semiconductor Corp. (a) | |
| | |
| | |
| | |
| Bentley Systems, Inc., Class B | |
| | |
| C3.ai, Inc., Class A (a) (b) | |
| Confluent, Inc., Class A (a) | |
| Crowdstrike Holdings, Inc., Class A (a) | |
| Datadog, Inc., Class A (a) | |
| DoubleVerify Holdings, Inc. (a) | |
| | |
| Gitlab, Inc., Class A (a) | |
| Instructure Holdings, Inc. (a) | |
| | |
| Palantir Technologies, Inc., Class A (a) | |
| Procore Technologies, Inc. (a) | |
| Samsara, Inc., Class A (a) | |
| Sprinklr, Inc., Class A (a) | |
| | |
| Vertex, Inc., Class A (a) | |
| | |
| | |
| | |
| | |
| Core & Main, Inc., Class A (a) | |
| | |
| | |
See Notes to Financial Statements
First Trust US Equity Opportunities ETF (FPX)
Portfolio of Investments (Continued)
June 30, 2023 (Unaudited)
| | |
REPURCHASE AGREEMENTS — 4.0% |
| Bank of America Corp., 5.05% (c), dated 06/30/23, due 07/03/23, with a maturity value of $15,320,708. Collateralized by U.S. Treasury Securities, interest rates of 2.88% to 4.38%, due 02/15/38 to 02/15/49. The value of the collateral including accrued interest is $15,620,552. (d) | |
| JPMorgan Chase & Co., 5.05% (c), dated 06/30/23, due 07/03/23, with a maturity value of $15,950,599. Collateralized by U.S. Treasury Securities, interest rates of 0.00% to 2.75%, due 07/05/23 to 09/30/26. The value of the collateral including accrued interest is $16,262,768. (d) | |
| Total Repurchase Agreements | |
| | |
|
|
| Total Investments — 104.0% | |
| | |
| Net Other Assets and Liabilities — (4.0)% | |
| | |
| Non-income producing security. |
| All or a portion of this security is on loan (see Note 2D - Securities Lending in the Notes to Financial Statements). The remaining contractual maturity of all of the securities lending transactions is overnight and continuous. The aggregate value of such securities, including those sold and pending settlement, is $31,344,815 and the total value of the collateral held by the Fund is $31,258,152. |
| Rate shown reflects yield as of June 30, 2023. |
| This security serves as collateral for securities on loan. |
Abbreviations throughout the Portfolio of Investments: |
| – American Depositary Receipt |
Valuation InputsA summary of the inputs used to value the Fund’s investments as of June 30, 2023 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements):
| | | Level 2
Significant
Observable
Inputs | Level 3
Significant
Unobservable
Inputs |
| | | | |
| | | | |
| | | | |
| See Portfolio of Investments for industry breakout. |
Offsetting Assets and Liabilities
Offsetting assets and liabilities requires entities to disclose both gross and net information about instruments and transactions eligible for offset, and to disclose instruments and transactions subject to master netting or similar agreements (see Note 2C - Offsetting on the Statements of Assets and Liabilities in the Notes to Financial Statements).
The Fund’s loaned securities were all subject to an enforceable Securities Lending Agency Agreement. Securities lent in accordance with the Securities Lending Agency Agreement on a gross basis were as follows:
Securities Lending Agency Agreement |
Total gross amount presented on the Statements of Assets and Liabilities(1) | |
| |
| |
| The amount presented on the Statements of Assets and Liabilities, which is included in “Investments, at value,” is not offset and is shown on a gross basis. |
| The collateral requirements are determined at the beginning of each business day based on the market value of the loaned securities from the end of the prior day. On June 30, 2023, the last business day of the period, there was sufficient collateral based on the end of day market value from the prior business day; however, as a result of market movement from June 29 to June 30, the value of the related securities loaned was above the collateral value received. See Note 2D - Securities Lending in the Notes to Financial Statements. |
See Notes to Financial Statements
First Trust US Equity Opportunities ETF (FPX)
Portfolio of Investments (Continued)
June 30, 2023 (Unaudited)
The Fund’s investments in repurchase agreements were all subject to an enforceable Master Repurchase Agreement. Repurchase Agreements on a gross basis were as follows:
|
Total gross amount presented on the Statements of Assets and Liabilities(3) | |
| |
| |
| The amount is included in “Investments, at value” on the Statements of Assets and Liabilities. |
| At June 30, 2023, the value of the collateral received from each seller exceeded the value of the repurchase agreements. |
See Notes to Financial Statements
First Trust NYSE® Arca® Biotechnology Index Fund (FBT)
Portfolio of Investments
June 30, 2023 (Unaudited)
| | |
|
| | |
| ACADIA Pharmaceuticals, Inc. (a) | |
| Agios Pharmaceuticals, Inc. (a) | |
| | |
| Alnylam Pharmaceuticals, Inc. (a) | |
| | |
| | |
| BioMarin Pharmaceutical, Inc. (a) | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Ionis Pharmaceuticals, Inc. (a) | |
| | |
| Neurocrine Biosciences, Inc. (a) | |
| Regeneron Pharmaceuticals, Inc. (a) | |
| Sarepta Therapeutics, Inc. (a) | |
| | |
| Ultragenyx Pharmaceutical, Inc. (a) | |
| United Therapeutics Corp. (a) | |
| Vertex Pharmaceuticals, Inc. (a) | |
| | |
| Life Sciences Tools & Services | |
| | |
| Charles River Laboratories International, Inc. (a) | |
| | |
| | |
| Mettler-Toledo International, Inc. (a) | |
| | |
| | |
| | |
| | |
MONEY MARKET FUNDS — 0.1% |
| Goldman Sachs Financial Square Treasury Obligations Fund - Institutional Class - 4.99% (c) (d) | |
| | |
| | |
REPURCHASE AGREEMENTS — 0.2% |
| BNP Paribas S.A., 5.01% (c), dated 06/30/23, due 07/03/23, with a maturity value of $3,628,046. Collateralized by U.S. Treasury Securities, interest rates of 1.25% to 1.50%, due 08/15/26 to 11/30/26. The value of the collateral including accrued interest is $3,703,243. (d) | |
| | |
|
|
| Total Investments — 100.3% | |
| | |
| Net Other Assets and Liabilities — (0.3)% | |
| | |
| Non-income producing security. |
| All or a portion of this security is on loan (see Note 2D - Securities Lending in the Notes to Financial Statements). The remaining contractual maturity of all of the securities lending transactions is overnight and continuous. The aggregate value of such securities, including those sold and pending settlement, is $4,679,031 and the total value of the collateral held by the Fund is $4,702,420. |
| Rate shown reflects yield as of June 30, 2023. |
| This security serves as collateral for securities on loan. |
Abbreviations throughout the Portfolio of Investments: |
| – American Depositary Receipt |
Valuation InputsA summary of the inputs used to value the Fund’s investments as of June 30, 2023 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements):
| | | Level 2
Significant
Observable
Inputs | Level 3
Significant
Unobservable
Inputs |
| | | | |
| | | | |
| | | | |
| | | | |
| See Portfolio of Investments for industry breakout. |
See Notes to Financial Statements
First Trust NYSE® Arca® Biotechnology Index Fund (FBT)
Portfolio of Investments (Continued)
June 30, 2023 (Unaudited)
Offsetting Assets and Liabilities
Offsetting assets and liabilities requires entities to disclose both gross and net information about instruments and transactions eligible for offset, and to disclose instruments and transactions subject to master netting or similar agreements (see Note 2C - Offsetting on the Statements of Assets and Liabilities in the Notes to Financial Statements).
The Fund’s loaned securities were all subject to an enforceable Securities Lending Agency Agreement. Securities lent in accordance with the Securities Lending Agency Agreement on a gross basis were as follows:
Securities Lending Agency Agreement |
Total gross amount presented on the Statements of Assets and Liabilities(1) | |
| |
| |
| The amount presented on the Statements of Assets and Liabilities, which is included in “Investments, at value,” is not offset and is shown on a gross basis. |
| At June 30, 2023, the value of the collateral received from each borrower exceeded the value of the related securities loaned. This amount is disclosed on the Portfolio of Investments. |
The Fund’s investments in repurchase agreements were all subject to an enforceable Master Repurchase Agreement. Repurchase Agreements on a gross basis were as follows:
|
Total gross amount presented on the Statements of Assets and Liabilities(3) | |
| |
| |
| The amount is included in “Investments, at value” on the Statements of Assets and Liabilities. |
| At June 30, 2023, the value of the collateral received from each seller exceeded the value of the repurchase agreements. |
See Notes to Financial Statements
First Trust Dow Jones Internet Index Fund (FDN)
Portfolio of Investments
June 30, 2023 (Unaudited)
| | |
|
| | |
| | |
| | |
| | |
| | |
| | |
| Arista Networks, Inc. (a) | |
| | |
| | |
| CommScope Holding Co., Inc. (a) | |
| | |
| | |
| | |
| | |
| Financial Services — 3.5% | |
| PayPal Holdings, Inc. (a) | |
| | |
| | |
| Veeva Systems, Inc., Class A (a) | |
| | |
| Hotels, Restaurants & Leisure | |
| Airbnb, Inc., Class A (a) | |
| DoorDash, Inc., Class A (a) | |
| | |
| | |
| Interactive Media & Services | |
| Alphabet, Inc., Class A (a) | |
| Alphabet, Inc., Class C (a) | |
| | |
| Meta Platforms, Inc., Class A (a) | |
| Pinterest, Inc., Class A (a) | |
| | |
| ZoomInfo Technologies, Inc. (a) | |
| | |
| | |
| Akamai Technologies, Inc. (a) | |
| Cloudflare, Inc., Class A (a) | |
| Fastly, Inc., Class A (a) | |
| GoDaddy, Inc., Class A (a) | |
| | |
| Snowflake, Inc., Class A (a) | |
| | |
| | |
| Opendoor Technologies, Inc. (a) | |
| | |
|
| Real Estate Management & Development (Continued) | |
| Zillow Group, Inc., Class A (a) | |
| Zillow Group, Inc., Class C (a) | |
| | |
| | |
| Atlassian Corp., Class A (a) | |
| | |
| Confluent, Inc., Class A (a) | |
| Datadog, Inc., Class A (a) | |
| | |
| Dropbox, Inc., Class A (a) | |
| Nutanix, Inc., Class A (a) | |
| | |
| Smartsheet, Inc., Class A (a) | |
| Workday, Inc., Class A (a) | |
| Zoom Video Communications, Inc., Class A (a) | |
| | |
| | |
| | |
MONEY MARKET FUNDS — 0.1% |
| Morgan Stanley Institutional Liquidity Funds - Treasury Portfolio - Institutional Class - 4.94% (b) | |
| | |
|
|
| Total Investments — 100.1% | |
| | |
| Net Other Assets and Liabilities — (0.1)% | |
| | |
| Non-income producing security. |
| Rate shown reflects yield as of June 30, 2023. |
See Notes to Financial Statements
First Trust Dow Jones Internet Index Fund (FDN)
Portfolio of Investments (Continued)
June 30, 2023 (Unaudited)
Valuation InputsA summary of the inputs used to value the Fund’s investments as of June 30, 2023 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements):
| | | Level 2
Significant
Observable
Inputs | Level 3
Significant
Unobservable
Inputs |
| | | | |
| | | | |
| | | | |
| See Portfolio of Investments for industry breakout. |
See Notes to Financial Statements
First Trust Capital Strength ETF (FTCS)
Portfolio of Investments
June 30, 2023 (Unaudited)
| | |
|
| Aerospace & Defense — 5.6% | |
| | |
| | |
| | |
| | |
| Air Freight & Logistics — | |
| United Parcel Service, Inc., Class B | |
| | |
| | |
| Monster Beverage Corp. (a) | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Air Products and Chemicals, Inc. | |
| | |
| | |
| | |
| | |
| Consumer Staples Distribution | |
| | |
| | |
| | |
| Electronic Equipment, Instruments & Components | |
| | |
| Financial Services — 4.0% | |
| Mastercard, Inc., Class A | |
| | |
| | |
| | |
| Archer-Daniels-Midland Co. | |
| | |
| | |
| | |
|
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Molina Healthcare, Inc. (a) | |
| | |
| | |
| Household Durables — 4.2% | |
| | |
| | |
| | |
| Household Products — 1.9% | |
| Procter & Gamble (The) Co. | |
| Industrial Conglomerates — | |
| Honeywell International, Inc. | |
| | |
| | |
| | |
| | |
| Marsh & McLennan Cos., Inc. | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Interpublic Group of (The) Cos., Inc. | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Professional Services — 4.0% | |
| Automatic Data Processing, Inc. | |
| | |
| | |
See Notes to Financial Statements
First Trust Capital Strength ETF (FTCS)
Portfolio of Investments (Continued)
June 30, 2023 (Unaudited)
| | |
COMMON STOCKS (Continued) |
| Semiconductors & Semiconductor Equipment | |
| | |
| | |
| | |
| Technology Hardware, Storage | |
| | |
|
|
| Total Investments — 100.0% | |
| | |
| Net Other Assets and Liabilities — 0.0% | |
| | |
| Non-income producing security. |
Valuation InputsA summary of the inputs used to value the Fund’s investments as of June 30, 2023 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements):
| | | Level 2
Significant
Observable
Inputs | Level 3
Significant
Unobservable
Inputs |
| | | | |
| See Portfolio of Investments for industry breakout. |
See Notes to Financial Statements
First Trust Value Line® Dividend Index Fund (FVD)
Portfolio of Investments
June 30, 2023 (Unaudited)
| | |
|
| Aerospace & Defense — 2.9% | |
| | |
| L3Harris Technologies, Inc. | |
| | |
| | |
| | |
| | |
| Air Freight & Logistics — | |
| C.H. Robinson Worldwide, Inc. | |
| United Parcel Service, Inc., Class B | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Canadian Imperial Bank of Commerce | |
| | |
| | |
| Toronto-Dominion (The) Bank | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Johnson Controls International PLC | |
| | |
| | |
| | |
| Goldman Sachs Group (The), Inc. | |
| | |
| T. Rowe Price Group, Inc. | |
| | |
| | |
|
| | |
| Air Products and Chemicals, Inc. | |
| International Flavors & Fragrances, Inc. | |
| | |
| | |
| Sensient Technologies Corp. | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Consumer Staples Distribution | |
| | |
| | |
| | |
| Packaging Corp. of America | |
| | |
| | |
| | |
| Diversified Telecommunication | |
| | |
| | |
| Verizon Communications, Inc. | |
| | |
| Electric Utilities — 12.1% | |
| | |
| | |
| American Electric Power Co., Inc. | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Hawaiian Electric Industries, Inc. | |
| | |
| | |
| | |
| | |
| | |
See Notes to Financial Statements
First Trust Value Line® Dividend Index Fund (FVD)
Portfolio of Investments (Continued)
June 30, 2023 (Unaudited)
| | |
COMMON STOCKS (Continued) |
| Electric Utilities (Continued) | |
| Pinnacle West Capital Corp. | |
| | |
| Portland General Electric Co. | |
| | |
| | |
| | |
| Electrical Equipment — 0.6% | |
| | |
| Electronic Equipment, Instruments & Components | |
| | |
| | |
| | |
| | |
| Archer-Daniels-Midland Co. | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Mondelez International, Inc., Class A | |
| | |
| | |
| | |
| Chesapeake Utilities Corp. | |
| New Jersey Resources Corp. | |
| | |
| | |
| | |
| | |
| Canadian National Railway Co. | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Health Care Equipment & Supplies (Continued) | |
| Baxter International, Inc. | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Hotels, Restaurants & Leisure | |
| | |
| | |
| | |
| | |
| | |
| Household Durables — 0.6% | |
| | |
| Household Products — 3.5% | |
| | |
| | |
| | |
| Procter & Gamble (The) Co. | |
| Reynolds Consumer Products, Inc. | |
| | |
| | |
| Industrial Conglomerates — | |
| | |
| Honeywell International, Inc. | |
| | |
| | |
| | |
| | |
| | |
| | |
| Erie Indemnity Co., Class A | |
| | |
| Hanover Insurance Group (The), Inc. | |
| | |
| Travelers (The) Cos., Inc. | |
| | |
| | |
| | |
See Notes to Financial Statements
First Trust Value Line® Dividend Index Fund (FVD)
Portfolio of Investments (Continued)
June 30, 2023 (Unaudited)
| | |
COMMON STOCKS (Continued) |
| | |
| Cognizant Technology Solutions Corp., Class A | |
| | |
| | |
| | |
| | |
| | |
| | |
| Illinois Tool Works, Inc. | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Consolidated Edison, Inc. | |
| | |
| | |
| | |
| Public Service Enterprise Group, Inc. | |
| | |
| | |
| | |
| Oil, Gas & Consumable Fuels | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Professional Services — 3.5% | |
| Automatic Data Processing, Inc. | |
| Booz Allen Hamilton Holding Corp. | |
| Broadridge Financial Solutions, Inc. | |
| CSG Systems International, Inc. | |
| | |
|
| Professional Services (Continued) | |
| | |
| Robert Half International, Inc. | |
| | |
| Semiconductors & Semiconductor Equipment | |
| | |
| Taiwan Semiconductor Manufacturing Co., Ltd., ADR | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| American States Water Co. | |
| | |
| | |
| Wireless Telecommunication | |
| Rogers Communications, Inc., Class B | |
|
|
| Total Investments — 99.9% | |
| | |
| Net Other Assets and Liabilities — 0.1% | |
| | |
Abbreviations throughout the Portfolio of Investments: |
| – American Depositary Receipt |
See Notes to Financial Statements
First Trust Value Line® Dividend Index Fund (FVD)
Portfolio of Investments (Continued)
June 30, 2023 (Unaudited)
Valuation InputsA summary of the inputs used to value the Fund’s investments as of June 30, 2023 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements):
| | | Level 2
Significant
Observable
Inputs | Level 3
Significant
Unobservable
Inputs |
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| See Portfolio of Investments for industry breakout. |
See Notes to Financial Statements
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First Trust Exchange-Traded Fund
Statements of Assets and Liabilities
June 30, 2023 (Unaudited)
| First Trust Dow Jones Select MicroCap Index Fund
(FDM) | First Trust Morningstar Dividend Leaders Index Fund
(FDL) | First Trust US Equity Opportunities ETF
(FPX) | First Trust NYSE® Arca® Biotechnology Index Fund
(FBT) |
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Investment securities sold | | | | |
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Securities lending income | | | | |
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Collateral for securities on loan | | | | |
Investment securities purchased | | | | |
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Shareholder reporting fees | | | | |
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Accumulated distributable earnings (loss) | | | | |
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NET ASSET VALUE, per share | | | | |
Number of shares outstanding (unlimited number of shares authorized, par value $0.01 per share) | | | | |
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Securities on loan, at value | | | | |
See Notes to Financial Statements
First Trust Dow Jones Internet Index Fund
(FDN) | First Trust Capital Strength ETF
(FTCS) | First Trust Value Line® Dividend Index Fund
(FVD) |
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See Notes to Financial Statements
First Trust Exchange-Traded Fund
Statements of Operations
For the Six Months Ended June 30, 2023 (Unaudited)
| First Trust Dow Jones Select MicroCap Index Fund
(FDM) | First Trust Morningstar Dividend Leaders Index Fund
(FDL) | First Trust US Equity Opportunities ETF
(FPX) |
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Securities lending income (net of fees) | | | |
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Accounting and administration fees | | | |
Shareholder reporting fees | | | |
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Trustees’ fees and expenses | | | |
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Less fees waived and expenses reimbursed by the investment advisor | | | |
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NET INVESTMENT INCOME (LOSS) | | | |
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NET REALIZED AND UNREALIZED GAIN (LOSS): | | | |
Net realized gain (loss) on: | | | |
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Foreign currency transactions | | | |
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Net change in unrealized appreciation (depreciation) on: | | | |
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Foreign currency translation | | | |
Net change in unrealized appreciation (depreciation) | | | |
NET REALIZED AND UNREALIZED GAIN (LOSS) | | | |
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | | | |
See Notes to Financial Statements
First Trust NYSE® Arca® Biotechnology Index Fund
(FBT) | First Trust Dow Jones Internet Index Fund
(FDN) | First Trust Capital Strength ETF
(FTCS) | First Trust Value Line® Dividend Index Fund
(FVD) |
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See Notes to Financial Statements
First Trust Exchange-Traded Fund
Statements of Changes in Net Assets
| First Trust Dow Jones Select MicroCap Index Fund (FDM) | First Trust Morningstar Dividend Leaders Index Fund (FDL) |
| Six Months
Ended
6/30/2023 (Unaudited) | | Six Months
Ended
6/30/2023 (Unaudited) | |
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Net investment income (loss) | | | | |
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Net change in unrealized appreciation (depreciation) | | | | |
Net increase (decrease) in net assets resulting from operations | | | | |
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DISTRIBUTIONS TO SHAREHOLDERS FROM: | | | | |
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SHAREHOLDER TRANSACTIONS: | | | | |
Proceeds from shares sold | | | | |
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Net increase (decrease) in net assets resulting from shareholder transactions | | | | |
Total increase (decrease) in net assets | | | | |
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CHANGES IN SHARES OUTSTANDING: | | | | |
Shares outstanding, beginning of period | | | | |
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Shares outstanding, end of period | | | | |
See Notes to Financial Statements
First Trust US Equity Opportunities ETF (FPX) | First Trust NYSE® Arca® Biotechnology Index Fund (FBT) | First Trust Dow Jones Internet Index Fund (FDN) |
Six Months
Ended
6/30/2023 (Unaudited) | | Six Months
Ended
6/30/2023 (Unaudited) | | Six Months
Ended
6/30/2023 (Unaudited) | |
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See Notes to Financial Statements
First Trust Exchange-Traded Fund
Statements of Changes in Net Assets (Continued)
| First Trust Capital Strength ETF (FTCS) | First Trust Value Line® Dividend Index Fund (FVD) |
| Six Months
Ended
6/30/2023 (Unaudited) | | Six Months
Ended
6/30/2023 (Unaudited) | |
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Net investment income (loss) | | | | |
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Net change in unrealized appreciation (depreciation) | | | | |
Net increase (decrease) in net assets resulting from operations | | | | |
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DISTRIBUTIONS TO SHAREHOLDERS FROM: | | | | |
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SHAREHOLDER TRANSACTIONS: | | | | |
Proceeds from shares sold | | | | |
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Net increase (decrease) in net assets resulting from shareholder transactions | | | | |
Total increase (decrease) in net assets | | | | |
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CHANGES IN SHARES OUTSTANDING: | | | | |
Shares outstanding, beginning of period | | | | |
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Shares outstanding, end of period | | | | |
See Notes to Financial Statements
First Trust Exchange-Traded Fund
Financial Highlights
For a share outstanding throughout each period
First Trust Dow Jones Select MicroCap Index Fund (FDM)
| Six Months
Ended
6/30/2023
(Unaudited) | |
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Net asset value, beginning of period | | | | | | |
Income from investment operations: | | | | | | |
Net investment income (loss) | | | | | | |
Net realized and unrealized gain (loss) | | | | | | |
Total from investment operations | | | | | | |
Distributions paid to shareholders from: | | | | | | |
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Net asset value, end of period | | | | | | |
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Ratios to average net assets/supplemental data: | | | | | | |
Net assets, end of period (in 000’s) | | | | | | |
Ratio of total expenses to average net assets | | | | | | |
Ratio of net expenses to average net assets | | | | | | |
Ratio of net investment income (loss) to average net assets | | | | | | |
Portfolio turnover rate (d) | | | | | | |
| Based on average shares outstanding. |
| Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. The total returns would have been lower if certain fees had not been waived and expenses reimbursed by the investment advisor. |
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| Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. |
See Notes to Financial Statements
First Trust Exchange-Traded Fund
Financial Highlights (Continued)
For a share outstanding throughout each period
First Trust Morningstar Dividend Leaders Index Fund (FDL)
| Six Months
Ended
6/30/2023
(Unaudited) | |
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Net asset value, beginning of period | | | | | | |
Income from investment operations: | | | | | | |
Net investment income (loss) | | | | | | |
Net realized and unrealized gain (loss) | | | | | | |
Total from investment operations | | | | | | |
Distributions paid to shareholders from: | | | | | | |
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Net asset value, end of period | | | | | | |
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Ratios to average net assets/supplemental data: | | | | | | |
Net assets, end of period (in 000’s) | | | | | | |
Ratio of total expenses to average net assets | | | | | | |
Ratio of net expenses to average net assets | | | | | | |
Ratio of net investment income (loss) to average net assets | | | | | | |
Portfolio turnover rate (d) | | | | | | |
| Based on average shares outstanding. |
| Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. The total returns would have been lower if certain fees had not been waived and expenses reimbursed by the investment advisor. |
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| Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. |
See Notes to Financial Statements
First Trust Exchange-Traded Fund
Financial Highlights (Continued)
For a share outstanding throughout each period
First Trust US Equity Opportunities ETF (FPX)
| Six Months
Ended
6/30/2023
(Unaudited) | |
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Net asset value, beginning of period | | | | | | |
Income from investment operations: | | | | | | |
Net investment income (loss) | | | | | | |
Net realized and unrealized gain (loss) | | | | | | |
Total from investment operations | | | | | | |
Distributions paid to shareholders from: | | | | | | |
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Net asset value, end of period | | | | | | |
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Ratios to average net assets/supplemental data: | | | | | | |
Net assets, end of period (in 000’s) | | | | | | |
Ratio of total expenses to average net assets | | | | | | |
Ratio of net investment income (loss) to average net assets | | | | | | |
Portfolio turnover rate (d) | | | | | | |
| Based on average shares outstanding. |
| Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. |
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| Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. |
See Notes to Financial Statements
First Trust Exchange-Traded Fund
Financial Highlights (Continued)
For a share outstanding throughout each period
First Trust NYSE® Arca® Biotechnology Index Fund (FBT)
| Six Months
Ended
6/30/2023
(Unaudited) | |
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Net asset value, beginning of period | | | | | | |
Income from investment operations: | | | | | | |
Net investment income (loss) | | | | | | |
Net realized and unrealized gain (loss) | | | | | | |
Total from investment operations | | | | | | |
Net asset value, end of period | | | | | | |
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Ratios to average net assets/supplemental data: | | | | | | |
Net assets, end of period (in 000’s) | | | | | | |
Ratio of total expenses to average net assets | | | | | | |
Ratio of net investment income (loss) to average net assets | | | | | | |
Portfolio turnover rate (d) | | | | | | |
| Based on average shares outstanding. |
| Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. |
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| Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. |
See Notes to Financial Statements
First Trust Exchange-Traded Fund
Financial Highlights (Continued)
For a share outstanding throughout each period
First Trust Dow Jones Internet Index Fund (FDN)
| Six Months
Ended
6/30/2023
(Unaudited) | |
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Net asset value, beginning of period | | | | | | |
Income from investment operations: | | | | | | |
Net investment income (loss) | | | | | | |
Net realized and unrealized gain (loss) | | | | | | |
Total from investment operations | | | | | | |
Net asset value, end of period | | | | | | |
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Ratios to average net assets/supplemental data: | | | | | | |
Net assets, end of period (in 000’s) | | | | | | |
Ratio of total expenses to average net assets | | | | | | |
Ratio of net investment income (loss) to average net assets | | | | | | |
Portfolio turnover rate (d) | | | | | | |
| Based on average shares outstanding. |
| Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. |
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| Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. |
See Notes to Financial Statements
First Trust Exchange-Traded Fund
Financial Highlights (Continued)
For a share outstanding throughout each period
First Trust Capital Strength ETF (FTCS)
| Six Months
Ended
6/30/2023
(Unaudited) | |
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Net asset value, beginning of period | | | | | | |
Income from investment operations: | | | | | | |
Net investment income (loss) | | | | | | |
Net realized and unrealized gain (loss) | | | | | | |
Total from investment operations | | | | | | |
Distributions paid to shareholders from: | | | | | | |
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Net asset value, end of period | | | | | | |
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|
Ratios to average net assets/supplemental data: | | | | | | |
Net assets, end of period (in 000’s) | | | | | | |
Ratio of total expenses to average net assets | | | | | | |
Ratio of net investment income (loss) to average net assets | | | | | | |
Portfolio turnover rate (d) | | | | | | |
| Based on average shares outstanding. |
| Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. |
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| Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. |
See Notes to Financial Statements
First Trust Exchange-Traded Fund
Financial Highlights (Continued)
For a share outstanding throughout each period
First Trust Value Line® Dividend Index Fund (FVD)
| Six Months
Ended
6/30/2023
(Unaudited) | |
| | | | | |
Net asset value, beginning of period | | | | | | |
Income from investment operations: | | | | | | |
Net investment income (loss) | | | | | | |
Net realized and unrealized gain (loss) | | | | | | |
Total from investment operations | | | | | | |
Distributions paid to shareholders from: | | | | | | |
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Net asset value, end of period | | | | | | |
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Ratios to average net assets/supplemental data: | | | | | | |
Net assets, end of period (in 000’s) | | | | | | |
Ratio of total expenses to average net assets | | | | | | |
Ratio of net expenses to average net assets | | | | | | |
Ratio of net investment income (loss) to average net assets | | | | | | |
Portfolio turnover rate (d) | | | | | | |
| Based on average shares outstanding. |
| Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. The total returns would have been lower if certain fees had not been waived and expenses reimbursed by the investment advisor. |
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| Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. |
See Notes to Financial Statements
Notes to Financial Statements
First Trust Exchange-Traded Fund
June 30, 2023 (Unaudited)
1. Organization
First Trust Exchange-Traded Fund (the “Trust”) is an open-end management investment company organized as a Massachusetts business trust on August 8, 2003, and is registered with the Securities and Exchange Commission under the Investment Company Act of 1940, as amended (the “1940 Act”).
The Trust currently consists of twenty-three exchange-traded funds. This report covers the seven funds (each a “Fund” and collectively, the “Funds”) listed below:
First Trust Dow Jones Select MicroCap Index Fund – (NYSE Arca, Inc. (“NYSE Arca”) ticker “FDM”) |
First Trust Morningstar Dividend Leaders Index Fund – (NYSE Arca ticker “FDL”) |
First Trust US Equity Opportunities ETF – (NYSE Arca ticker “FPX”) |
First Trust NYSE® Arca® Biotechnology Index Fund – (NYSE Arca ticker “FBT”) |
First Trust Dow Jones Internet Index Fund – (NYSE Arca ticker “FDN”) |
First Trust Capital Strength ETF – (The Nasdaq Stock Market LLC (“Nasdaq”) ticker “FTCS”) |
First Trust Value Line® Dividend Index Fund – (NYSE Arca ticker “FVD”) |
Each Fund represents a separate series of beneficial interest in the Trust. Unlike conventional mutual funds, each Fund issues and redeems shares on a continuous basis at net asset value (“NAV”), only in large blocks of shares known as “Creation Units.” The investment objective of each Fund is to seek investment results that correspond generally to the price and yield (before the Fund’s fees and expenses) of the following indices:
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First Trust Dow Jones Select MicroCap Index Fund | Dow Jones Select MicroCap IndexSM |
First Trust Morningstar Dividend Leaders Index Fund | Morningstar® Dividend Leaders IndexSM |
First Trust US Equity Opportunities ETF | |
First Trust NYSE® Arca® Biotechnology Index Fund | NYSE® Arca® Biotechnology Index |
First Trust Dow Jones Internet Index Fund | Dow Jones Internet Composite IndexSM |
First Trust Capital Strength ETF | The Capital StrengthTM Index |
First Trust Value Line® Dividend Index Fund | Value Line® Dividend Index |
2. Significant Accounting Policies
The Funds are each considered an investment company and follow accounting and reporting guidance under Financial Accounting Standards Board Accounting Standards Codification Topic 946, “Financial Services-Investment Companies.” The following is a summary of significant accounting policies consistently followed by the Funds in the preparation of the financial statements. The preparation of the financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.
A. Portfolio Valuation
Each Fund’s NAV is determined daily as of the close of regular trading on the New York Stock Exchange (“NYSE”), normally 4:00 p.m. Eastern time, on each day the NYSE is open for trading. If the NYSE closes early on a valuation day, the NAV is determined as of that time. Foreign securities are priced using data reflecting the earlier closing of the principal markets for those securities. Each Fund’s NAV is calculated by dividing the value of all assets of each Fund (including accrued interest and dividends), less all liabilities (including accrued expenses and dividends declared but unpaid), by the total number of shares outstanding.
Each Fund’s investments are valued daily at market value or, in the absence of market value with respect to any portfolio securities, at fair value. Market value prices represent readily available market quotations such as last sale or official closing prices from a national or foreign exchange (i.e., a regulated market) and are primarily obtained from third-party pricing services. Fair value prices represent any prices not considered market value prices and are either obtained from a third-party pricing service or are determined by the Pricing Committee of the Funds’ investment advisor, First Trust Advisors L.P. (“First Trust” or the “Advisor”), in accordance with valuation procedures approved by the Trust’s Board of Trustees, and in accordance with provisions of the 1940 Act and rules thereunder. Investments valued by the Advisor’s Pricing Committee, if any, are footnoted as such in the footnotes to the Portfolio of Investments. Each Fund’s investments are valued as follows:
Notes to Financial Statements (Continued)
First Trust Exchange-Traded Fund
June 30, 2023 (Unaudited)
Common stocks and other equity securities listed on any national or foreign exchange (excluding Nasdaq and the London Stock Exchange Alternative Investment Market (“AIM”)) are valued at the last sale price on the exchange on which they are principally traded or, for Nasdaq and AIM securities, the official closing price. Securities traded on more than one securities exchange are valued at the last sale price or official closing price, as applicable, at the close of the securities exchange representing the primary exchange for such securities.
Shares of open-end funds are valued based on NAV per share.
Equity securities traded in an over-the-counter market are valued at the close price or the last trade price.
Overnight repurchase agreements are valued at amortized cost when it represents the most appropriate reflection of fair market value.
Certain securities may not be able to be priced by pre-established pricing methods. Such securities may be valued by the Advisor’s Pricing Committee at fair value. These securities generally include, but are not limited to, restricted securities (securities which may not be publicly sold without registration under the Securities Act of 1933, as amended) for which a third-party pricing service is unable to provide a market price; securities whose trading has been formally suspended; a security whose market or fair value price is not available from a pre-established pricing source; a security with respect to which an event has occurred that is likely to materially affect the value of the security after the market has closed but before the calculation of a Fund’s NAV or make it difficult or impossible to obtain a reliable market quotation; and a security whose price, as provided by the third-party pricing service, does not reflect the security’s fair value. As a general principle, the current fair value of a security would appear to be the amount which the owner might reasonably expect to receive for the security upon its current sale. When fair value prices are used, generally they will differ from market quotations or official closing prices on the applicable exchanges. A variety of factors may be considered in determining the fair value of such securities, including, but not limited to, the following:
1)
the last sale price on the exchange on which they are principally traded or, for Nasdaq and AIM securities, the official closing price;
3)
the size of the holding;
4)
the initial cost of the security;
5)
transactions in comparable securities;
6)
price quotes from dealers and/or third-party pricing services;
7)
relationships among various securities;
8)
information obtained by contacting the issuer, analysts, or the appropriate stock exchange;
9)
an analysis of the issuer’s financial statements;
10)
the existence of merger proposals or tender offers that might affect the value of the security; and
11)
other relevant factors.
In addition, differences between the prices used to calculate a Fund’s NAV and the prices used by such Fund’s corresponding index could result in a difference between a Fund’s performance and the performance of its underlying index.
The Funds are subject to fair value accounting standards that define fair value, establish the framework for measuring fair value and provide a three-level hierarchy for fair valuation based upon the inputs to the valuation as of the measurement date. The three levels of the fair value hierarchy are as follows:
• Level 1 – Level 1 inputs are quoted prices in active markets for identical investments. An active market is a market in which transactions for the investment occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
• Level 2 – Level 2 inputs are observable inputs, either directly or indirectly, and include the following:
o Quoted prices for similar investments in active markets.
o Quoted prices for identical or similar investments in markets that are non-active. A non-active market is a market where there are few transactions for the investment, the prices are not current, or price quotations vary substantially either over time or among market makers, or in which little information is released publicly.
o Inputs other than quoted prices that are observable for the investment (for example, interest rates and yield curves observable at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks, and default rates).
o Inputs that are derived principally from or corroborated by observable market data by correlation or other means.
Notes to Financial Statements (Continued)
First Trust Exchange-Traded Fund
June 30, 2023 (Unaudited)
• Level 3 – Level 3 inputs are unobservable inputs. Unobservable inputs may reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the investment.
The inputs or methodologies used for valuing investments are not necessarily an indication of the risk associated with investing in those investments. A summary of the inputs used to value each Fund’s investments as of June 30, 2023, is included with each Fund’s Portfolio of Investments.
B. Securities Transactions and Investment Income
Securities transactions are recorded as of the trade date. Realized gains and losses from securities transactions are recorded on the identified cost basis. Dividend income is recorded on the ex-dividend date. Interest income, if any, is recorded on the accrual basis.
Withholding taxes and tax reclaims on foreign dividends have been provided for in accordance with each Fund’s understanding of the applicable country’s tax rules and rates.
Distributions received from a Fund’s investments in real estate investment trusts (“REITs”) may be comprised of return of capital, capital gains and income. The actual character of the amounts received during the year is not known until after the REITs’ fiscal year end. A Fund records the character of distributions received from REITs during the year based on estimates available. The characterization of distributions received by a Fund may be subsequently revised based on information received from the REITs after their tax reporting periods conclude.
C. Offsetting on the Statements of Assets and Liabilities
Offsetting Assets and Liabilities requires entities to disclose both gross and net information about instruments and transactions eligible for offset on the Statements of Assets and Liabilities and disclose instruments and transactions subject to master netting or similar agreements. These disclosure requirements are intended to help investors and other financial statement users better assess the effect or potential effect of offsetting arrangements on a Fund’s financial position. The transactions subject to offsetting disclosures are derivative instruments, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions.
This disclosure, if applicable, is included within each Fund’s Portfolio of Investments under the heading “Offsetting Assets and Liabilities.” For financial reporting purposes, the Funds do not offset financial assets and financial liabilities that are subject to master netting arrangements (“MNAs”) or similar agreements on the Statements of Assets and Liabilities. MNAs provide the right, in the event of default (including bankruptcy and insolvency), for the non-defaulting counterparty to liquidate the collateral and calculate the net exposure to the defaulting party or request additional collateral.
D. Securities Lending
The Funds may lend securities representing up to 33 1/3% of the value of their total assets to broker-dealers, banks and other institutions to generate additional income. When a Fund loans its portfolio securities, it will receive, at the inception of each loan, collateral equal to at least 102% (for domestic securities) or 105% (for international securities) of the market value of the loaned securities. The collateral amount is valued at the beginning of each business day and is compared to the market value of the loaned securities from the prior business day to determine if additional collateral is required. If additional collateral is required, a request is sent to the borrower. Securities lending involves the risk that the Fund may lose money because the borrower of the Fund’s loaned securities fails to return the securities in a timely manner or at all. The Fund could also lose money in the event of (i) a decline in the value of the collateral provided for the loaned securities, (ii) a decline in the value of any investments made with cash collateral or (iii) an increase in the value of the loaned securities if the borrower does not increase the collateral accordingly and the borrower fails to return the securities. These events could also trigger adverse tax consequences for the Funds.
Under the Funds’ Securities Lending Agency Agreement, the securities lending agent will generally bear the risk that a borrower may default on its obligation to return loaned securities. Brown Brothers Harriman & Co. (“BBH”) acts as the Funds’ securities lending agent and is responsible for executing the lending of the portfolio securities to creditworthy borrowers with the exception of FPX. The Bank of New York Mellon (“BNYM”) acts as FPX’s securities lending agent and is responsible for executing the lending of the portfolio securities to creditworthy borrowers. The Funds, however, will be responsible for the risks associated with the investment of cash collateral. A Fund may lose money on its investment of cash collateral, which may affect its ability to repay the collateral to the borrower without the use of other Fund assets. Each Fund that engages in securities lending receives compensation (net of any rebate and securities lending agent fees) for lending its securities. Compensation can be in the form of fees received from the securities
Notes to Financial Statements (Continued)
First Trust Exchange-Traded Fund
June 30, 2023 (Unaudited)
lending agent or dividends or interest earned from the investment of cash collateral. The fees received from the securities lending agent are accrued daily. The dividend and interest earned on the securities loaned is accounted for in the same manner as other dividend and interest income. At June 30, 2023, only FDM, FPX, and FBT had securities in the securities lending program. During the six months ended June 30, 2023, FDM, FPX, FBT, and FDN participated in the securities lending program.
In the event of a default by a borrower with respect to any loan, BBH or BNYM will exercise any and all remedies provided under the applicable borrower agreement to make the Funds whole. These remedies include purchasing replacement securities by applying the collateral held from the defaulting broker against the purchase cost of the replacement securities. If, despite such efforts by BBH and BNYM to exercise these remedies, a Fund sustains losses as a result of a borrower’s default, BBH or BNYM will indemnify the Fund by purchasing replacement securities at its own expense, or paying the Fund an amount equal to the market value of the replacement securities, subject to certain limitations which are set forth in detail in the Securities Lending Agency Agreement between the Trust on behalf of the Funds and BBH or BNYM.
E. Repurchase Agreements
Repurchase agreements involve the purchase of securities subject to the seller’s agreement to repurchase the securities at a mutually agreed upon date and price, under the terms of a Master Repurchase Agreement (“MRA”). During the term of a repurchase agreement, the value of the underlying securities held as collateral on behalf of a Fund, including accrued interest, is required to exceed the value of the repurchase agreement, including accrued interest. The underlying securities for all repurchase agreements are held at the Funds’ custodian or designated sub-custodians under tri-party repurchase agreements.
MRAs govern transactions between a Fund and select counterparties. The MRAs contain provisions for, among other things, initiation, income payments, events of default, and maintenance of collateral for repurchase agreements.
Repurchase agreements received for lending securities are collateralized by U.S. Treasury securities. The U.S. Treasury securities are held in a joint custody account at BBH or BNYM on behalf of the Funds participating in the securities lending program. In the event the counterparty defaults on the repurchase agreement, the U.S. Treasury securities can either be maintained as part of a Fund’s portfolio or sold for cash. A Fund could suffer a loss to the extent that the proceeds from the sale of the underlying collateral held by the Fund is less than the repurchase price and the Fund’s costs associated with the delay and enforcement of the MRA.
While the Funds may invest in repurchase agreements, any repurchase agreements held by the Funds during the six months ended June 30, 2023, were received as collateral for lending securities.
F. Dividends and Distributions to Shareholders
Dividends from net investment income of each Fund, if any, are declared and paid quarterly, or as the Board of Trustees may determine from time to time. Distributions of net realized gains earned by each Fund, if any, are distributed at least annually. A Fund may also designate a portion of the amount paid to redeeming shareholders as a distribution for tax purposes.
Distributions from net investment income and realized capital gains are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These permanent differences are primarily due to the varying treatment of income and gain/loss on portfolio securities held by the Funds and have no impact on net assets or NAV per share. Temporary differences, which arise from recognizing certain items of income, expense and gain/loss in different periods for financial statement and tax purposes, will reverse at some time in the future.
The tax character of distributions paid by each Fund during the fiscal year ended December 31, 2022 was as follows:
| Distributions
paid from
Ordinary
Income | Distributions
paid from
Capital
Gains | Distributions
paid from
Return of
Capital |
First Trust Dow Jones Select MicroCap Index Fund | | | |
First Trust Morningstar Dividend Leaders Index Fund | | | |
First Trust US Equity Opportunities ETF | | | |
First Trust NYSE® Arca® Biotechnology Index Fund | | | |
First Trust Dow Jones Internet Index Fund | | | |
Notes to Financial Statements (Continued)
First Trust Exchange-Traded Fund
June 30, 2023 (Unaudited)
| Distributions paid from Ordinary Income | Distributions paid from Capital Gains | Distributions paid from Return of Capital |
First Trust Capital Strength ETF | | | |
First Trust Value Line® Dividend Index Fund | | | |
As of December 31, 2022, the components of distributable earnings on a tax basis for each Fund were as follows:
| Undistributed
Ordinary
Income | Accumulated
Capital and
Other
Gain (Loss) | Net
Unrealized
Appreciation
(Depreciation) |
First Trust Dow Jones Select MicroCap Index Fund | | | |
First Trust Morningstar Dividend Leaders Index Fund | | | |
First Trust US Equity Opportunities ETF | | | |
First Trust NYSE® Arca® Biotechnology Index Fund | | | |
First Trust Dow Jones Internet Index Fund | | | |
First Trust Capital Strength ETF | | | |
First Trust Value Line® Dividend Index Fund | | | |
G. Income Taxes
Each Fund intends to continue to qualify as a regulated investment company by complying with the requirements under Subchapter M of the Internal Revenue Code of 1986, as amended, which includes distributing substantially all of its net investment income and net realized gains to shareholders. Accordingly, no provision has been made for federal and state income taxes. However, due to the timing and amount of distributions, each Fund may be subject to an excise tax of 4% of the amount by which approximately 98% of each Fund’s taxable income exceeds the distributions from such taxable income for the calendar year.
The Funds are subject to accounting standards that establish a minimum threshold for recognizing, and a system for measuring, the benefits of a tax position taken or expected to be taken in a tax return. The taxable years ended 2019, 2020, 2021, and 2022 remain open to federal and state audit. As of June 30, 2023, management has evaluated the application of these standards to the Funds and has determined that no provision for income tax is required in the Funds’ financial statements for uncertain tax positions.
Each Fund intends to utilize provisions of the federal income tax laws, which allow it to carry a realized capital loss forward indefinitely following the year of the loss and offset such loss against any future realized capital gains. Each Fund is subject to certain limitations under U.S. tax rules on the use of capital loss carryforwards and net unrealized built-in losses. These limitations apply when there has been a 50% change in ownership. At December 31, 2022, for federal income tax purposes, each applicable Fund had a capital loss carryforward available that is shown in the table below, to the extent provided by regulations, to offset future capital gains. To the extent that these loss carryforwards are used to offset future capital gains, it is probable that the capital gains so offset will not be distributed to each applicable Fund’s shareholders.
| Non-Expiring
Capital Loss
Carryforward |
First Trust Dow Jones Select MicroCap Index Fund | |
First Trust Morningstar Dividend Leaders Index Fund | |
First Trust US Equity Opportunities ETF | |
First Trust NYSE® Arca® Biotechnology Index Fund | |
First Trust Dow Jones Internet Index Fund | |
First Trust Capital Strength ETF | |
First Trust Value Line® Dividend Index Fund* | |
| $11,007,161 of First Trust Value Line® Dividend Index Fund’s non-expiring net capital losses is subject to loss limitation resulting from reorganization activity. This limitation generally reduces the utilization of these losses to a maximum of $364,518 per year. |
Notes to Financial Statements (Continued)
First Trust Exchange-Traded Fund
June 30, 2023 (Unaudited)
Certain losses realized during the current fiscal year may be deferred and treated as occurring on the first day of the following fiscal year for federal income tax purposes. For the fiscal year ended December 31, 2022, the Funds had no net late year ordinary or capital losses.
As of June 30, 2023, the aggregate cost, gross unrealized appreciation, gross unrealized depreciation, and net unrealized appreciation/(depreciation) on investments (including short positions and derivatives, if any) for federal income tax purposes were as follows:
| | Gross Unrealized
Appreciation | Gross Unrealized
(Depreciation) | Net Unrealized
Appreciation
(Depreciation) |
First Trust Dow Jones Select MicroCap Index Fund | | | | |
First Trust Morningstar Dividend Leaders Index Fund | | | | |
First Trust US Equity Opportunities ETF | | | | |
First Trust NYSE® Arca® Biotechnology Index Fund | | | | |
First Trust Dow Jones Internet Index Fund | | | | |
First Trust Capital Strength ETF | | | | |
First Trust Value Line® Dividend Index Fund | | | | |
H. Expenses
Expenses that are directly related to one of the Funds are charged directly to the respective Fund. General expenses of the Trust are allocated to all the Funds based upon the net assets of each Fund.
First Trust has entered into licensing agreements with each of the following “Licensors” for the respective Funds:
| |
First Trust Dow Jones Select MicroCap Index Fund | S&P Dow Jones Indices LLC |
First Trust Morningstar Dividend Leaders Index Fund | |
First Trust US Equity Opportunities ETF | |
First Trust NYSE® Arca® Biotechnology Index Fund | |
First Trust Dow Jones Internet Index Fund | S&P Dow Jones Indices LLC |
First Trust Capital Strength ETF | |
First Trust Value Line® Dividend Index Fund | Value Line Publishing LLC |
The respective license agreements allow for the use by First Trust of certain trademarks and trade names of the respective Licensors. The Funds are sub-licensees to the applicable license agreement. The respective Funds are required to pay licensing fees, which are shown on the Statements of Operations.
3. Investment Advisory Fee, Affiliated Transactions and Other Fee Arrangements
First Trust, the investment advisor to the Funds, is a limited partnership with one limited partner, Grace Partners of DuPage L.P., and one general partner, The Charger Corporation. The Charger Corporation is an Illinois corporation controlled by James A. Bowen, Chief Executive Officer of First Trust. First Trust is responsible for the selection and ongoing monitoring of the securities in each Fund’s portfolio, managing the Funds’ business affairs and providing certain administrative services necessary for the management of the Funds.
The management fee payable by each Fund to First Trust for these services will be reduced at certain levels of each Fund’s net assets (“breakpoints”) and calculated pursuant to the following schedule:
Notes to Financial Statements (Continued)
First Trust Exchange-Traded Fund
June 30, 2023 (Unaudited)
| | | | | | | |
Fund net assets up to and including $2.5 billion | | | | | | | |
Fund net assets greater than $2.5 billion up to and including $5 billion | | | | | | | |
Fund net assets greater than $5 billion up to and including $7.5 billion | | | | | | | |
Fund net assets greater than $7.5 billion up to and including $10 billion | | | | | | | |
Fund net assets greater than $10 billion up to and including $15 billion | | | | | | | |
Fund net assets greater than $15 billion | | | | | | | |
The Trust and the Advisor have entered into an Expense Reimbursement and Fee Waiver Agreement (“Agreement”) in which First Trust has agreed to waive fees and/or reimburse Fund expenses to the extent that the operating expenses of each Fund (excluding interest expense, brokerage commissions and other trading expenses, acquired fund fees and expenses, taxes and extraordinary expenses) exceed the below amount as a percentage of average daily net assets per year (the “Expense Cap”). The Expense Cap will be in effect until at least April 30, 2024.
| |
First Trust Dow Jones Select MicroCap Index Fund | |
First Trust Morningstar Dividend Leaders Index Fund | |
First Trust US Equity Opportunities ETF | |
First Trust NYSE® Arca® Biotechnology Index Fund | |
First Trust Dow Jones Internet Index Fund | |
First Trust Capital Strength ETF | |
First Trust Value Line® Dividend Index Fund | |
The Trust has multiple service agreements with BNYM. Under the service agreements, BNYM performs custodial, fund accounting, certain administrative services, and transfer agency services for each Fund. As custodian, BNYM is responsible for custody of each Fund’s assets. As fund accountant and administrator, BNYM is responsible for maintaining the books and records of each Fund’s securities and cash. As transfer agent, BNYM is responsible for maintaining shareholder records for each Fund. BNYM is a subsidiary of The Bank of New York Mellon Corporation, a financial holding company.
Each Trustee who is not an officer or employee of First Trust, any sub-advisor or any of their affiliates (“Independent Trustees”) is paid a fixed annual retainer that is allocated equally among each fund in the First Trust Fund Complex. Each Independent Trustee is also paid an annual per fund fee that varies based on whether the fund is a closed-end or other actively managed fund, a target outcome fund or an index fund.
Additionally, the Lead Independent Trustee and the Chairs of the Audit Committee, Nominating and Governance Committee and Valuation Committee are paid annual fees to serve in such capacities, with such compensation allocated pro rata among each fund in the First Trust Fund Complex based on net assets. Independent Trustees are reimbursed for travel and out-of-pocket expenses in connection with all meetings. The Lead Independent Trustee and Committee Chairs rotate every three years. The officers and “Interested” Trustee receive no compensation from the Trust for acting in such capacities.
4. Purchases and Sales of Securities
For the six months ended June 30, 2023, the cost of purchases and proceeds from sales of investments for each Fund, excluding short-term investments and in-kind transactions, were as follows:
| | |
First Trust Dow Jones Select MicroCap Index Fund | | |
First Trust Morningstar Dividend Leaders Index Fund | | |
First Trust US Equity Opportunities ETF | | |
First Trust NYSE® Arca® Biotechnology Index Fund | | |
First Trust Dow Jones Internet Index Fund | | |
First Trust Capital Strength ETF | | |
Notes to Financial Statements (Continued)
First Trust Exchange-Traded Fund
June 30, 2023 (Unaudited)
| | |
First Trust Value Line® Dividend Index Fund | | |
For the six months ended June 30, 2023, the cost of in-kind purchases and proceeds from in-kind sales for each Fund were as follows:
| | |
First Trust Dow Jones Select MicroCap Index Fund | | |
First Trust Morningstar Dividend Leaders Index Fund | | |
First Trust US Equity Opportunities ETF | | |
First Trust NYSE® Arca® Biotechnology Index Fund | | |
First Trust Dow Jones Internet Index Fund | | |
First Trust Capital Strength ETF | | |
First Trust Value Line® Dividend Index Fund | | |
5. Creations, Redemptions and Transaction Fees
Each Fund generally issues and redeems its shares in primary market transactions through a creation and redemption mechanism and does not sell or redeem individual shares. Instead, financial entities known as “Authorized Participants” have contractual arrangements with a Fund or one of the Fund’s service providers to purchase and redeem Fund shares directly with the Fund in large blocks of shares known as “Creation Units.” Prior to the start of trading on every business day, a Fund publishes through the National Securities Clearing Corporation (“NSCC”) the “basket” of securities, cash or other assets that it will accept in exchange for a Creation Unit of the Fund’s shares. An Authorized Participant that wishes to effectuate a creation of a Fund’s shares deposits with the Fund the “basket” of securities, cash or other assets identified by the Fund that day, and then receives the Creation Unit of the Fund’s shares in return for those assets. After purchasing a Creation Unit, the Authorized Participant may continue to hold the Fund’s shares or sell them in the secondary market. The redemption process is the reverse of the purchase process:the Authorized Participant redeems a Creation Unit of a Fund’s shares for a basket of securities, cash or other assets. The combination of the creation and redemption process with secondary market trading in a Fund’s shares and underlying securities provides arbitrage opportunities that are designed to help keep the market price of a Fund’s shares at or close to the NAV per share of the Fund.
Each Fund imposes fees in connection with the purchase of Creation Units. These fees may vary based upon various fact-based circumstances, including, but not limited to, the composition of the securities included in the Creation Unit or the countries in which the transactions are settled. The price for each Creation Unit will equal the daily NAV per share of a Fund times the number of shares in a Creation Unit, plus the fees described above and, if applicable, any operational processing and brokerage costs, transfer fees, stamp taxes and part or all of the spread between the expected bid and offer side of the market related to the securities comprising the creation basket.
Each Fund also imposes fees in connection with the redemption of Creation Units. These fees may vary based upon various fact-based circumstances, including, but not limited to, the composition of the securities included in the Creation Unit or the countries in which the transactions are settled. The price received for each Creation Unit will equal the daily NAV per share of a Fund times the number of shares in a Creation Unit, minus the fees described above and, if applicable, any operational processing and brokerage costs, transfer fees, stamp taxes and part or all of the spread between the expected bid and offer side of the market related to the securities comprising the redemption basket. Investors who use the services of a broker or other such intermediary in addition to an Authorized Participant to effect a redemption of a Creation Unit may also be assessed an amount to cover the cost of such services. The redemption fee charged by a Fund will comply with Rule 22c-2 of the 1940 Act which limits redemption fees to no more than 2% of the value of the shares redeemed.
6. Distribution Plan
The Board of Trustees adopted a Distribution and Service Plan pursuant to Rule 12b-1 under the 1940 Act. In accordance with the Rule 12b-1 plan, the Funds are authorized to pay an amount up to 0.25% of their average daily net assets each year to reimburse First Trust Portfolios L.P. (“FTP”), the distributor of the Funds, for amounts expended to finance activities primarily intended to result in the sale of Creation Units or the provision of investor services. FTP may also use this amount to compensate securities dealers or other persons that are Authorized Participants for providing distribution assistance, including broker-dealer and shareholder support and educational and promotional services.
No 12b-1 fees are currently paid by the Funds, and pursuant to a contractual arrangement, no 12b-1 fees will be paid any time before April 30, 2024.
Notes to Financial Statements (Continued)
First Trust Exchange-Traded Fund
June 30, 2023 (Unaudited)
7. Indemnification
The Trust, on behalf of the Funds, has a variety of indemnification obligations under contracts with its service providers. The Trust’s maximum exposure under these arrangements is unknown. However, the Trust has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
8. Subsequent Events
Management has evaluated the impact of all subsequent events on the Funds through the date the financial statements were issued and has determined that there were no subsequent events requiring recognition or disclosure in the financial statements that have not already been disclosed.
First Trust Exchange-Traded Fund
June 30, 2023 (Unaudited)
Proxy Voting Policies and Procedures
A description of the policies and procedures that the Trust uses to determine how to vote proxies and information on how each Fund voted proxies relating to its portfolio securities during the most recent 12-month period ended June 30 is available (1) without charge, upon request, by calling (800) 988-5891; (2) on each Fund’s website at www.ftportfolios.com; and (3) on the Securities and Exchange Commission’s (“SEC”) website at www.sec.gov.
Portfolio Holdings
Each Fund files portfolio holdings information for each month in a fiscal quarter within 60 days after the end of the relevant fiscal quarter on Form N-PORT. Portfolio holdings information for the third month of each fiscal quarter will be publicly available on the SEC’s website at www.sec.gov. Each Fund’s complete schedule of portfolio holdings for the second and fourth quarters of each fiscal year is included in the semi-annual and annual reports to shareholders, respectively, and is filed with the SEC on Form N-CSR. The semi-annual and annual report for each Fund is available to investors within 60 days after the period to which it relates. Each Fund’s Forms N-PORT and Forms N-CSR are available on the SEC’s website listed above.
Risk Considerations
Risks are inherent in all investing. Certain general risks that may be applicable to a Fund are identified below, but not all of the material risks relevant to each Fund are included in this report and not all of the risks below apply to each Fund. The material risks of investing in each Fund are spelled out in its prospectus, statement of additional information and other regulatory filings. Before investing, you should consider each Fund’s investment objective, risks, charges and expenses, and read each Fund’s prospectus and statement of additional information carefully. You can download each Fund’s prospectus at www.ftportfolios.com or contact First Trust Portfolios L.P. at (800) 621-1675 to request a prospectus, which contains this and other information about each Fund.
Concentration Risk. To the extent that a fund is able to invest a significant percentage of its assets in a single asset class or the securities of issuers within the same country, state, region, industry or sector, an adverse economic, business or political development may affect the value of the fund’s investments more than if the fund were more broadly diversified. A fund that tracks an index will be concentrated to the extent the fund’s corresponding index is concentrated. A concentration makes a fund more susceptible to any single occurrence and may subject the fund to greater market risk than a fund that is more broadly diversified.
Credit Risk. Credit risk is the risk that an issuer of a security will be unable or unwilling to make dividend, interest and/or principal payments when due and the related risk that the value of a security may decline because of concerns about the issuer’s ability to make such payments.
Cyber Security Risk. The funds are susceptible to potential operational risks through breaches in cyber security. A breach in cyber security refers to both intentional and unintentional events that may cause a fund to lose proprietary information, suffer data corruption or lose operational capacity. Such events could cause a fund to incur regulatory penalties, reputational damage, additional compliance costs associated with corrective measures and/or financial loss. In addition, cyber security breaches of a fund’s third-party service providers, such as its administrator, transfer agent, custodian, or sub-advisor, as applicable, or issuers in which the fund invests, can also subject a fund to many of the same risks associated with direct cyber security breaches.
Defined Outcome Funds Risk. To the extent a fund’s investment strategy is designed to deliver returns tied to the price performance of an underlying ETF, an investor may not realize the returns the fund seeks to achieve if that investor does not hold shares for the entire target outcome period. In the event an investor purchases shares after the first day of the target outcome period or sells shares prior to the end of the target outcome period, the buffer that the fund seeks to provide against a decline in the value of the underlying ETF may not be available, the enhanced returns that the fund seeks to provide (if any) may not be available and the investor may not participate in a gain in the value of the underlying ETF up to the cap for the investor’s investment period. Additionally, the fund will not participate in gains of the underlying ETF above the cap and a shareholder may lose their entire investment. If the fund seeks enhanced returns, there are certain time periods when the value of the fund may fall faster than the value of the underlying ETF, and it is very unlikely that, on any given day during which the underlying ETF share price increases in value, the fund’s share price will increase at the same rate as the enhanced returns sought by the fund, which is designed for an entire target outcome period. Trading flexible exchange options involves risks different from, or possibly greater than, the risks associated with investing directly in securities, such as less liquidity and correlation and valuation risks. A fund may experience substantial downside from specific flexible exchange option positions and certain positions may expire worthless.
Additional Information (Continued)
First Trust Exchange-Traded Fund
June 30, 2023 (Unaudited)
Derivatives Risk. To the extent a fund uses derivative instruments such as futures contracts, options contracts and swaps, the fund may experience losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivative. These risks are heightened when a fund’s portfolio managers use derivatives to enhance the fund’s return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the fund.
Equity Securities Risk. To the extent a fund invests in equity securities, the value of the fund’s shares will fluctuate with changes in the value of the equity securities. Equity securities prices fluctuate for several reasons, including changes in investors’ perceptions of the financial condition of an issuer or the general condition of the relevant stock market, such as market volatility, or when political or economic events affecting the issuers occur. In addition, common stock prices may be particularly sensitive to rising interest rates, as the cost of capital rises and borrowing costs increase. Equity securities may decline significantly in price over short or extended periods of time, and such declines may occur in the equity market as a whole, or they may occur in only a particular country, company, industry or sector of the market.
ETF Risk. The shares of an ETF trade like common stock and represent an interest in a portfolio of securities. The risks of owning an ETF generally reflect the risks of owning the underlying securities, although lack of liquidity in an ETF could result in it being more volatile and ETFs have management fees that increase their costs. Shares of an ETF trade on an exchange at market prices rather than net asset value, which may cause the shares to trade at a price greater than net asset value (premium) or less than net asset value (discount). In times of market stress, decisions by market makers to reduce or step away from their role of providing a market for an ETF’s shares, or decisions by an ETF’s authorized participants that they are unable or unwilling to proceed with creation and/or redemption orders of an ETF’s shares, could result in shares of the ETF trading at a discount to net asset value and in greater than normal intraday bid-ask spreads.
Fixed Income Securities Risk. To the extent a fund invests in fixed income securities, the fund will be subject to credit risk, income risk, interest rate risk, liquidity risk and prepayment risk. Income risk is the risk that income from a fund’s fixed income investments could decline during periods of falling interest rates. Interest rate risk is the risk that the value of a fund’s fixed income securities will decline because of rising interest rates. Liquidity risk is the risk that a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. Prepayment risk is the risk that the securities will be redeemed or prepaid by the issuer, resulting in lower interest payments received by the fund. In addition to these risks, high yield securities, or “junk” bonds, are subject to greater market fluctuations and risk of loss than securities with higher ratings, and the market for high yield securities is generally smaller and less liquid than that for investment grade securities.
Index or Model Constituent Risk. Certain funds may be a constituent of one or more indices or ETF models. As a result, such a fund may be included in one or more index-tracking exchange-traded funds or mutual funds. Being a component security of such a vehicle could greatly affect the trading activity involving a fund, the size of the fund and the market volatility of the fund. Inclusion in an index could increase demand for the fund and removal from an index could result in outsized selling activity in a relatively short period of time. As a result, a fund’s net asset value could be negatively impacted and the fund’s market price may be significantly below its net asset value during certain periods. In addition, index rebalances may potentially result in increased trading activity in a fund’s shares.
Index Provider Risk. To the extent a fund seeks to track an index, it is subject to Index Provider Risk. There is no assurance that the Index Provider will compile the Index accurately, or that the Index will be determined, maintained, constructed, reconstituted, rebalanced, composed, calculated or disseminated accurately. To correct any such error, the Index Provider may carry out an unscheduled rebalance or other modification of the Index constituents or weightings, which may increase the fund’s costs. The Index Provider does not provide any representation or warranty in relation to the quality, accuracy or completeness of data in the Index, and it does not guarantee that the Index will be calculated in accordance with its stated methodology. Losses or costs associated with any Index Provider errors generally will be borne by the fund and its shareholders.
Investment Companies Risk. To the extent a fund invests in the securities of other investment vehicles, the fund will incur additional fees and expenses that would not be present in a direct investment in those investment vehicles. Furthermore, the fund’s investment performance and risks are directly related to the investment performance and risks of the investment vehicles in which the fund invests.
LIBOR Risk. To the extent a fund invests in floating or variable rate obligations that use the London Interbank Offered Rate (“LIBOR”) as a reference interest rate, it is subject to LIBOR Risk. The United Kingdom’s Financial Conduct Authority, which regulates LIBOR, has ceased making LIBOR available as a reference rate over a phase-out period that began December 31, 2021.
Additional Information (Continued)
First Trust Exchange-Traded Fund
June 30, 2023 (Unaudited)
There is no assurance that any alternative reference rate, including the Secured Overnight Financing Rate (“SOFR”) will be similar to or produce the same value or economic equivalence as LIBOR or that instruments using an alternative rate will have the same volume or liquidity. The unavailability or replacement of LIBOR may affect the value, liquidity or return on certain fund investments and may result in costs incurred in connection with closing out positions and entering into new trades. Any potential effects of the transition away from LIBOR on the fund or on certain instruments in which the fund invests can be difficult to ascertain, and they may vary depending on a variety of factors, and they could result in losses to the fund.
Management Risk. To the extent that a fund is actively managed, it is subject to management risk. In managing an actively-managed fund’s investment portfolio, the fund’s portfolio managers will apply investment techniques and risk analyses that may not have the desired result. There can be no guarantee that a fund will meet its investment objective.
Market Risk. Market risk is the risk that a particular security, or shares of a fund in general, may fall in value. Securities held by a fund, as well as shares of a fund itself, are subject to market fluctuations caused by factors such as general economic conditions, political events, regulatory or market developments, changes in interest rates and perceived trends in securities prices. Shares of a fund could decline in value or underperform other investments as a result of the risk of loss associated with these market fluctuations. In addition, local, regional or global events such as war, acts of terrorism, spread of infectious diseases or other public health issues, recessions, or other events could have a significant negative impact on a fund and its investments. Such events may affect certain geographic regions, countries, sectors and industries more significantly than others. In February 2022, Russia invaded Ukraine which has caused and could continue to cause significant market disruptions and volatility within the markets in Russia, Europe, and the United States. The hostilities and sanctions resulting from those hostilities could have a significant impact on certain fund investments as well as fund performance. The COVID-19 global pandemic and the ensuing policies enacted by governments and central banks have caused and may continue to cause significant volatility and uncertainty in global financial markets. While the U.S. has resumed “reasonably” normal business activity, many countries continue to impose lockdown measures. Additionally, there is no guarantee that vaccines will be effective against emerging variants of the disease. These events also adversely affect the prices and liquidity of a fund’s portfolio securities or other instruments and could result in disruptions in the trading markets. Any of such circumstances could have a materially negative impact on the value of a fund’s shares and result in increased market volatility. During any such events, a fund’s shares may trade at increased premiums or discounts to their net asset value and the bid/ask spread on a fund’s shares may widen.
Non-U.S. Securities Risk. To the extent a fund invests in non-U.S. securities, it is subject to additional risks not associated with securities of domestic issuers. Non-U.S. securities are subject to higher volatility than securities of domestic issuers due to:possible adverse political, social or economic developments; restrictions on foreign investment or exchange of securities; capital controls; lack of liquidity; currency exchange rates; excessive taxation; government seizure of assets; the imposition of sanctions by foreign governments; different legal or accounting standards; and less government supervision and regulation of exchanges in foreign countries. Investments in non-U.S. securities may involve higher costs than investments in U.S. securities, including higher transaction and custody costs, as well as additional taxes imposed by non-U.S. governments. These risks may be heightened for securities of companies located, or with significant operations, in emerging market countries.
Operational Risk. Each fund is subject to risks arising from various operational factors, including, but not limited to, human error, processing and communication errors, errors of a fund’s service providers, counterparties or other third-parties, failed or inadequate processes and technology or systems failures. Each fund relies on third-parties for a range of services, including custody. Any delay or failure relating to engaging or maintaining such service providers may affect a fund’s ability to meet its investment objective. Although the funds and the funds’ investment advisor seek to reduce these operational risks through controls and procedures, there is no way to completely protect against such risks.
Passive Investment Risk. To the extent a fund seeks to track an index, the fund will invest in the securities included in, or representative of, the index regardless of their investment merit. A fund generally will not attempt to take defensive positions in declining markets.
Preferred Securities Risk. Preferred securities combine some of the characteristics of both common stocks and bonds. Preferred securities are typically subordinated to bonds and other debt securities in a company’s capital structure in terms of priority to corporate income, subjecting them to greater credit risk than those debt securities. Generally, holders of preferred securities have no voting rights with respect to the issuing company unless preferred dividends have been in arrears for a specified number of periods, at which time the preferred security holders may obtain limited rights. In certain circumstances, an issuer of preferred securities may defer
Additional Information (Continued)
First Trust Exchange-Traded Fund
June 30, 2023 (Unaudited)
payment on the securities and, in some cases, redeem the securities prior to a specified date. Preferred securities may also be substantially less liquid than other securities, including common stock.
Valuation Risk. The valuation of certain securities may carry more risk than that of common stock. Uncertainties in the conditions of the financial markets, unreliable reference data, lack of transparency and inconsistency of valuation models and processes may lead to inaccurate asset pricing. A fund may hold investments in sizes smaller than institutionally sized round lot positions (sometimes referred to as odd lots). However, third-party pricing services generally provide evaluations on the basis of institutionally-sized round lots. If a fund sells certain of its investments in an odd lot transaction, the sale price may be less than the value at which such securities have been held by the fund. Odd lots often trade at lower prices than institutional round lots. There is no assurance that the fund will be able to sell a portfolio security at the price established by the pricing service, which could result in a loss to the fund.
NOT FDIC INSURED NOT BANK GUARANTEED MAY LOSE VALUE
Advisory Agreements
Board Considerations Regarding Approval of Continuation of Investment Management Agreement
The Board of Trustees of First Trust Exchange-Traded Fund (the “Trust”), including the Independent Trustees, unanimously approved the continuation of the Investment Management Agreement (the “Agreement”) with First Trust Advisors L.P. (the “Advisor”) on behalf of the following series of the Trust (each a “Fund” and collectively, the “Funds”):
First Trust Dow Jones Select MicroCap Index Fund (FDM) |
First Trust Morningstar Dividend Leaders Index Fund (FDL) |
First Trust US Equity Opportunities ETF (FPX) |
First Trust NYSE® Arca® Biotechnology Index Fund (FBT) |
First Trust Dow Jones Internet Index Fund (FDN) |
First Trust Capital Strength ETF (FTCS) |
First Trust Value Line® Dividend Index Fund (FVD) |
The Board approved the continuation of the Agreement for each Fund for a one-year period ending June 30, 2024 at a meeting held on June 4–5, 2023. The Board determined for each Fund that the continuation of the Agreement is in the best interests of the Fund in light of the nature, extent and quality of the services provided and such other matters as the Board considered to be relevant in the exercise of its business judgment.
To reach this determination for each Fund, the Board considered its duties under the Investment Company Act of 1940, as amended (the “1940 Act”), as well as under the general principles of state law, in reviewing and approving advisory contracts; the requirements of the 1940 Act in such matters; the fiduciary duty of investment advisors with respect to advisory agreements and compensation; the standards used by courts in determining whether investment company boards have fulfilled their duties; and the factors to be considered by the Board in voting on such agreements. At meetings held on April 17, 2023 and June 4–5, 2023, the Board, including the Independent Trustees, reviewed materials provided by the Advisor responding to requests for information from counsel to the Independent Trustees, submitted on behalf of the Independent Trustees, that, among other things, outlined:the services provided by the Advisor to each Fund (including the relevant personnel responsible for these services and their experience); the advisory fee rate schedule payable by each Fund as compared to fees charged to a peer group of funds (the “Expense Group”) and a broad peer universe of funds (the “Expense Universe”), each assembled by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent source, and as compared to fees charged to other clients of the Advisor, including other exchange-traded funds (“ETFs”) managed by the Advisor; the expense ratio of each Fund as compared to expense ratios of the funds in the Fund’s Expense Group and Expense Universe; performance information for each Fund, including comparisons of each Fund’s performance to that of one or more relevant benchmark indexes and to that of a performance group of funds and a broad performance universe of funds (the “Performance Universe”), each assembled by Broadridge; the nature of expenses incurred in providing services to each Fund and the potential for the Advisor to realize economies of scale, if any; profitability and other financial data for the Advisor; any indirect benefits to the Advisor and its affiliate, First Trust Portfolios L.P. (“FTP”); and information on the Advisor’s compliance program. The Board reviewed initial materials with the Advisor at the meeting held on April 17, 2023, prior to which the Independent Trustees and their counsel met separately to discuss the information provided by the Advisor. Following the April meeting, counsel to the Independent Trustees, on behalf of the Independent Trustees, requested certain clarifications and supplements to the materials provided, and the information provided in response to those requests was considered at an executive session of the Independent Trustees and their counsel held prior to the June 4–5, 2023 meeting, as well as at the June meeting. The Board applied its business judgment to determine whether the
Additional Information (Continued)
First Trust Exchange-Traded Fund
June 30, 2023 (Unaudited)
arrangement between the Trust and the Advisor continues to be a reasonable business arrangement from each Fund’s perspective. The Board determined that, given the totality of the information provided with respect to the Agreement, the Board had received sufficient information to renew the Agreement. The Board considered that shareholders chose to invest or remain invested in a Fund knowing that the Advisor manages the Fund and knowing the Fund’s advisory fee.
In reviewing the Agreement for each Fund, the Board considered the nature, extent and quality of the services provided by the Advisor under the Agreement. The Board considered that the Advisor is responsible for the overall management and administration of the Trust and each Fund and reviewed all of the services provided by the Advisor to the Funds, as well as the background and experience of the persons responsible for such services. In reviewing the services provided, the Board noted the compliance program that had been developed by the Advisor and considered that it includes a robust program for monitoring the Advisor’s and each Fund’s compliance with the 1940 Act, as well as each Fund’s compliance with its investment objective, policies and restrictions. The Board also considered a report from the Advisor with respect to its risk management functions related to the operation of the Funds. Finally, as part of the Board’s consideration of the Advisor’s services, the Advisor, in its written materials and at the April 17, 2023 meeting, described to the Board the scope of its ongoing investment in additional personnel and infrastructure to maintain and improve the quality of services provided to the Funds and the other funds in the First Trust Fund Complex. In light of the information presented and the considerations made, the Board concluded that the nature, extent and quality of the services provided to the Trust and each Fund by the Advisor under the Agreement have been and are expected to remain satisfactory and that the Advisor has managed each Fund consistent with its investment objective, policies and restrictions.
The Board considered the advisory fee rate schedule payable by each Fund under the Agreement for the services provided. The Board considered that the Advisor agreed to extend the current expense cap for each Fund through April 30, 2025. The Board received and reviewed information showing the fee rates and expense ratios of the peer funds in the Expense Groups, as well as advisory and unitary fee rates charged by the Advisor to other fund (including ETFs) and non-fund clients, as applicable. Because each Fund’s Expense Group included peer funds that pay a unitary fee, the Board determined that expense ratios were the most relevant comparative data point. Based on the information provided, the Board noted that the total (net) expense ratio for each Fund was above the median total (net) expense ratio of the peer funds in its respective Expense Group. With respect to the Expense Groups, the Board, at the April 17, 2023 meeting, discussed with Broadridge its methodology for assembling peer groups and discussed with the Advisor limitations in creating peer groups for index ETFs, including differences in underlying indexes and index-tracking methodologies that can result in greater management complexities across seemingly comparable ETFs, and different business models that may affect the pricing of services among ETF sponsors. The Board took these limitations and differences into account in considering the peer data. With respect to fees charged to other non-ETF clients, the Board considered differences between the Funds and other non-ETF clients that limited their comparability. In considering the advisory fee rate schedules overall, the Board also considered the Advisor’s statement that it seeks to meet investor needs through innovative and value-added investment solutions and the Advisor’s demonstrated long-term commitment to each Fund and the other funds in the First Trust Fund Complex.
The Board considered performance information for each Fund. The Board noted the process it has established for monitoring each Fund’s performance and portfolio risk on an ongoing basis, which includes quarterly performance reporting from the Advisor for the Funds. The Board determined that this process continues to be effective for reviewing each Fund’s performance. The Board received and reviewed information for periods ended December 31, 2022 regarding the performance of each Fund’s underlying index, the correlation between each Fund’s performance and that of its underlying index, each Fund’s tracking difference and each Fund’s excess return as compared to its benchmark index. With respect to FTCS, the Board noted that during 2013, the Fund changed its underlying index to The Capital StrengthTM Index, and that the performance information included a blend of the old and new indexes. Based on the information provided and its ongoing review of performance, the Board concluded that each Fund was correlated to its underlying index and that the tracking difference for each Fund was within a reasonable range. In addition, the Board reviewed data prepared by Broadridge comparing each Fund’s performance to that of its respective Performance Universe and to that of a broad-based benchmark index and noted the Advisor’s discussion of FDN’s and FPX’s performance at the April 17, 2023 meeting. However, given each Fund’s objective of seeking investment results that correspond generally to the performance of its underlying index, the Board placed more emphasis on its review of correlation and tracking difference.
On the basis of all the information provided on the fees, expenses and performance of each Fund and the ongoing oversight by the Board, the Board concluded that the advisory fee for each Fund continues to be reasonable and appropriate in light of the nature, extent and quality of the services provided by the Advisor to each Fund under the Agreement.
The Board considered information and discussed with the Advisor whether there were any economies of scale in connection with providing advisory services to the Funds at current asset levels and whether the Funds may benefit from any economies of scale. The
Additional Information (Continued)
First Trust Exchange-Traded Fund
June 30, 2023 (Unaudited)
Board noted that the advisory fee rate schedule for each Fund includes breakpoints pursuant to which the advisory fee rate will be reduced as assets of the Fund meet certain thresholds. The Board considered the Advisor’s statement that it believes that its expenses relating to providing advisory services to the Funds will increase during the next twelve months as the Advisor continues to build infrastructure and add new staff. The Board concluded that the advisory fee rate schedule for each Fund reflects an appropriate level of sharing of any economies of scale that may be realized in the management of the Fund at current asset levels. The Board considered the revenues and allocated costs (including the allocation methodology) of the Advisor in serving as investment advisor to each Fund for the twelve months ended December 31, 2022 and the estimated profitability level for each Fund calculated by the Advisor based on such data, as well as complex-wide and product-line profitability data, for the same period. The Board noted the inherent limitations in the profitability analysis and concluded that, based on the information provided, the Advisor’s profitability level for each Fund was not unreasonable. In addition, the Board considered indirect benefits described by the Advisor that may be realized from its relationship with the Funds. The Board considered that the Advisor had identified as an indirect benefit to the Advisor and FTP their exposure to investors and brokers who, absent their exposure to the Funds, may have had no dealings with the Advisor or FTP, and noted that the Advisor does not utilize soft dollars in connection with the Funds. The Board concluded that the character and amount of potential indirect benefits to the Advisor were not unreasonable.
Based on all of the information considered and the conclusions reached, the Board, including the Independent Trustees, unanimously determined that the terms of the Agreement continue to be fair and reasonable and that the continuation of the Agreement is in the best interests of each Fund. No single factor was determinative in the Board’s analysis.
Liquidity Risk Management Program
In accordance with Rule 22e-4 under the Investment Company Act of 1940, as amended (the “1940 Act”), the Funds and each other fund in the First Trust Fund Complex, other than the closed-end funds, have adopted and implemented a liquidity risk management program (the “Program”) reasonably designed to assess and manage the funds’ liquidity risk, i.e., the risk that a fund could not meet requests to redeem shares issued by the fund without significant dilution of remaining investors’ interests in the fund. The Board of Trustees of the First Trust Funds has appointed First Trust Advisors, L.P. (the “Advisor”) as the person designated to administer the Program, and in this capacity the Advisor performs its duties primarily through the activities and efforts of the First Trust Liquidity Committee (the “Liquidity Committee”).
Pursuant to the Program, the Liquidity Committee classifies the liquidity of each fund’s portfolio investments into one of the four liquidity categories specified by Rule 22e-4: highly liquid investments, moderately liquid investments, less liquid investments and illiquid investments. The Liquidity Committee determines certain of the inputs for this classification process, including reasonably anticipated trade sizes and significant investor dilution thresholds. The Liquidity Committee also determines and periodically reviews a highly liquid investment minimum for certain funds, monitors the funds’ holdings of assets classified as illiquid investments to seek to ensure they do not exceed 15% of a fund’s net assets and establishes policies and procedures regarding redemptions in kind.
At the April 17, 2023 meeting of the Board of Trustees, as required by Rule 22e-4 and the Program, the Advisor provided the Board with a written report prepared by the Advisor that addressed the operation of the Program during the period from March 17, 2022 through the Liquidity Committee’s annual meeting held on March 23, 2023 and assessed the Program’s adequacy and effectiveness of implementation during this period, including the operation of the highly liquid investment minimum for each fund that is required under the Program to have one, and any material changes to the Program. Note that because the Funds primarily hold assets that are highly liquid investments, the Funds have not adopted any highly liquid investment minimums.
As stated in the written report, during the review period, two funds breached the 15% limitation on illiquid investments for one day each, as a result of an unscheduled week-long closure of the stock exchange in Istanbul following devastating earthquakes in February, causing all Turkish equities to be re-classified as “illiquid” for one day. Each fund filed a Form N-RN on the day after the breach occurred, and one day later after the breach was cured. No fund with a highly liquid investment minimum breached that minimum during the reporting period. The Advisor concluded that each fund’s investment strategy is appropriate for an open-end fund; that the Program operated effectively in all material respects during the review period; and that the Program is reasonably designed to assess and manage the liquidity risk of each fund and to maintain compliance with Rule 22e-4.
First Trust Exchange-Traded Fund
INVESTMENT ADVISOR
First Trust Advisors L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
ADMINISTRATOR, CUSTODIAN,
FUND ACCOUNTANT &
TRANSFER AGENT
The Bank of New York Mellon
240 Greenwich Street
New York, NY 10286
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
111 South Wacker Drive
Chicago, IL 60606
LEGAL COUNSEL
Chapman and Cutler LLP
320 South Canal Street
Chicago, IL 60606
Semi-Annual Report
For the Six Months Ended
June 30, 2023
First Trust Exchange-Traded Fund
First Trust NASDAQ-100 Equal Weighted Index Fund (QQEW) |
First Trust NASDAQ-100-Technology Sector Index Fund (QTEC) |
First Trust NASDAQ-100 Ex-Technology Sector Index Fund (QQXT) |
First Trust NASDAQ® Clean Edge® Green Energy Index Fund (QCLN) |
First Trust S&P REIT Index Fund (FRI) |
First Trust Water ETF (FIW) |
First Trust Natural Gas ETF (FCG) |
First Trust NASDAQ® ABA Community Bank Index Fund (QABA) |
First Trust Exchange-Traded Fund
Semi-Annual Report
June 30, 2023
Caution Regarding Forward-Looking Statements
This report contains certain forward-looking statements within the meaning of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. Forward-looking statements include statements regarding the goals, beliefs, plans or current expectations of First Trust Advisors L.P. (“First Trust” or the “Advisor”) and its representatives, taking into account the information currently available to them. Forward-looking statements include all statements that do not relate solely to current or historical fact. For example, forward-looking statements include the use of words such as “anticipate,” “estimate,” “intend,” “expect,” “believe,” “plan,” “may,” “should,” “would” or other words that convey uncertainty of future events or outcomes.
Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of any series of First Trust Exchange-Traded Fund (the “Trust”) described in this report (each such series is referred to as a “Fund” and collectively, as the “Funds”) to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. When evaluating the information included in this report, you are cautioned not to place undue reliance on these forward-looking statements, which reflect the judgment of the Advisor and its representatives only as of the date hereof. We undertake no obligation to publicly revise or update these forward-looking statements to reflect events and circumstances that arise after the date hereof.
Performance and Risk Disclosure
There is no assurance that any Fund described in this report will achieve its investment objective. Each Fund is subject to market risk, which is the possibility that the market values of securities owned by the Fund will decline and that the value of the Fund’s shares may therefore be less than what you paid for them. Accordingly, you can lose money by investing in a Fund. See “Risk Considerations” in the Additional Information section of this report for a discussion of certain other risks of investing in the Funds.
Performance data quoted represents past performance, which is no guarantee of future results, and current performance may be lower or higher than the figures shown. For the most recent month-end performance figures, please visit www.ftportfolios.com or speak with your financial advisor. Investment returns, net asset value and share price will fluctuate and Fund shares, when sold, may be worth more or less than their original cost.
The Advisor may also periodically provide additional information on Fund performance on each Fund’s webpage at www.ftportfolios.com.
How to Read This Report
This report contains information that may help you evaluate your investment. It includes details about each Fund and presents data and analysis that provide insight into each Fund’s performance and investment approach.
By reading the market overview by Robert F. Carey, Chief Market Strategist of the Advisor, you may obtain an understanding of how the market environment affected the performance of each Fund. The statistical information that follows may help you understand each Fund’s performance compared to that of relevant market benchmarks.
It is important to keep in mind that the opinions expressed by personnel of the Advisor are just that:informed opinions. They should not be considered to be promises or advice. The opinions, like the statistics, cover the period through the date on the cover of this report. The material risks of investing in each Fund are spelled out in its prospectus, statement of additional information, and other Fund regulatory filings.
First Trust Exchange-Traded Fund
Semi-Annual Letter from the Chairman and CEO
June 30, 2023
Dear Shareholders,
First Trust is pleased to provide you with the semi-annual report for certain series of the First Trust Exchange-Traded Fund (the “Funds”), which contains detailed information about the Funds for the six months ended June 30, 2023.
One economic topic that continues to dominate headlines is whether the Federal Reserve (the “Fed”) will be able to pull off a “soft landing” for the U.S. economy, raising interest rates just high enough to curb inflation, but not so high that they stunt economic growth and cause a recession. Historically, soft landings are exceedingly rare. Over the past 60 years, the Fed has only been able to orchestrate this phenomenon once. This occurred between February 1994 and February 1995 when the Fed doubled the Federal Funds target rate (upper bound), raising it from 3.0% to 6.0%. For comparative purposes, the Federal Funds target rate (upper bound) stood at 5.25% on June 30, 2023, a full 500 basis points above its most recent low of 0.25% on March 15, 2022. Inflation, as measured by the rate of change in the Consumer Price Index (“CPI”), appears to be declining. The CPI stood at 3.0% on June 30, 2023, substantially lower than its most recent peak of 9.1% on June 30, 2022. Despite the Fed’s tighter monetary policy, the U.S. economy continues to show resilience, with gross domestic product (“GDP”) growing in each of the past three quarters.
I am continually amazed by the efficiencies that technological advances can have on production. Take, for example, the recent interest in artificial intelligence (“AI”). The U.S. Census Bureau reported that construction spending by manufacturers in the U.S. has more than doubled in the past year, reaching an annual rate of nearly $190 billion in April 2023, according to Bloomberg. Manufacturing now accounts for close to 13% of all non-government construction, its highest share on record. A portion of the growth in U.S. manufacturing is due to the CHIPS and Science Act, which provided nearly $280 billion in funding to boost domestic research and manufacturing of semiconductors in the U.S. We have also seen the excitement regarding developments in AI drive the S&P 500® Index (the “Index”) higher this year. Year-to-date through June 30, 2023, the Index posted a total return of 16.89%. When the stock market increases by 20% or more from its most recent low, it is often referred to as a “bull market.” On June 8, 2023, the Index closed at 4,293.93, 20.04% above its most recent low of 3,577.03 (which occurred on October 12, 2022).
The U.S. economy has been resilient, posting positive changes to GDP even as monetary policy tightened significantly. That said, there are also economic indicators that point to the potential for weakness over the coming quarters. The Conference Board, a
non-profit business membership and research group organization, reported that its Leading Economic Index, which is composed of 10 economic indicators whose changes tend to precede changes in the overall economy, fell by 0.7% to a reading of 106.1 in June 2023, according to Reuters. The result represents the fifteenth consecutive monthly decline in the index, the longest streak of
month-over-month decreases since just before the financial crisis in 2007. From our perspective, even if the Fed can pull off a soft landing, it is likely to be a very bumpy ride.
Thank you for giving First Trust the opportunity to play a role in your financial future. We value our relationship with you and will report on the Funds again in six months.
Sincerely,
James A. Bowen
Chairman of the Board of Trustees
Chief Executive Officer of First Trust Advisors L.P.
First Trust Exchange-Traded Fund
Semi-Annual Report
June 30, 2023
Robert F. Carey, CFA
Senior Vice President and Chief Market Strategist
First Trust Advisors L.P.
Mr. Carey is responsible for the overall management of research and analysis of the First Trust product line. Mr. Carey has more than 30 years of experience as an Equity and Fixed-Income Analyst and is a recipient of the Chartered Financial Analyst (“CFA”) designation. He is a graduate of the University of Illinois at Champaign-Urbana with a B.S. in Physics. He is also a member of the Investment Analysts Society of Chicago and the CFA Institute. Mr. Carey has appeared as a guest on such programs as Bloomberg TV, CNBC, and WBBM Radio, and has been quoted by several publications, including The Wall Street Journal, The Wall Street Reporter, Bloomberg News Service and Registered Rep.
State of the Economy/Investing
As we head into the second half of 2023, a hot topic of discussion appears to be whether the Federal Reserve (the “Fed”) will resume interest rate hikes at their upcoming meeting on July 26, 2023. Central to this discussion is the pace of inflation. Inflation, as measured by the trailing 12-month rate of change in the Consumer Price Index, stood at 3.0% on June 30, 2023, a significant decline from its high of 9.1% where it stood on June 30, 2022 (the year prior), according to the U.S. Bureau of Labor Statistics. In what is known as a “soft landing,” the Fed intends to tighten monetary policy just enough to reduce inflation to 2.0%, but not so much that they cause a retraction in economic growth.
The latest growth forecast from the International Monetary Fund (“IMF”) released in July 2023 sees U.S. real gross domestic product (“GDP”) rising by 1.8% in 2023, up from its April 2023 estimate of 1.6%. The IMF notes that July’s upwardly revised real GDP reflects resilient consumer consumption in the first quarter of 2023, a trend they are quick to note is not likely to last. The IMF estimates that in 2024, U.S. real GDP could fall to just 1.0%. Overall, Advanced Economies are projected to register a 1.5% growth rate in 2023, before declining to 1.4% in 2024. Emerging Market and Developing Economies are projected to grow faster than Advanced Economies. The IMF estimates their growth rate to register 4.0% and 4.1% in 2023 and 2024, respectively.
U.S. Stocks and Bonds
The major U.S. stock indices delivered positive results over the past six months. The S&P 500®, S&P MidCap 400® and S&P SmallCap 600® Indices posted total returns of 16.89%, 8.84% and 6.03%, respectively, for the six-month period ended June 30, 2023. Seven of the eleven major sectors that comprise the S&P 500® Index were up on a total return basis. The top performer was the Information Technology sector, which was up 42.77%, while the worst showing came from the Utilities sector, which was down 5.69%.
Results were also positive in the U.S. bond market over the period. The top performing major debt group we track was long-term municipal bonds. The Bloomberg Municipal Bond:Long Bond (22+) Index posted a total return of 4.96% for the six-month period ended June 30, 2023. The worst-performing U.S. debt group that we track was intermediate U.S. Treasuries. The Bloomberg U.S. Treasury:Intermediate Index posted a total return of 1.10%. The yield on the benchmark 10-Year Treasury Note (“T-Note”) fell by just 4 basis points in the period to close at 3.84% on June 30, 2023, according to Bloomberg. For comparative purposes, the average yield on the 10-Year T-Note was 2.90% for the 10-year period ended June 30, 2023.
Foreign Stocks and Bonds
The broader foreign stock indices posted positive total returns over the past six months. Between December 30, 2022, and June 30, 2023, the MSCI World ex USA and MSCI Emerging Markets equity indices posted total returns of 11.29% (USD) and 4.89% (USD), respectively, according to Bloomberg. The major foreign bond indices were also up over the same period. The Bloomberg Global Aggregate Index of higher quality debt posted a total return of 1.43% (USD), while the Bloomberg EM Hard Currency Aggregate Index of emerging markets debt increased by 3.55% (USD), according to Bloomberg. The U.S. Dollar fell by just 0.59% over the past six months against a basket of major currencies, as measured by the U.S. Dollar Index.
Fund Performance Overview (Unaudited)
First Trust NASDAQ-100 Equal Weighted Index Fund (QQEW)
The First Trust NASDAQ-100 Equal Weighted Index Fund (the “Fund”) seeks investment results that correspond generally to the price and yield (before the Fund’s fees and expenses) of an equity index called the Nasdaq-100 Equal WeightedTM Index (the “Index”). The Fund will normally invest at least 90% of its net assets (including investment borrowings) in the securities that comprise the Index. The Index is the equal-weighted version of the Nasdaq-100 Index®, which includes 100 of the largest U.S. and international non-financial companies listed on The Nasdaq Stock Market LLC (“Nasdaq”) based on market capitalization. The Index is rebalanced quarterly and reconstituted annually and the Fund will make corresponding changes to its portfolio shortly after the Index changes are made public. The Fund’s shares are listed for trading on the Nasdaq. The first day of secondary market trading in shares of the Fund was April 25, 2006.
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| | | Average Annual Total Returns | |
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(4/19/06)
to 6/30/23 | | | Inception
(4/19/06)
to 6/30/23 |
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Nasdaq-100 Equal WeightedTM Index | | | | | | | | |
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(See Notes to Fund Performance Overview on page 20.)
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Old Dominion Freight Line, Inc. | |
Charter Communications, Inc., Class A | |
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| |
| |
Nasdaq®, Nasdaq-100®, Nasdaq-100 Index®, and Nasdaq-100 Equal WeightedTM Index are registered trademarks and service marks of Nasdaq, Inc. (together with its affiliates hereinafter referred to as the “Corporations”) and are licensed for use by First Trust. The Fund has not been passed on by the Corporations as to its legality or suitability. The Fund is not issued, endorsed, sold or promoted by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE FUND.
Fund Performance Overview (Unaudited) (Continued)
First Trust NASDAQ-100 Equal Weighted Index Fund (QQEW) (Continued)
| Performance figures assume reinvestment of all distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund’s past performance does not predict future performance. |
Frequency Distribution of Discounts and Premiums
Information showing the number of days the market price of the Fund’s shares was greater (at a premium) and less (at a discount) than the Fund’s net asset value for the most recently completed year, and the most recently completed calendar quarters since that year (or life of the Fund, if shorter) is available at https://www.ftportfolios.com/Retail/etf/home.aspx.
Fund Performance Overview (Unaudited) (Continued)
First Trust NASDAQ-100-Technology Sector Index Fund (QTEC)
The First Trust NASDAQ-100-Technology Sector Index Fund (the “Fund”) seeks investment results that correspond generally to the price and yield (before the Fund’s fees and expenses) of an equity index called the Nasdaq-100 Technology SectorTM Index (the “Index”). The Fund will normally invest at least 90% of its net assets (including investment borrowings) in the securities that comprise the Index. The Index is an equal-weighted index composed of the securities comprising the Nasdaq-100 Index® that are classified as “technology” according to the Industry Classification Benchmark classification system. The Nasdaq-100 Index® includes 100 of the largest U.S. and international non-financial companies listed on the Nasdaq based on market capitalization. The Index is rebalanced quarterly and reconstituted annually and the Fund will make corresponding changes to its portfolio shortly after the Index changes are made public. The Fund’s shares are listed for trading on the Nasdaq. The first day of secondary market trading in shares of the Fund was April 25, 2006.
|
| | | Average Annual Total Returns | |
| | | | | Inception
(4/19/06)
to 6/30/23 | | | Inception
(4/19/06)
to 6/30/23 |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Nasdaq-100 Technology SectorTM Index | | | | | | | | |
| | | | | | | | |
S&P 500® Information Technology Index | | | | | | | | |
(See Notes to Fund Performance Overview on page 20.)
| % of Total
Long-Term
Investments |
| |
| |
| |
| |
| The above sector classification is based on Standard & Poor’s Global Industry Classification Standard (“GICS”) and is different than the industry sector classification system used by the Index to select securities, which is the Industry Classification Benchmark (“ICB”) system, the joint classification system of Dow Jones Indexes and FTSE Group. |
| % of Total
Long-Term
Investments |
| |
| |
| |
Microchip Technology, Inc. | |
| |
| |
| |
| |
| |
| |
| |
Nasdaq®, Nasdaq-100®, Nasdaq-100 Index®, and Nasdaq-100 Technology SectorTM Index are registered trademarks and service marks of Nasdaq, Inc. (together with its affiliates hereinafter referred to as the “Corporations”) and are licensed for use by First Trust. The Fund has not been passed on by the Corporations as to its legality or suitability. The Fund is not issued, endorsed, sold or promoted by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE FUND.
Fund Performance Overview (Unaudited) (Continued)
First Trust NASDAQ-100-Technology Sector Index Fund (QTEC) (Continued)
| Performance figures assume reinvestment of all distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund’s past performance does not predict future performance. |
Frequency Distribution of Discounts and Premiums
Information showing the number of days the market price of the Fund’s shares was greater (at a premium) and less (at a discount) than the Fund’s net asset value for the most recently completed year, and the most recently completed calendar quarters since that year (or life of the Fund, if shorter) is available at https://www.ftportfolios.com/Retail/etf/home.aspx.
Fund Performance Overview (Unaudited) (Continued)
First Trust NASDAQ-100 Ex-Technology Sector Index Fund (QQXT)
The First Trust NASDAQ-100 Ex-Technology Sector Index Fund (the “Fund”) seeks investment results that correspond generally to the price and yield (before the Fund’s fees and expenses) of an equity index called the Nasdaq-100 Ex-Tech SectorTM Index (the “Index”). The Fund will normally invest at least 90% of its net assets (including investment borrowings) in the securities that comprise the Index. The Index is an equal-weighted index composed of the securities comprising the Nasdaq-100 Index® that are not classified as “technology” according to the Industry Classification Benchmark classification system. The Nasdaq-100 Index® includes 100 of the largest U.S. and international non-financial companies listed on the Nasdaq based on market capitalization. The Index is rebalanced quarterly and reconstituted annually and the Fund will make corresponding changes to its portfolio shortly after the Index changes are made public. The Fund’s shares are listed for trading on the Nasdaq. The first day of secondary market trading in shares of the Fund was February 15, 2007.
|
| | | Average Annual Total Returns | |
| | | | | Inception
(2/8/07)
to 6/30/23 | | | Inception
(2/8/07)
to 6/30/23 |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Nasdaq-100 Ex-Tech SectorTM Index | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
(See Notes to Fund Performance Overview on page 20.)
| % of Total
Long-Term
Investments |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| % of Total
Long-Term
Investments |
| |
Old Dominion Freight Line, Inc. | |
Charter Communications, Inc., Class A | |
| |
| |
| |
| |
| |
| |
| |
| |
Nasdaq®, Nasdaq-100®, Nasdaq-100 Index®, and Nasdaq-100 Ex-Tech SectorTM Index are registered trademarks and service marks of Nasdaq, Inc. (together with its affiliates hereinafter referred to as the “Corporations”) and are licensed for use by First Trust. The Fund has not been passed on by the Corporations as to its legality or suitability. The Fund is not issued, endorsed, sold or promoted by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE FUND.
Fund Performance Overview (Unaudited) (Continued)
First Trust NASDAQ-100 Ex-Technology Sector Index Fund (QQXT) (Continued)
| Performance figures assume reinvestment of all distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund’s past performance does not predict future performance. |
Frequency Distribution of Discounts and Premiums
Information showing the number of days the market price of the Fund’s shares was greater (at a premium) and less (at a discount) than the Fund’s net asset value for the most recently completed year, and the most recently completed calendar quarters since that year (or life of the Fund, if shorter) is available at https://www.ftportfolios.com/Retail/etf/home.aspx.
Fund Performance Overview (Unaudited) (Continued)
First Trust NASDAQ® Clean Edge® Green Energy Index Fund (QCLN)
The First Trust NASDAQ® Clean Edge® Green Energy Index Fund (the “Fund”) seeks investment results that correspond generally to the price and yield (before the Fund’s fees and expenses) of an equity index called the Nasdaq® Clean Edge® Green EnergyTM Index (the “Index”). The Fund will normally invest at least 90% of its net assets (including investment borrowings) in the securities that comprise the Index. The Index is designed to track the performance of small, mid and large capitalization clean energy companies that are publicly traded in the United States. The Index is rebalanced quarterly and reconstituted semi-annually and the Fund will make corresponding changes to its portfolio shortly after the Index changes are made public. The Fund’s shares are listed for trading on the Nasdaq. The first day of secondary market trading in shares of the Fund was February 14, 2007.
|
| | | Average Annual Total Returns | |
| | | | | Inception
(2/8/07)
to 6/30/23 | | | Inception
(2/8/07)
to 6/30/23 |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Nasdaq® Clean Edge® Green EnergyTM Index | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
(See Notes to Fund Performance Overview on page 20.)
| % of Total
Long-Term
Investments |
| |
| |
| |
| |
| |
| |
| |
| |
| % of Total
Long-Term
Investments |
| |
| |
| |
| |
| |
Rivian Automotive, Inc., Class A | |
SolarEdge Technologies, Inc. | |
| |
Allegro MicroSystems, Inc. | |
Brookfield Renewable Partners, L.P. | |
| |
Nasdaq®, Clean Edge®, and Nasdaq® Clean Edge® Green EnergyTM Index are registered trademarks and service marks of Nasdaq, Inc. and Clean Edge, Inc., respectively (together with its affiliates hereinafter referred to as the “Corporations”) and are licensed for use by First Trust. The Fund has not been passed on by the Corporations as to its legality or suitability. The Fund is not issued, endorsed, sold or promoted by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE FUND.
Fund Performance Overview (Unaudited) (Continued)
First Trust NASDAQ® Clean Edge® Green Energy Index Fund (QCLN) (Continued)
| Performance figures assume reinvestment of all distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund’s past performance does not predict future performance. |
Frequency Distribution of Discounts and Premiums
Information showing the number of days the market price of the Fund’s shares was greater (at a premium) and less (at a discount) than the Fund’s net asset value for the most recently completed year, and the most recently completed calendar quarters since that year (or life of the Fund, if shorter) is available at https://www.ftportfolios.com/Retail/etf/home.aspx.
Fund Performance Overview (Unaudited) (Continued)
First Trust S&P REIT Index Fund (FRI)
The First Trust S&P REIT Index Fund (the “Fund”) seeks investment results that correspond generally to the price and yield (before the Fund’s fees and expenses) of an equity index called the S&P United States REIT Index (the “Index”). The Fund will normally invest at least 90% of its net assets (including investment borrowings) in the securities that comprise the Index. The Index seeks to measure the performance of publicly-traded real estate investment trusts domiciled in the United States that meet certain eligibility requirements. The Index is rebalanced quarterly and the Fund will make corresponding changes to its portfolio shortly after the Index changes are made public. The Fund’s shares are listed for trading on the NYSE Arca. The first day of secondary market trading in shares of the Fund was May 10, 2007.
|
| | | Average Annual Total Returns | |
| | | | | Inception
(5/8/07)
to 6/30/23 | | | Inception
(5/8/07)
to 6/30/23 |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
FTSE EPRA/NAREIT North America Index | | | | | | | | |
| | | | | | | | |
| On November 6, 2008, the Fund’s underlying index changed from the S&P REIT Composite Index to the S&P United States REIT Index. Effective December 31, 2008, the S&P REIT Composite Index was discontinued. Therefore, the Fund’s performance and historical returns shown for the periods prior to November 6, 2008 are not necessarily indicative of the performance that the Fund, based on its current Index, would have generated. The inception date of the Index was June 30, 2008. Returns for the Index are only disclosed for those periods in which the Index was in existence for the whole period. |
(See Notes to Fund Performance Overview on page 20.)
| % of Total
Long-Term
Investments |
| |
| |
Multi-Family Residential REITs | |
| |
| |
| |
| |
Single-Family Residential REITs | |
| |
| |
| |
| |
| % of Total
Long-Term
Investments |
| |
| |
| |
| |
| |
Simon Property Group, Inc. | |
Digital Realty Trust, Inc. | |
| |
AvalonBay Communities, Inc. | |
| |
| |
S&P United States REIT Index (“Index”) is a product of S&P Dow Jones Indices LLC or its affiliates (“SPDJI”) and has been licensed for use by First Trust. S&P® is a registered trademark of Standard & Poor’s Financial Services LLC (“S&P”); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”); and these trademarks have been licensed for use by SPDJI and sublicensed for certain purposes by First Trust. The Fund is not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, or their respective affiliates and none of such parties make any representation regarding the advisability of investing in such product nor do they have any liability for any errors, omissions, or interruptions of the Index.
Fund Performance Overview (Unaudited) (Continued)
First Trust S&P REIT Index Fund (FRI) (Continued)
| Performance figures assume reinvestment of all distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund’s past performance does not predict future performance. |
Frequency Distribution of Discounts and Premiums
Information showing the number of days the market price of the Fund’s shares was greater (at a premium) and less (at a discount) than the Fund’s net asset value for the most recently completed year, and the most recently completed calendar quarters since that year (or life of the Fund, if shorter) is available at https://www.ftportfolios.com/Retail/etf/home.aspx.
Fund Performance Overview (Unaudited) (Continued)
First Trust Water ETF (FIW)
The First Trust Water ETF (the “Fund”) seeks investment results that correspond generally to the price and yield (before the Fund’s fees and expenses) of an equity index called the ISE Clean Edge WaterTM Index (the “Index”). The Fund will normally invest at least 90% of its net assets (including investment borrowings) in the securities that comprise the Index. The Index is designed to track the performance of small, mid and large capitalization companies that derive a substantial portion of their revenues from the potable water and wastewater industry, according to Clean Edge. The Fund’s shares are listed for trading on the NYSE Arca. The Index is rebalanced and reconstituted semi-annually and the Fund will make corresponding changes to its portfolio shortly after the changes are made public. The first day of secondary market trading in shares of the Fund was May 11, 2007.
|
| | | Average Annual Total Returns | |
| | | | | Inception
(5/8/07)
to 6/30/23 | | | Inception
(5/8/07)
to 6/30/23 |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
ISE Clean Edge WaterTM Index | | | | | | | | |
| | | | | | | | |
(See Notes to Fund Performance Overview on page 20.)
| % of Total
Long-Term
Investments |
| |
| |
| |
| |
| |
| |
| |
| % of Total
Long-Term
Investments |
| |
Advanced Drainage Systems, Inc. | |
| |
| |
| |
| |
Cia de Saneamento Basico do Estado de Sao Paulo | |
American Water Works Co., Inc. | |
| |
| |
| |
Nasdaq®, Clean Edge®, and ISE Clean Edge WaterTM Index are registered trademarks and service marks of Nasdaq, Inc. and Clean Edge, Inc., respectively (together with its affiliates hereinafter referred to as the “Corporations”) and are licensed for use by First Trust. The Fund has not been passed on by the Corporations as to its legality or suitability. The Fund is not issued, endorsed, sold or promoted by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE FUND.
Fund Performance Overview (Unaudited) (Continued)
First Trust Water ETF (FIW) (Continued)
| Performance figures assume reinvestment of all distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund’s past performance does not predict future performance. |
Frequency Distribution of Discounts and Premiums
Information showing the number of days the market price of the Fund’s shares was greater (at a premium) and less (at a discount) than the Fund’s net asset value for the most recently completed year, and the most recently completed calendar quarters since that year (or life of the Fund, if shorter) is available at https://www.ftportfolios.com/Retail/etf/home.aspx.
Fund Performance Overview (Unaudited) (Continued)
First Trust Natural Gas ETF (FCG)
The First Trust Natural Gas ETF (the “Fund”) seeks investment results that correspond generally to the price and yield (before the Fund’s fees and expenses) of an equity index called the ISE-Revere Natural GasTM Index (the “Index”). The Fund will normally invest at least 90% of its net assets (including investment borrowings) in the common stocks, depositary receipts, master limited partnership (“MLP”) units and other securities that comprise the Index. The Index is designed to track the performance of mid and large capitalization companies that derive a substantial portion of their revenues from midstream activities and/or the exploration and production of natural gas. The Fund’s shares are listed for trading on the NYSE Arca. The Index is rebalanced and reconstituted quarterly and the Fund will make corresponding changes to its portfolio shortly after the Index changes are made public. The first day of secondary market trading in shares of the Fund was May 11, 2007.
|
| | | Average Annual Total Returns | |
| | | | | Inception
(5/8/07)
to 6/30/23 | | | Inception
(5/8/07)
to 6/30/23 |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
ISE-Revere Natural GasTM Index | | | | | | | | |
S&P Composite 1500® Energy Index | | | | | | | | |
| | | | | | | | |
(See Notes to Fund Performance Overview on page 20.)
| % of Total
Long-Term
Investments |
Oil & Gas Exploration & Production | |
Oil & Gas Storage & Transportation | |
| |
| |
| |
| % of Total
Long-Term
Investments |
Hess Midstream, L.P., Class A | |
Western Midstream Partners, L.P. | |
| |
Pioneer Natural Resources Co. | |
| |
Occidental Petroleum Corp. | |
| |
| |
| |
| |
| |
Nasdaq® and ISE-Revere Natural GasTM Index are registered trademarks and service marks of Nasdaq, Inc. (together with its affiliates hereinafter referred to as the “Corporations”) and are licensed for use by First Trust. The Fund has not been passed on by the Corporations as to its legality or suitability. The Fund is not issued, endorsed, sold or promoted by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE FUND.
Fund Performance Overview (Unaudited) (Continued)
First Trust Natural Gas ETF (FCG) (Continued)
| Performance figures assume reinvestment of all distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund’s past performance does not predict future performance. |
Frequency Distribution of Discounts and Premiums
Information showing the number of days the market price of the Fund’s shares was greater (at a premium) and less (at a discount) than the Fund’s net asset value for the most recently completed year, and the most recently completed calendar quarters since that year (or life of the Fund, if shorter) is available at https://www.ftportfolios.com/Retail/etf/home.aspx.
Fund Performance Overview (Unaudited) (Continued)
First Trust NASDAQ® ABA Community Bank Index Fund (QABA)
The First Trust NASDAQ® ABA Community Bank Index Fund (the “Fund”) seeks investment results that correspond generally to the price and yield (before the Fund’s fees and expenses) of an equity index called the Nasdaq OMX® ABA Community BankTM Index (the “Index”). The Fund will normally invest at least 90% of its net assets (including investment borrowings) in the securities that comprise the Index. The Index is designed to track the performance of small, mid and large capitalization companies that comprise the community banking industry. The Fund’s shares are listed for trading on the Nasdaq. The Index is rebalanced quarterly and reconstituted semi-annually and the Fund will make corresponding changes to its portfolio shortly after the Index changes are made public. The first day of secondary market trading in shares of the Fund was July 1, 2009.
|
| | | Average Annual Total Returns | |
| | | | | Inception
(6/29/09)
to 6/30/23 | | | Inception
(6/29/09)
to 6/30/23 |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Nasdaq OMX® ABA Community BankTM Index | | | | | | | | |
S&P Composite 1500® Financials Index | | | | | | | | |
| | | | | | | | |
(See Notes to Fund Performance Overview on page 20.)
| % of Total
Long-Term
Investments |
| |
| |
| |
| % of Total
Long-Term
Investments |
Commerce Bancshares, Inc. | |
| |
| |
| |
| |
Pinnacle Financial Partners, Inc. | |
Columbia Banking System, Inc. | |
First Financial Bankshares, Inc. | |
| |
| |
| |
Nasdaq®, Nasdaq OMX®, OMX®, American Bankers Association®, ABA® and Nasdaq OMX® ABA Community BankTM Index are registered trademarks and service marks of Nasdaq, Inc. and American Bankers Associations, respectively (together with its affiliates hereinafter referred to as the “Corporations”) and are licensed for use by First Trust. The Fund has not been passed on by the Corporations as to its legality or suitability. The Fund is not issued, endorsed, sold or promoted by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE FUND.
Fund Performance Overview (Unaudited) (Continued)
First Trust NASDAQ® ABA Community Bank Index Fund (QABA) (Continued)
| Performance figures assume reinvestment of all distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund’s past performance does not predict future performance. |
Frequency Distribution of Discounts and Premiums
Information showing the number of days the market price of the Fund’s shares was greater (at a premium) and less (at a discount) than the Fund’s net asset value for the most recently completed year, and the most recently completed calendar quarters since that year (or life of the Fund, if shorter) is available at https://www.ftportfolios.com/Retail/etf/home.aspx.
Notes to Fund Performance Overview (Unaudited)
Total returns for the periods since inception are calculated from the inception date of each Fund. “Average Annual Total Returns” represent the average annual change in value of an investment over the periods indicated. “Cumulative Total Returns” represent the total change in value of an investment over the periods indicated. The total returns would have been lower if certain fees had not been waived and expenses reimbursed by the Advisor.
Each Fund’s per share net asset value (“NAV”) is the value of one share of the Fund and is computed by dividing the value of all assets of the Fund (including accrued interest and dividends), less all liabilities (including accrued expenses and dividends declared but unpaid), by the total number of outstanding shares. The price used to calculate market return (“Market Price”) is determined by using the midpoint of the national best bid and offer price (“NBBO”) as of the time that the Fund’s NAV is calculated. Under SEC rules, the NBBO consists of the highest displayed buy and lowest sell prices among the various exchanges trading the Fund at the time the Fund’s NAV is calculated. Prior to January 1, 2019, the price used was the midpoint between the highest bid and the lowest offer on the stock exchange on which shares of the Fund were listed for trading as of the time that the Fund’s NAV was calculated. Since shares of each Fund did not trade in the secondary market until after the Fund’s inception, for the period from inception to the first day of secondary market trading in shares of the Fund, the NAV of each Fund is used as a proxy for the secondary market trading price to calculate market returns. NAV and market returns assume that all distributions have been reinvested in each Fund at NAV and Market Price, respectively.
An index is a statistical composite that tracks a specified financial market or sector. Unlike each Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by each Fund. These expenses negatively impact the performance of each Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The total returns presented reflect the reinvestment of dividends on securities in the indices. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. The investment return and principal value of shares of each Fund will vary with changes in market conditions. Shares of each Fund may be worth more or less than their original cost when they are redeemed or sold in the market. Each Fund’s past performance is no guarantee of future performance.
First Trust Exchange-Traded Fund
Understanding Your Fund Expenses
June 30, 2023 (Unaudited)
As a shareholder of First Trust NASDAQ-100 Equal Weighted Index Fund, First Trust NASDAQ-100-Technology Sector Index Fund, First Trust NASDAQ-100 Ex-Technology Sector Index Fund, First Trust NASDAQ® Clean Edge® Green Energy Index Fund, First Trust S&P REIT Index Fund, First Trust Water ETF, First Trust Natural Gas ETF or First Trust NASDAQ® ABA Community Bank Index Fund (each a “Fund” and collectively, the “Funds”), you incur two types of costs: (1) transaction costs; and (2) ongoing costs, including management fees, distribution and/or service (12b-1) fees, if any, and other Fund expenses. This Example is intended to help you understand your ongoing costs of investing in the Funds and to compare these costs with the ongoing costs of investing in other funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held through the six-month period ended June 30, 2023.
Actual Expenses
The first line in the following table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During the Six-Month Period” to estimate the expenses you paid on your account during this six-month period.
Hypothetical Example for Comparison Purposes
The second line in the following table provides information about hypothetical account values and hypothetical expenses based on each Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not each Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Funds and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs such as brokerage commissions. Therefore, the second line in the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
| Beginning
Account Value
January 1, 2023 | Ending
Account Value
June 30, 2023 | Annualized
Expense Ratio
Based on the
Six-Month
Period (a) | Expenses Paid
During the
Six-Month
Period (b) |
First Trust NASDAQ-100 Equal Weighted Index Fund (QQEW) |
| | | | |
Hypothetical (5% return before expenses) | | | | |
First Trust NASDAQ-100-Technology Sector Index Fund (QTEC) |
| | | | |
Hypothetical (5% return before expenses) | | | | |
First Trust NASDAQ-100 Ex-Technology Sector Index Fund (QQXT) |
| | | | |
Hypothetical (5% return before expenses) | | | | |
First Trust NASDAQ® Clean Edge® Green Energy Index Fund (QCLN) |
| | | | |
Hypothetical (5% return before expenses) | | | | |
First Trust S&P REIT Index Fund (FRI) |
| | | | |
Hypothetical (5% return before expenses) | | | | |
First Trust Water ETF (FIW) |
| | | | |
Hypothetical (5% return before expenses) | | | | |
First Trust Exchange-Traded Fund
Understanding Your Fund Expenses (Continued)
June 30, 2023 (Unaudited)
| Beginning Account Value January 1, 2023 | Ending Account Value June 30, 2023 | Annualized Expense Ratio Based on the Six-Month Period (a) | Expenses Paid During the Six-Month Period (b) |
First Trust Natural Gas ETF (FCG) |
| | | | |
Hypothetical (5% return before expenses) | | | | |
First Trust NASDAQ® ABA Community Bank Index Fund (QABA) |
| | | | |
Hypothetical (5% return before expenses) | | | | |
| These expense ratios reflect expense caps for certain Funds. See Note 3 in the Notes to Financial Statements. |
| Expenses are equal to the annualized expense ratio as indicated in the table multiplied by the average account value over the period (January 1, 2023 through June 30, 2023), multiplied by 181/365 (to reflect the six-month period). |
First Trust NASDAQ-100 Equal Weighted Index Fund (QQEW)
Portfolio of Investments
June 30, 2023 (Unaudited)
| | |
|
| | |
| Lucid Group, Inc. (a) (b) | |
| | |
| | |
| | |
| | |
| Monster Beverage Corp. (a) | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Regeneron Pharmaceuticals, Inc. (a) | |
| | |
| Vertex Pharmaceuticals, Inc. (a) | |
| | |
| | |
| | |
| | |
| | |
| | |
| PDD Holdings, Inc., ADR (a) | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Consumer Staples Distribution | |
| | |
| | |
| Walgreens Boots Alliance, Inc. | |
| | |
| Electric Utilities — 3.9% | |
| American Electric Power Co., Inc. | |
| Constellation Energy Corp. | |
| | |
| | |
| | |
| Energy Equipment & Services | |
| | |
| | |
|
| | |
| Activision Blizzard, Inc. | |
| | |
| | |
| Warner Bros Discovery, Inc. (a) | |
| | |
| Financial Services — 1.0% | |
| PayPal Holdings, Inc. (a) | |
| | |
| | |
| Mondelez International, Inc., Class A | |
| | |
| | |
| | |
| Old Dominion Freight Line, Inc. | |
| | |
| | |
| Align Technology, Inc. (a) | |
| | |
| GE HealthCare Technologies, Inc. | |
| IDEXX Laboratories, Inc. (a) | |
| Intuitive Surgical, Inc. (a) | |
| | |
| Hotels, Restaurants & Leisure | |
| Airbnb, Inc., Class A (a) | |
| Booking Holdings, Inc. (a) | |
| Marriott International, Inc., Class A | |
| | |
| | |
| Industrial Conglomerates — | |
| Honeywell International, Inc. | |
| Interactive Media & Services | |
| Alphabet, Inc., Class A (a) | |
| Alphabet, Inc., Class C (a) | |
| Meta Platforms, Inc., Class A (a) | |
| | |
| | |
| Cognizant Technology Solutions Corp., Class A | |
| Life Sciences Tools & Services | |
| | |
See Notes to Financial Statements
First Trust NASDAQ-100 Equal Weighted Index Fund (QQEW)
Portfolio of Investments (Continued)
June 30, 2023 (Unaudited)
| | |
COMMON STOCKS (Continued) |
| | |
| | |
| | |
| Charter Communications, Inc., Class A (a) | |
| | |
| Sirius XM Holdings, Inc. (b) | |
| | |
| Oil, Gas & Consumable Fuels | |
| | |
| | |
| | |
| Professional Services — 3.0% | |
| Automatic Data Processing, Inc. | |
| | |
| | |
| | |
| | |
| | |
| Semiconductors & Semiconductor Equipment | |
| Advanced Micro Devices, Inc. (a) | |
| | |
| | |
| | |
| | |
| | |
| GLOBALFOUNDRIES, Inc. (a) (b) | |
| | |
| | |
| | |
| | |
| Microchip Technology, Inc. | |
| | |
| | |
| | |
| ON Semiconductor Corp. (a) | |
| | |
| | |
| | |
| | |
| | |
| | |
| Atlassian Corp., Class A (a) | |
| | |
| | |
|
| | |
| Cadence Design Systems, Inc. (a) | |
| Crowdstrike Holdings, Inc., Class A (a) | |
| Datadog, Inc., Class A (a) | |
| | |
| | |
| | |
| Palo Alto Networks, Inc. (a) | |
| | |
| Workday, Inc., Class A (a) | |
| Zoom Video Communications, Inc., Class A (a) | |
| | |
| | |
| | |
| O’Reilly Automotive, Inc. (a) | |
| | |
| | |
| Technology Hardware, Storage | |
| | |
| Textiles, Apparel & Luxury | |
| Lululemon Athletica, Inc. (a) | |
| | |
| | |
| Wireless Telecommunication | |
| | |
| | |
| | |
MONEY MARKET FUNDS — 0.7% |
| Goldman Sachs Financial Square Treasury Obligations Fund - Institutional Class - 4.99% (c) (d) | |
| | |
See Notes to Financial Statements
First Trust NASDAQ-100 Equal Weighted Index Fund (QQEW)
Portfolio of Investments (Continued)
June 30, 2023 (Unaudited)
| | |
REPURCHASE AGREEMENTS — 2.3% |
| BNP Paribas S.A., 5.01% (c), dated 06/30/23, due 07/03/23, with a maturity value of $43,969,871. Collateralized by U.S. Treasury Securities, interest rates of 1.25% to 1.50%, due 08/15/26 to 11/30/26. The value of the collateral including accrued interest is $44,881,225. (d) | |
| | |
|
|
| Total Investments — 103.0% | |
| | |
| Net Other Assets and Liabilities — (3.0)% | |
| | |
| Non-income producing security. |
| All or a portion of this security is on loan (see Note 2D - Securities Lending in the Notes to Financial Statements). The remaining contractual maturity of all of the securities lending transactions is overnight and continuous. The aggregate value of such securities, including those sold and pending settlement, is $56,751,350 and the total value of the collateral held by the Fund is $56,990,684. |
| Rate shown reflects yield as of June 30, 2023. |
| This security serves as collateral for securities on loan. |
Abbreviations throughout the Portfolio of Investments: |
| – American Depositary Receipt |
Valuation InputsA summary of the inputs used to value the Fund’s investments as of June 30, 2023 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements):
| | | Level 2
Significant
Observable
Inputs | Level 3
Significant
Unobservable
Inputs |
| | | | |
| | | | |
| | | | |
| | | | |
| See Portfolio of Investments for industry breakout. |
Offsetting Assets and Liabilities
Offsetting assets and liabilities requires entities to disclose both gross and net information about instruments and transactions eligible for offset, and to disclose instruments and transactions subject to master netting or similar agreements (see Note 2C - Offsetting on the Statements of Assets and Liabilities in the Notes to Financial Statements).
The Fund’s loaned securities were all subject to an enforceable Securities Lending Agency Agreement. Securities lent in accordance with the Securities Lending Agency Agreement on a gross basis were as follows:
Securities Lending Agency Agreement |
Total gross amount presented on the Statements of Assets and Liabilities(1) | |
| |
| |
| The amount presented on the Statements of Assets and Liabilities, which is included in “Investments, at value,” is not offset and is shown on a gross basis. |
| At June 30, 2023, the value of the collateral received from each borrower exceeded the value of the related securities loaned. This amount is disclosed on the Portfolio of Investments. |
The Fund’s investments in repurchase agreements were all subject to an enforceable Master Repurchase Agreement. Repurchase Agreements on a gross basis were as follows:
|
Total gross amount presented on the Statements of Assets and Liabilities(3) | |
| |
| |
| The amount is included in “Investments, at value” on the Statements of Assets and Liabilities. |
| At June 30, 2023, the value of the collateral received from each seller exceeded the value of the repurchase agreements. |
See Notes to Financial Statements
First Trust NASDAQ-100-Technology Sector Index Fund (QTEC)
Portfolio of Investments
June 30, 2023 (Unaudited)
| | |
|
| | |
| PDD Holdings, Inc., ADR (a) | |
| Interactive Media & Services | |
| Alphabet, Inc., Class A (a) | |
| Alphabet, Inc., Class C (a) | |
| Meta Platforms, Inc., Class A (a) | |
| | |
| | |
| Cognizant Technology Solutions Corp., Class A | |
| Semiconductors & Semiconductor Equipment | |
| Advanced Micro Devices, Inc. (a) | |
| | |
| | |
| | |
| | |
| GLOBALFOUNDRIES, Inc. (a) (b) | |
| | |
| | |
| | |
| | |
| Microchip Technology, Inc. | |
| | |
| | |
| | |
| ON Semiconductor Corp. (a) | |
| | |
| | |
| | |
| | |
| | |
| | |
| Atlassian Corp., Class A (a) | |
| | |
| Cadence Design Systems, Inc. (a) | |
| Crowdstrike Holdings, Inc., Class A (a) | |
| Datadog, Inc., Class A (a) | |
| | |
| | |
| | |
| Palo Alto Networks, Inc. (a) | |
| | |
| Workday, Inc., Class A (a) | |
| | |
|
| | |
| Zoom Video Communications, Inc., Class A (a) | |
| | |
| | |
| Technology Hardware, Storage | |
| | |
| | |
| | |
MONEY MARKET FUNDS — 0.6% |
| Goldman Sachs Financial Square Treasury Obligations Fund - Institutional Class - 4.99% (c) (d) | |
| | |
| | |
REPURCHASE AGREEMENTS — 2.1% |
| BNP Paribas S.A., 5.01% (c), dated 06/30/23, due 07/03/23, with a maturity value of $39,728,842. Collateralized by U.S. Treasury Securities, interest rates of 1.25% to 1.50%, due 08/15/26 to 11/30/26. The value of the collateral including accrued interest is $40,552,294. (d) | |
| | |
|
|
| Total Investments — 102.7% | |
| | |
| Net Other Assets and Liabilities — (2.7)% | |
| | |
| Non-income producing security. |
| All or a portion of this security is on loan (see Note 2D - Securities Lending in the Notes to Financial Statements). The remaining contractual maturity of all of the securities lending transactions is overnight and continuous. The aggregate value of such securities, including those sold and pending settlement, is $51,641,526 and the total value of the collateral held by the Fund is $51,493,759. |
| Rate shown reflects yield as of June 30, 2023. |
| This security serves as collateral for securities on loan. |
Abbreviations throughout the Portfolio of Investments: |
| – American Depositary Receipt |
See Notes to Financial Statements
First Trust NASDAQ-100-Technology Sector Index Fund (QTEC)
Portfolio of Investments (Continued)
June 30, 2023 (Unaudited)
Valuation InputsA summary of the inputs used to value the Fund’s investments as of June 30, 2023 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements):
| | | Level 2
Significant
Observable
Inputs | Level 3
Significant
Unobservable
Inputs |
| | | | |
| | | | |
| | | | |
| | | | |
| See Portfolio of Investments for industry breakout. |
Offsetting Assets and Liabilities
Offsetting assets and liabilities requires entities to disclose both gross and net information about instruments and transactions eligible for offset, and to disclose instruments and transactions subject to master netting or similar agreements (see Note 2C - Offsetting on the Statements of Assets and Liabilities in the Notes to Financial Statements).
The Fund’s loaned securities were all subject to an enforceable Securities Lending Agency Agreement. Securities lent in accordance with the Securities Lending Agency Agreement on a gross basis were as follows:
Securities Lending Agency Agreement |
Total gross amount presented on the Statements of Assets and Liabilities(1) | |
| |
| |
| The amount presented on the Statements of Assets and Liabilities, which is included in “Investments, at value,” is not offset and is shown on a gross basis. |
| The collateral requirements are determined at the beginning of each business day based on the market value of the loaned securities from the end of the prior day. On June 30, 2023, the last business day of the period, there was sufficient collateral based on the end of day market value from the prior business day; however, as a result of market movement from June 29 to June 30, the value of the related securities loaned was above the collateral value received. See Note 2D - Securities Lending in the Notes to Financial Statements. |
The Fund’s investments in repurchase agreements were all subject to an enforceable Master Repurchase Agreement. Repurchase Agreements on a gross basis were as follows:
|
Total gross amount presented on the Statements of Assets and Liabilities(3) | |
| |
| |
| The amount is included in “Investments, at value” on the Statements of Assets and Liabilities. |
| At June 30, 2023, the value of the collateral received from each seller exceeded the value of the repurchase agreements. |
See Notes to Financial Statements
First Trust NASDAQ-100 Ex-Technology Sector Index Fund (QQXT)
Portfolio of Investments
June 30, 2023 (Unaudited)
| | |
COMMON STOCKS (a) — 100.0% |
| | |
| Lucid Group, Inc. (b) (c) | |
| | |
| | |
| | |
| | |
| Monster Beverage Corp. (b) | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Regeneron Pharmaceuticals, Inc. (b) | |
| | |
| Vertex Pharmaceuticals, Inc. (b) | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Consumer Staples Distribution | |
| | |
| | |
| Walgreens Boots Alliance, Inc. | |
| | |
| Electric Utilities — 6.2% | |
| American Electric Power Co., Inc. | |
| Constellation Energy Corp. | |
| | |
| | |
| | |
| Energy Equipment & Services | |
| | |
| | |
|
| | |
| Activision Blizzard, Inc. | |
| | |
| | |
| Warner Bros Discovery, Inc. (b) | |
| | |
| Financial Services — 1.6% | |
| PayPal Holdings, Inc. (b) | |
| | |
| | |
| Mondelez International, Inc., Class A | |
| | |
| | |
| | |
| Old Dominion Freight Line, Inc. | |
| | |
| | |
| Align Technology, Inc. (b) | |
| | |
| GE HealthCare Technologies, Inc. | |
| IDEXX Laboratories, Inc. (b) | |
| Intuitive Surgical, Inc. (b) | |
| | |
| Hotels, Restaurants & Leisure | |
| Airbnb, Inc., Class A (b) | |
| Booking Holdings, Inc. (b) | |
| Marriott International, Inc., Class A | |
| | |
| | |
| Industrial Conglomerates — | |
| Honeywell International, Inc. | |
| Life Sciences Tools & Services | |
| | |
| | |
| | |
| | |
| Charter Communications, Inc., Class A (b) | |
| | |
| Sirius XM Holdings, Inc. (c) | |
| | |
See Notes to Financial Statements
First Trust NASDAQ-100 Ex-Technology Sector Index Fund (QQXT)
Portfolio of Investments (Continued)
June 30, 2023 (Unaudited)
| | |
COMMON STOCKS (a) (Continued) |
| Oil, Gas & Consumable Fuels | |
| | |
| | |
| | |
| Professional Services — 4.7% | |
| Automatic Data Processing, Inc. | |
| | |
| | |
| | |
| | |
| | |
| Semiconductors & Semiconductor Equipment | |
| | |
| | |
| O’Reilly Automotive, Inc. (b) | |
| | |
| | |
| Textiles, Apparel & Luxury | |
| Lululemon Athletica, Inc. (b) | |
| | |
| | |
| Wireless Telecommunication | |
| | |
| | |
| | |
MONEY MARKET FUNDS — 0.8% |
| Goldman Sachs Financial Square Treasury Obligations Fund - Institutional Class - 4.99% (d) (e) | |
| Morgan Stanley Institutional Liquidity Funds - Treasury Portfolio - Institutional Class - 4.94% (d) | |
| | |
| | |
| | |
REPURCHASE AGREEMENTS — 2.5% |
| BNP Paribas S.A., 5.01% (d), dated 06/30/23, due 07/03/23, with a maturity value of $4,890,335. Collateralized by U.S. Treasury Securities, interest rates of 1.25% to 1.50%, due 08/15/26 to 11/30/26. The value of the collateral including accrued interest is $4,991,696. (e) | |
| | |
|
|
| Total Investments — 103.3% | |
| | |
| Net Other Assets and Liabilities — (3.3)% | |
| | |
| The industry allocation is based on Standard & Poor’s Global Industry Classification Standard (GICS), and is different than the industry sector classification system used by the Index to select securities, which is the Industry Classification Benchmark (ICB) system, which is maintained by FTSE International Limited. |
| Non-income producing security. |
| All or a portion of this security is on loan (see Note 2D - Securities Lending in the Notes to Financial Statements). The remaining contractual maturity of all of the securities lending transactions is overnight and continuous. The aggregate value of such securities, including those sold and pending settlement, is $6,272,159 and the total value of the collateral held by the Fund is $6,338,511. |
| Rate shown reflects yield as of June 30, 2023. |
| This security serves as collateral for securities on loan. |
Abbreviations throughout the Portfolio of Investments: |
| – American Depositary Receipt |
See Notes to Financial Statements
First Trust NASDAQ-100 Ex-Technology Sector Index Fund (QQXT)
Portfolio of Investments (Continued)
June 30, 2023 (Unaudited)
Valuation InputsA summary of the inputs used to value the Fund’s investments as of June 30, 2023 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements):
| | | Level 2
Significant
Observable
Inputs | Level 3
Significant
Unobservable
Inputs |
| | | | |
| | | | |
| | | | |
| | | | |
| See Portfolio of Investments for industry breakout. |
Offsetting Assets and Liabilities
Offsetting assets and liabilities requires entities to disclose both gross and net information about instruments and transactions eligible for offset, and to disclose instruments and transactions subject to master netting or similar agreements (see Note 2C - Offsetting on the Statements of Assets and Liabilities in the Notes to Financial Statements).
The Fund’s loaned securities were all subject to an enforceable Securities Lending Agency Agreement. Securities lent in accordance with the Securities Lending Agency Agreement on a gross basis were as follows:
Securities Lending Agency Agreement |
Total gross amount presented on the Statements of Assets and Liabilities(1) | |
| |
| |
| The amount presented on the Statements of Assets and Liabilities, which is included in “Investments, at value,” is not offset and is shown on a gross basis. |
| At June 30, 2023, the value of the collateral received from each borrower exceeded the value of the related securities loaned. This amount is disclosed on the Portfolio of Investments. |
The Fund’s investments in repurchase agreements were all subject to an enforceable Master Repurchase Agreement. Repurchase Agreements on a gross basis were as follows:
|
Total gross amount presented on the Statements of Assets and Liabilities(3) | |
| |
| |
| The amount is included in “Investments, at value” on the Statements of Assets and Liabilities. |
| At June 30, 2023, the value of the collateral received from each seller exceeded the value of the repurchase agreements. |
See Notes to Financial Statements
First Trust NASDAQ® Clean Edge® Green Energy Index Fund (QCLN)
Portfolio of Investments
June 30, 2023 (Unaudited)
| | |
|
| | |
| | |
| Lucid Group, Inc. (a) (b) | |
| Polestar Automotive Holding UK PLC, Class A, ADR (a) (b) | |
| Rivian Automotive, Inc., Class A (a) | |
| | |
| Workhorse Group, Inc. (a) (b) | |
| | |
| | |
| | |
| | |
| Sociedad Quimica y Minera de Chile S.A., ADR | |
| | |
| | |
| Li-Cycle Holdings Corp. (a) (b) | |
| Construction & Engineering | |
| Ameresco, Inc., Class A (a) | |
| Electrical Equipment — 16.6% | |
| | |
| American Superconductor Corp. (a) | |
| Array Technologies, Inc. (a) | |
| Ballard Power Systems, Inc. (a) (b) | |
| | |
| Blink Charging Co. (a) (b) | |
| Bloom Energy Corp., Class A (a) | |
| ChargePoint Holdings, Inc. (a) (b) | |
| | |
| Eos Energy Enterprises, Inc. (a) (b) | |
| | |
| Fluence Energy, Inc. (a) (b) | |
| | |
| FuelCell Energy, Inc. (a) (b) | |
| | |
| | |
| Shoals Technologies Group, Inc., Class A (a) | |
| | |
| | |
| | |
| | |
| Tritium DCFC Ltd. (a) (b) | |
| | |
|
| Electrical Equipment (Continued) | |
| | |
| | |
| | |
| Electronic Equipment, Instruments & Components | |
| Advanced Energy Industries, Inc. | |
| | |
| | |
| Independent Power and Renewable Electricity | |
| Altus Power, Inc. (a) (b) | |
| Atlantica Sustainable Infrastructure PLC | |
| Azure Power Global Ltd. (a) (b) | |
| Brookfield Renewable Partners, L.P. (c) | |
| Clearway Energy, Inc., Class C | |
| Montauk Renewables, Inc. (a) | |
| NextEra Energy Partners, L.P. (c) (d) | |
| | |
| ReNew Energy Global PLC, Class A (a) (b) | |
| Sunnova Energy International, Inc. (a) (b) | |
| | |
| | |
| Lion Electric (The) Co. (a) (b) | |
| Microvast Holdings, Inc. (a) (b) | |
| | |
| | |
| | |
| | |
| | |
| Hannon Armstrong Sustainable Infrastructure Capital, Inc. | |
| Oil, Gas & Consumable Fuels | |
| OPAL Fuels, Inc., Class A (a) | |
| Semiconductors & Semiconductor Equipment | |
| Allegro MicroSystems, Inc. (a) | |
| | |
| | |
See Notes to Financial Statements
First Trust NASDAQ® Clean Edge® Green Energy Index Fund (QCLN)
Portfolio of Investments (Continued)
June 30, 2023 (Unaudited)
| | |
COMMON STOCKS (Continued) |
| Semiconductors & Semiconductor Equipment (Continued) | |
| Maxeon Solar Technologies Ltd. (a) (b) | |
| Navitas Semiconductor Corp. (a) (b) | |
| ON Semiconductor Corp. (a) | |
| | |
| SolarEdge Technologies, Inc. (a) | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
MONEY MARKET FUNDS — 2.5% |
| Goldman Sachs Financial Square Treasury Obligations Fund - Institutional Class - 4.99% (e) (f) | |
| | |
| | |
REPURCHASE AGREEMENTS — 8.4% |
| BNP Paribas S.A., 5.01% (e), dated 06/30/23, due 07/03/23, with a maturity value of $131,437,238. Collateralized by U.S. Treasury Securities, interest rates of 1.25% to 1.50%, due 08/15/26 to 11/30/26. The value of the collateral including accrued interest is $134,161,510. (f) | |
| | |
|
|
| Total Investments — 110.9% | |
| | |
| Net Other Assets and Liabilities — (10.9)% | |
| | |
| Non-income producing security. |
| All or a portion of this security is on loan (see Note 2D - Securities Lending in the Notes to Financial Statements). The remaining contractual maturity of all of the securities lending transactions is overnight and continuous. The aggregate value of such securities, including those sold and pending settlement, is $167,526,853 and the total value of the collateral held by the Fund is $170,359,794. |
| Security is a Master Limited Partnership (“MLP”). |
| This security is taxed as a “C” corporation for federal income tax purposes. |
| Rate shown reflects yield as of June 30, 2023. |
| This security serves as collateral for securities on loan. |
Abbreviations throughout the Portfolio of Investments: |
| – American Depositary Receipt |
Valuation InputsA summary of the inputs used to value the Fund’s investments as of June 30, 2023 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements):
| | | Level 2
Significant
Observable
Inputs | Level 3
Significant
Unobservable
Inputs |
| | | | |
| | | | |
| | | | |
| | | | |
| See Portfolio of Investments for industry breakout. |
See Notes to Financial Statements
First Trust NASDAQ® Clean Edge® Green Energy Index Fund (QCLN)
Portfolio of Investments (Continued)
June 30, 2023 (Unaudited)
Offsetting Assets and Liabilities
Offsetting assets and liabilities requires entities to disclose both gross and net information about instruments and transactions eligible for offset, and to disclose instruments and transactions subject to master netting or similar agreements (see Note 2C - Offsetting on the Statements of Assets and Liabilities in the Notes to Financial Statements).
The Fund’s loaned securities were all subject to an enforceable Securities Lending Agency Agreement. Securities lent in accordance with the Securities Lending Agency Agreement on a gross basis were as follows:
Securities Lending Agency Agreement |
Total gross amount presented on the Statements of Assets and Liabilities(1) | |
| |
| |
| The amount presented on the Statements of Assets and Liabilities, which is included in “Investments, at value,” is not offset and is shown on a gross basis. |
| At June 30, 2023, the value of the collateral received from each borrower exceeded the value of the related securities loaned. This amount is disclosed on the Portfolio of Investments. |
The Fund’s investments in repurchase agreements were all subject to an enforceable Master Repurchase Agreement. Repurchase Agreements on a gross basis were as follows:
|
Total gross amount presented on the Statements of Assets and Liabilities(3) | |
| |
| |
| The amount is included in “Investments, at value” on the Statements of Assets and Liabilities. |
| At June 30, 2023, the value of the collateral received from each seller exceeded the value of the repurchase agreements. |
See Notes to Financial Statements
First Trust S&P REIT Index Fund (FRI)
Portfolio of Investments
June 30, 2023 (Unaudited)
| | |
|
| Data Center REITs — 10.6% | |
| Digital Realty Trust, Inc. | |
| | |
| | |
| | |
| Alexander & Baldwin, Inc. | |
| Alpine, Inc.ome Property Trust, Inc. | |
| American Assets Trust, Inc. | |
| Armada Hoffler Properties, Inc. | |
| Broadstone Net Lease, Inc. | |
| | |
| Empire State Realty Trust, Inc., Class A | |
| Essential Properties Realty Trust, Inc. | |
| Gladstone Commercial Corp. | |
| | |
| NexPoint Diversified Real Estate Trust | |
| One Liberty Properties, Inc. | |
| | |
| | |
| | |
| Health Care REITs — 10.4% | |
| | |
| Community Healthcare Trust, Inc. | |
| Diversified Healthcare Trust | |
| Global Medical REIT, Inc. | |
| Healthcare Realty Trust, Inc. | |
| Healthpeak Properties, Inc. | |
| | |
| Medical Properties Trust, Inc. | |
| National Health Investors, Inc. | |
| Omega Healthcare Investors, Inc. | |
| | |
| Sabra Health Care REIT, Inc. | |
| Universal Health Realty Income Trust | |
| | |
| | |
| | |
| Hotel & Resort REITs — 3.5% | |
| Apple Hospitality REIT, Inc. | |
| Ashford Hospitality Trust, Inc. (a) | |
| Braemar Hotels & Resorts, Inc. | |
| | |
| DiamondRock Hospitality Co. | |
| | |
|
| Hotel & Resort REITs (Continued) | |
| Hersha Hospitality Trust, Class A | |
| Host Hotels & Resorts, Inc. | |
| Park Hotels & Resorts, Inc. | |
| | |
| | |
| Ryman Hospitality Properties, Inc. | |
| | |
| Summit Hotel Properties, Inc. | |
| Sunstone Hotel Investors, Inc. | |
| Xenia Hotels & Resorts, Inc. | |
| | |
| | |
| Americold Realty Trust, Inc. | |
| EastGroup Properties, Inc. | |
| First Industrial Realty Trust, Inc. | |
| Industrial Logistics Properties Trust | |
| Innovative Industrial Properties, Inc. | |
| | |
| Plymouth Industrial REIT, Inc. | |
| | |
| Rexford Industrial Realty, Inc. | |
| | |
| | |
| | |
| | |
| Apartment Income REIT Corp. | |
| Apartment Investment and Management Co., Class A | |
| AvalonBay Communities, Inc. | |
| | |
| | |
| | |
| | |
| | |
| | |
| Essex Property Trust, Inc. | |
| Independence Realty Trust, Inc. | |
| Mid-America Apartment Communities, Inc. | |
| NexPoint Residential Trust, Inc. | |
| | |
| Veris Residential, Inc. (a) | |
| | |
See Notes to Financial Statements
First Trust S&P REIT Index Fund (FRI)
Portfolio of Investments (Continued)
June 30, 2023 (Unaudited)
| | |
COMMON STOCKS (Continued) |
| | |
| Alexandria Real Estate Equities, Inc. | |
| | |
| | |
| | |
| Corporate Office Properties Trust | |
| | |
| | |
| Easterly Government Properties, Inc. | |
| | |
| Franklin Street Properties Corp. | |
| Highwoods Properties, Inc. | |
| Hudson Pacific Properties, Inc. | |
| | |
| | |
| Office Properties Income Trust | |
| | |
| | |
| Piedmont Office Realty Trust, Inc., Class A | |
| Postal Realty Trust, Inc., Class A | |
| | |
| | |
| | |
| Other Specialized REITs — | |
| | |
| | |
| Four Corners Property Trust, Inc. | |
| Gaming and Leisure Properties, Inc. | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Brixmor Property Group, Inc. | |
| CBL & Associates Properties, Inc. | |
| Federal Realty Investment Trust | |
| | |
| InvenTrust Properties Corp. | |
| | |
| | |
| | |
|
| | |
| | |
| Necessity Retail REIT (The), Inc. | |
| | |
| | |
| Phillips Edison & Co., Inc. | |
| | |
| | |
| Retail Opportunity Investments Corp. | |
| | |
| | |
| Simon Property Group, Inc. | |
| | |
| Spirit Realty Capital, Inc. | |
| Tanger Factory Outlet Centers, Inc. | |
| | |
| Urstadt Biddle Properties, Inc., Class A | |
| | |
| | |
| Self-Storage REITs — 9.0% | |
| | |
| Extra Space Storage, Inc. | |
| | |
| National Storage Affiliates Trust | |
| | |
| | |
| Single-Family Residential | |
| American Homes 4 Rent, Class A | |
| Bluerock Homes Trust, Inc. (a) | |
| Equity LifeStyle Properties, Inc. | |
| | |
| | |
| | |
| | |
| | |
| | |
See Notes to Financial Statements
First Trust S&P REIT Index Fund (FRI)
Portfolio of Investments (Continued)
June 30, 2023 (Unaudited)
| | |
MONEY MARKET FUNDS — 0.1% |
| Morgan Stanley Institutional Liquidity Funds - Treasury Portfolio - Institutional Class - 4.94% (b) | |
| | |
|
|
| Total Investments — 99.6% | |
| | |
| Net Other Assets and Liabilities — 0.4% | |
| | |
| Non-income producing security. |
| Rate shown reflects yield as of June 30, 2023. |
Valuation InputsA summary of the inputs used to value the Fund’s investments as of June 30, 2023 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements):
| | | Level 2
Significant
Observable
Inputs | Level 3
Significant
Unobservable
Inputs |
| | | | |
| | | | |
| | | | |
| See Portfolio of Investments for sub-industry breakout. |
See Notes to Financial Statements
First Trust Water ETF (FIW)
Portfolio of Investments
June 30, 2023 (Unaudited)
| | |
|
| | |
| | |
| Building Products — 10.0% | |
| | |
| Advanced Drainage Systems, Inc. | |
| Zurn Elkay Water Solutions Corp. | |
| | |
| | |
| | |
| | |
| | |
| | |
| Montrose Environmental Group, Inc. (a) | |
| | |
| | |
| Construction & Engineering | |
| | |
| | |
| | |
| | |
| Electronic Equipment, Instruments & Components | |
| | |
| | |
| | |
| | |
| IDEXX Laboratories, Inc. (a) | |
| Life Sciences Tools & Services | |
| Agilent Technologies, Inc. | |
| | |
| | |
| | |
| Energy Recovery, Inc. (a) | |
| | |
| Franklin Electric Co., Inc. | |
| | |
| | |
| | |
| Mueller Water Products, Inc., Class A | |
| | |
| | |
|
| | |
| Watts Water Technologies, Inc., Class A | |
| | |
| | |
| | |
| Algonquin Power & Utilities Corp. (b) | |
| | |
| | |
| | |
| Core & Main, Inc., Class A (a) | |
| | |
| American States Water Co. | |
| American Water Works Co., Inc. | |
| California Water Service Group | |
| Cia de Saneamento Basico do Estado de Sao Paulo, ADR | |
| Essential Utilities, Inc. | |
| | |
| | |
| | |
| | |
| | |
MONEY MARKET FUNDS — 0.7% |
| Goldman Sachs Financial Square Treasury Obligations Fund - Institutional Class - 4.99% (c) (d) | |
| Morgan Stanley Institutional Liquidity Funds - Treasury Portfolio - Institutional Class - 4.94% (c) | |
| | |
| | |
See Notes to Financial Statements
First Trust Water ETF (FIW)
Portfolio of Investments (Continued)
June 30, 2023 (Unaudited)
| | |
REPURCHASE AGREEMENTS — 2.3% |
| BNP Paribas S.A., 5.01% (c), dated 06/30/23, due 07/03/23, with a maturity value of $32,077,892. Collateralized by U.S. Treasury Securities, interest rates of 1.25% to 1.50%, due 08/15/26 to 11/30/26. The value of the collateral including accrued interest is $32,742,764. (d) | |
| | |
|
|
| Total Investments — 102.8% | |
| | |
| Net Other Assets and Liabilities — (2.8)% | |
| | |
| Non-income producing security. |
| All or a portion of this security is on loan (see Note 2D - Securities Lending in the Notes to Financial Statements). The remaining contractual maturity of all of the securities lending transactions is overnight and continuous. The aggregate value of such securities, including those sold and pending settlement, is $40,419,484 and the total value of the collateral held by the Fund is $41,577,130. |
| Rate shown reflects yield as of June 30, 2023. |
| This security serves as collateral for securities on loan. |
Abbreviations throughout the Portfolio of Investments: |
| – American Depositary Receipt |
Valuation InputsA summary of the inputs used to value the Fund’s investments as of June 30, 2023 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements):
| | | Level 2
Significant
Observable
Inputs | Level 3
Significant
Unobservable
Inputs |
| | | | |
| | | | |
| | | | |
| | | | |
| See Portfolio of Investments for industry breakout. |
Offsetting Assets and Liabilities
Offsetting assets and liabilities requires entities to disclose both gross and net information about instruments and transactions eligible for offset, and to disclose instruments and transactions subject to master netting or similar agreements (see Note 2C - Offsetting on the Statements of Assets and Liabilities in the Notes to Financial Statements).
The Fund’s loaned securities were all subject to an enforceable Securities Lending Agency Agreement. Securities lent in accordance with the Securities Lending Agency Agreement on a gross basis were as follows:
Securities Lending Agency Agreement |
Total gross amount presented on the Statements of Assets and Liabilities(1) | |
| |
| |
| The amount presented on the Statements of Assets and Liabilities, which is included in “Investments, at value,” is not offset and is shown on a gross basis. |
| At June 30, 2023, the value of the collateral received from each borrower exceeded the value of the related securities loaned. This amount is disclosed on the Portfolio of Investments. |
The Fund’s investments in repurchase agreements were all subject to an enforceable Master Repurchase Agreement. Repurchase Agreements on a gross basis were as follows:
|
Total gross amount presented on the Statements of Assets and Liabilities(3) | |
| |
| |
| The amount is included in “Investments, at value” on the Statements of Assets and Liabilities. |
| At June 30, 2023, the value of the collateral received from each seller exceeded the value of the repurchase agreements. |
See Notes to Financial Statements
First Trust Natural Gas ETF (FCG)
Portfolio of Investments
June 30, 2023 (Unaudited)
| | |
|
| | |
| | |
| Oil, Gas & Consumable Fuels | |
| | |
| Antero Resources Corp. (a) | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Crescent Energy, Inc., Class A (b) | |
| Crescent Point Energy Corp. | |
| | |
| | |
| Earthstone Energy, Inc., Class A (a) | |
| | |
| | |
| | |
| Gulfport Energy Corp. (a) | |
| | |
| Hess Midstream, L.P., Class A (c) (d) | |
| | |
| Magnolia Oil & Gas Corp., Class A | |
| | |
| | |
| | |
| Northern Oil and Gas, Inc. | |
| | |
| Occidental Petroleum Corp. | |
| | |
| | |
| | |
| Pioneer Natural Resources Co. | |
| | |
| Riley Exploration Permian, Inc. | |
| Ring Energy, Inc. (a) (b) | |
| | |
| SilverBow Resources, Inc. (a) | |
| | |
| Southwestern Energy Co. (a) | |
| | |
| | |
|
| Oil, Gas & Consumable Fuels (Continued) | |
| | |
| | |
| | |
| | |
| | |
| Western Midstream Partners, L.P. (d) | |
| Woodside Energy Group Ltd., ADR (b) | |
| | |
| | |
| | |
MONEY MARKET FUNDS — 0.4% |
| Goldman Sachs Financial Square Treasury Obligations Fund - Institutional Class - 4.99% (e) (f) | |
| Morgan Stanley Institutional Liquidity Funds - Treasury Portfolio - Institutional Class - 4.94% (e) | |
| | |
| | |
| | |
REPURCHASE AGREEMENTS — 1.1% |
| BNP Paribas S.A., 5.01% (e), dated 06/30/23, due 07/03/23, with a maturity value of $5,713,214. Collateralized by U.S. Treasury Securities, interest rates of 1.25% to 1.50%, due 08/15/26 to 11/30/26. The value of the collateral including accrued interest is $5,831,630. (f) | |
| | |
|
|
| Total Investments — 101.5% | |
| | |
| Net Other Assets and Liabilities — (1.5)% | |
| | |
See Notes to Financial Statements
First Trust Natural Gas ETF (FCG)
Portfolio of Investments (Continued)
June 30, 2023 (Unaudited)
| Non-income producing security. |
| All or a portion of this security is on loan (see Note 2D - Securities Lending in the Notes to Financial Statements). The remaining contractual maturity of all of the securities lending transactions is overnight and continuous. The aggregate value of such securities, including those sold and pending settlement, is $7,110,520 and the total value of the collateral held by the Fund is $7,405,070. |
| This security is taxed as a “C” corporation for federal income tax purposes. |
| Security is a Master Limited Partnership (“MLP”). |
| Rate shown reflects yield as of June 30, 2023. |
| This security serves as collateral for securities on loan. |
Abbreviations throughout the Portfolio of Investments: |
| – American Depositary Receipt |
Valuation InputsA summary of the inputs used to value the Fund’s investments as of June 30, 2023 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements):
| | | Level 2
Significant
Observable
Inputs | Level 3
Significant
Unobservable
Inputs |
| | | | |
| | | | |
| | | | |
| | | | |
| See Portfolio of Investments for industry breakout. |
Offsetting Assets and Liabilities
Offsetting assets and liabilities requires entities to disclose both gross and net information about instruments and transactions eligible for offset, and to disclose instruments and transactions subject to master netting or similar agreements (see Note 2C - Offsetting on the Statements of Assets and Liabilities in the Notes to Financial Statements).
The Fund’s loaned securities were all subject to an enforceable Securities Lending Agency Agreement. Securities lent in accordance with the Securities Lending Agency Agreement on a gross basis were as follows:
Securities Lending Agency Agreement |
Total gross amount presented on the Statements of Assets and Liabilities(1) | |
| |
| |
| The amount presented on the Statements of Assets and Liabilities, which is included in “Investments, at value,” is not offset and is shown on a gross basis. |
| At June 30, 2023, the value of the collateral received from each borrower exceeded the value of the related securities loaned. This amount is disclosed on the Portfolio of Investments. |
The Fund’s investments in repurchase agreements were all subject to an enforceable Master Repurchase Agreement. Repurchase Agreements on a gross basis were as follows:
|
Total gross amount presented on the Statements of Assets and Liabilities(3) | |
| |
| |
| The amount is included in “Investments, at value” on the Statements of Assets and Liabilities. |
| At June 30, 2023, the value of the collateral received from each seller exceeded the value of the repurchase agreements. |
See Notes to Financial Statements
First Trust NASDAQ® ABA Community Bank Index Fund (QABA)
Portfolio of Investments
June 30, 2023 (Unaudited)
| | |
|
| | |
| | |
| Amalgamated Financial Corp. | |
| | |
| American National Bankshares, Inc. | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Bridgewater Bancshares, Inc. (a) | |
| | |
| Business First Bancshares, Inc. | |
| | |
| | |
| Capital City Bank Group, Inc. | |
| Capitol Federal Financial, Inc. | |
| Capstar Financial Holdings, Inc. | |
| Carter Bankshares, Inc. (a) | |
| | |
| Citizens & Northern Corp. | |
| Citizens Financial Services, Inc. (b) | |
| | |
| | |
| | |
| Coastal Financial Corp. (a) | |
| Columbia Banking System, Inc. | |
| Columbia Financial, Inc. (a) | |
| Commerce Bancshares, Inc. | |
| Community Trust Bancorp, Inc. | |
| | |
| CrossFirst Bankshares, Inc. (a) | |
| | |
| Dime Community Bancshares, Inc. | |
| | |
| | |
| Enterprise Financial Services Corp. | |
| Esquire Financial Holdings, Inc. | |
| Farmers National Banc Corp. | |
| Financial Institutions, Inc. | |
| | |
| First Bancshares (The), Inc. | |
| | |
|
| | |
| | |
| First Business Financial Services, Inc. | |
| First Community Bankshares, Inc. | |
| | |
| First Financial Bankshares, Inc. | |
| | |
| | |
| | |
| First Interstate BancSystem, Inc., Class A | |
| | |
| First Mid Bancshares, Inc. | |
| First of Long Island (The) Corp. | |
| | |
| | |
| | |
| | |
| German American Bancorp, Inc. | |
| Great Southern Bancorp, Inc. | |
| | |
| | |
| | |
| | |
| Heartland Financial USA, Inc. | |
| | |
| | |
| Hingham Institution for Savings | |
| HomeTrust Bancshares, Inc. | |
| | |
| | |
| | |
| | |
| Independent Bank Group, Inc. | |
| International Bancshares Corp. | |
| | |
| | |
| | |
| | |
| Metrocity Bankshares, Inc. | |
| | |
| Midland States Bancorp, Inc. | |
| MidWestOne Financial Group, Inc. | |
| | |
| | |
| | |
| Northeast Community Bancorp, Inc. | |
| | |
| | |
See Notes to Financial Statements
First Trust NASDAQ® ABA Community Bank Index Fund (QABA)
Portfolio of Investments (Continued)
June 30, 2023 (Unaudited)
| | |
COMMON STOCKS (Continued) |
| | |
| Northwest Bancshares, Inc. | |
| OceanFirst Financial Corp. | |
| | |
| Pacific Premier Bancorp, Inc. | |
| | |
| | |
| | |
| Peapack-Gladstone Financial Corp. | |
| | |
| Pinnacle Financial Partners, Inc. | |
| | |
| | |
| | |
| | |
| Republic Bancorp, Inc., Class A | |
| | |
| Sandy Spring Bancorp, Inc. | |
| Seacoast Banking Corp. of Florida | |
| | |
| | |
| Simmons First National Corp., Class A | |
| | |
| South Plains Financial, Inc. | |
| Southern Missouri Bancorp, Inc. | |
| Southside Bancshares, Inc. | |
| | |
| Stock Yards Bancorp, Inc. | |
| Texas Capital Bancshares, Inc. (a) | |
| Third Coast Bancshares, Inc. (a) | |
| | |
| | |
| Triumph Financial, Inc. (a) | |
| | |
| | |
| | |
| | |
| United Community Banks, Inc. | |
| | |
| | |
| | |
| | |
| Washington Trust Bancorp, Inc. | |
| | |
| | |
| | |
| | |
|
| | |
| | |
| | |
| | |
| Financial Services — 3.5% | |
| Cass Information Systems, Inc. | |
| | |
| | |
| | |
| Waterstone Financial, Inc. | |
| | |
| | |
| | |
MONEY MARKET FUNDS — 0.3% |
| Goldman Sachs Financial Square Treasury Obligations Fund - Institutional Class - 4.99% (c) (d) | |
| | |
| | |
REPURCHASE AGREEMENTS — 1.1% |
| BNP Paribas S.A., 5.01% (c), dated 06/30/23, due 07/03/23, with a maturity value of $742,469. Collateralized by U.S. Treasury Securities, interest rates of 1.25% to 1.50%, due 08/15/26 to 11/30/26. The value of the collateral including accrued interest is $757,858. (d) | |
| | |
|
|
| Total Investments — 101.3% | |
| | |
| Net Other Assets and Liabilities — (1.3)% | |
| | |
| Non-income producing security. |
| All or a portion of this security is on loan (see Note 2D - Securities Lending in the Notes to Financial Statements). The remaining contractual maturity of all of the securities lending transactions is overnight and continuous. The aggregate value of such securities, including those sold and pending settlement, is $923,384 and the total value of the collateral held by the Fund is $962,336. |
| Rate shown reflects yield as of June 30, 2023. |
| This security serves as collateral for securities on loan. |
See Notes to Financial Statements
First Trust NASDAQ® ABA Community Bank Index Fund (QABA)
Portfolio of Investments (Continued)
June 30, 2023 (Unaudited)
Valuation InputsA summary of the inputs used to value the Fund’s investments as of June 30, 2023 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements):
| | | Level 2
Significant
Observable
Inputs | Level 3
Significant
Unobservable
Inputs |
| | | | |
| | | | |
| | | | |
| | | | |
| See Portfolio of Investments for industry breakout. |
Offsetting Assets and Liabilities
Offsetting assets and liabilities requires entities to disclose both gross and net information about instruments and transactions eligible for offset, and to disclose instruments and transactions subject to master netting or similar agreements (see Note 2C - Offsetting on the Statements of Assets and Liabilities in the Notes to Financial Statements).
The Fund’s loaned securities were all subject to an enforceable Securities Lending Agency Agreement. Securities lent in accordance with the Securities Lending Agency Agreement on a gross basis were as follows:
Securities Lending Agency Agreement |
Total gross amount presented on the Statements of Assets and Liabilities(1) | |
| |
| |
| The amount presented on the Statements of Assets and Liabilities, which is included in “Investments, at value,” is not offset and is shown on a gross basis. |
| At June 30, 2023, the value of the collateral received from each borrower exceeded the value of the related securities loaned. This amount is disclosed on the Portfolio of Investments. |
The Fund’s investments in repurchase agreements were all subject to an enforceable Master Repurchase Agreement. Repurchase Agreements on a gross basis were as follows:
|
Total gross amount presented on the Statements of Assets and Liabilities(3) | |
| |
| |
| The amount is included in “Investments, at value” on the Statements of Assets and Liabilities. |
| At June 30, 2023, the value of the collateral received from each seller exceeded the value of the repurchase agreements. |
See Notes to Financial Statements
First Trust Exchange-Traded Fund
Statements of Assets and Liabilities
June 30, 2023 (Unaudited)
| First Trust NASDAQ-100 Equal Weighted Index Fund
(QQEW) | First Trust NASDAQ-100- Technology Sector Index Fund
(QTEC) | First Trust NASDAQ-100 Ex-Technology Sector Index Fund
(QQXT) |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
Securities lending income | | | |
Investment securities sold | | | |
| | | |
| | | |
| | | |
|
| | | |
| | | |
Collateral for securities on loan | | | |
Investment securities purchased | | | |
| | | |
| | | |
Shareholder reporting fees | | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
| | | |
| | | |
| | | |
Accumulated distributable earnings (loss) | | | |
| | | |
NET ASSET VALUE, per share | | | |
Number of shares outstanding (unlimited number of shares authorized, par value $0.01 per share) | | | |
| | | |
Securities on loan, at value | | | |
See Notes to Financial Statements
First Trust NASDAQ® Clean Edge® Green Energy Index Fund
(QCLN) | First Trust S&P REIT Index Fund
(FRI) | First Trust Water ETF
(FIW) | First Trust Natural Gas ETF
(FCG) | First Trust NASDAQ® ABA Community Bank Index Fund
(QABA) |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
|
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
|
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
See Notes to Financial Statements
First Trust Exchange-Traded Fund
Statements of Operations
For the Six Months Ended June 30, 2023 (Unaudited)
| First Trust NASDAQ-100 Equal Weighted Index Fund
(QQEW) | First Trust NASDAQ-100- Technology Sector Index Fund
(QTEC) | First Trust NASDAQ-100 Ex-Technology Sector Index Fund
(QQXT) |
| | | |
| | | |
Securities lending income (net of fees) | | | |
| | | |
| | | |
|
| | | |
| | | |
| | | |
Accounting and administration fees | | | |
Shareholder reporting fees | | | |
| | | |
| | | |
| | | |
| | | |
| | | |
Trustees’ fees and expenses | | | |
| | | |
| | | |
Less fees waived and expenses reimbursed by the investment advisor | | | |
| | | |
NET INVESTMENT INCOME (LOSS) | | | |
|
NET REALIZED AND UNREALIZED GAIN (LOSS): | | | |
Net realized gain (loss) on: | | | |
| | | |
| | | |
Foreign currency transactions | | | |
| | | |
Net change in unrealized appreciation (depreciation) on: | | | |
| | | |
Foreign currency translation | | | |
Net change in unrealized appreciation (depreciation) | | | |
NET REALIZED AND UNREALIZED GAIN (LOSS) | | | |
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | | | |
See Notes to Financial Statements
First Trust NASDAQ® Clean Edge® Green Energy Index Fund
(QCLN) | First Trust S&P REIT Index Fund
(FRI) | First Trust Water ETF
(FIW) | First Trust Natural Gas ETF
(FCG) | First Trust NASDAQ® ABA Community Bank Index Fund
(QABA) |
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See Notes to Financial Statements
First Trust Exchange-Traded Fund
Statements of Changes in Net Assets
| First Trust NASDAQ-100 Equal Weighted Index Fund (QQEW) | First Trust NASDAQ-100- Technology Sector Index Fund (QTEC) |
| Six Months
Ended
6/30/2023 (Unaudited) | | Six Months
Ended
6/30/2023 (Unaudited) | |
| | | | |
Net investment income (loss) | | | | |
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Net change in unrealized appreciation (depreciation) | | | | |
Net increase (decrease) in net assets resulting from operations | | | | |
|
DISTRIBUTIONS TO SHAREHOLDERS FROM: | | | | |
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SHAREHOLDER TRANSACTIONS: | | | | |
Proceeds from shares sold | | | | |
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Net increase (decrease) in net assets resulting from shareholder transactions | | | | |
Total increase (decrease) in net assets | | | | |
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CHANGES IN SHARES OUTSTANDING: | | | | |
Shares outstanding, beginning of period | | | | |
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Shares outstanding, end of period | | | | |
See Notes to Financial Statements
First Trust NASDAQ-100 Ex- Technology Sector Index Fund (QQXT) | First Trust NASDAQ® Clean Edge® Green Energy Index Fund (QCLN) | First Trust S&P REIT Index Fund (FRI) | First Trust Water ETF (FIW) |
Six Months
Ended
6/30/2023 (Unaudited) | | Six Months
Ended
6/30/2023 (Unaudited) | | Six Months
Ended
6/30/2023 (Unaudited) | | Six Months
Ended
6/30/2023 (Unaudited) | |
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See Notes to Financial Statements
First Trust Exchange-Traded Fund
Statements of Changes in Net Assets (Continued)
| First Trust Natural Gas ETF (FCG) | First Trust NASDAQ® ABA Community Bank Index Fund (QABA) |
| Six Months
Ended
6/30/2023 (Unaudited) | | Six Months
Ended
6/30/2023 (Unaudited) | |
| | | | |
Net investment income (loss) | | | | |
| | | | |
Net change in unrealized appreciation (depreciation) | | | | |
Net increase (decrease) in net assets resulting from operations | | | | |
|
DISTRIBUTIONS TO SHAREHOLDERS FROM: | | | | |
| | | | |
|
SHAREHOLDER TRANSACTIONS: | | | | |
Proceeds from shares sold | | | | |
| | | | |
Net increase (decrease) in net assets resulting from shareholder transactions | | | | |
Total increase (decrease) in net assets | | | | |
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CHANGES IN SHARES OUTSTANDING: | | | | |
Shares outstanding, beginning of period | | | | |
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Shares outstanding, end of period | | | | |
See Notes to Financial Statements
First Trust Exchange-Traded Fund
Financial Highlights
For a share outstanding throughout each period
First Trust NASDAQ-100 Equal Weighted Index Fund (QQEW)
| Six Months
Ended
6/30/2023
(Unaudited) | |
| | | | | |
Net asset value, beginning of period | | | | | | |
Income from investment operations: | | | | | | |
Net investment income (loss) | | | | | | |
Net realized and unrealized gain (loss) | | | | | | |
Total from investment operations | | | | | | |
Distributions paid to shareholders from: | | | | | | |
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Net asset value, end of period | | | | | | |
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Ratios to average net assets/supplemental data: | | | | | | |
Net assets, end of period (in 000’s) | | | | | | |
Ratio of total expenses to average net assets | | | | | | |
Ratio of net investment income (loss) to average net assets | | | | | | |
Portfolio turnover rate (e) | | | | | | |
| Based on average shares outstanding. |
| The Fund received a reimbursement from the Advisor in the amount of $22,098 in connection with a trade error, which represents less than $0.01 per share. Since the Advisor reimbursed the Fund, there was no effect on the Fund’s total return. |
| Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. |
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| Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. |
See Notes to Financial Statements
First Trust Exchange-Traded Fund
Financial Highlights (Continued)
For a share outstanding throughout each period
First Trust NASDAQ-100-Technology Sector Index Fund (QTEC)
| Six Months
Ended
6/30/2023
(Unaudited) | |
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Net asset value, beginning of period | | | | | | |
Income from investment operations: | | | | | | |
Net investment income (loss) | | | | | | |
Net realized and unrealized gain (loss) | | | | | | |
Total from investment operations | | | | | | |
Distributions paid to shareholders from: | | | | | | |
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Net asset value, end of period | | | | | | |
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Ratios to average net assets/supplemental data: | | | | | | |
Net assets, end of period (in 000’s) | | | | | | |
Ratio of total expenses to average net assets | | | | | | |
Ratio of net investment income (loss) to average net assets | | | | | | |
Portfolio turnover rate (d) | | | | | | |
| Based on average shares outstanding. |
| Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. |
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| Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. |
See Notes to Financial Statements
First Trust Exchange-Traded Fund
Financial Highlights (Continued)
For a share outstanding throughout each period
First Trust NASDAQ-100 Ex-Technology Sector Index Fund (QQXT)
| Six Months
Ended
6/30/2023
(Unaudited) | |
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Net asset value, beginning of period | | | | | | |
Income from investment operations: | | | | | | |
Net investment income (loss) | | | | | | |
Net realized and unrealized gain (loss) | | | | | | |
Total from investment operations | | | | | | |
Distributions paid to shareholders from: | | | | | | |
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Net asset value, end of period | | | | | | |
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Ratios to average net assets/supplemental data: | | | | | | |
Net assets, end of period (in 000’s) | | | | | | |
Ratio of total expenses to average net assets | | | | | | |
Ratio of net expenses to average net assets | | | | | | |
Ratio of net investment income (loss) to average net assets | | | | | | |
Portfolio turnover rate (d) | | | | | | |
| Based on average shares outstanding. |
| Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. The total returns would have been lower if certain fees had not been waived and expenses reimbursed by the investment advisor. |
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| Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. |
See Notes to Financial Statements
First Trust Exchange-Traded Fund
Financial Highlights (Continued)
For a share outstanding throughout each period
First Trust NASDAQ® Clean Edge® Green Energy Index Fund (QCLN)
| Six Months
Ended
6/30/2023
(Unaudited) | |
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Net asset value, beginning of period | | | | | | |
Income from investment operations: | | | | | | |
Net investment income (loss) | | | | | | |
Net realized and unrealized gain (loss) | | | | | | |
Total from investment operations | | | | | | |
Distributions paid to shareholders from: | | | | | | |
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Net asset value, end of period | | | | | | |
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Ratios to average net assets/supplemental data: | | | | | | |
Net assets, end of period (in 000’s) | | | | | | |
Ratio of total expenses to average net assets | | | | | | |
Ratio of net expenses to average net assets | | | | | | |
Ratio of net investment income (loss) to average net assets | | | | | | |
Portfolio turnover rate (d) | | | | | | |
| Based on average shares outstanding. |
| Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. The total returns would have been lower if certain fees had not been waived and expenses reimbursed by the investment advisor. |
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| Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. |
See Notes to Financial Statements
First Trust Exchange-Traded Fund
Financial Highlights (Continued)
For a share outstanding throughout each period
First Trust S&P REIT Index Fund (FRI)
| Six Months
Ended
6/30/2023
(Unaudited) | |
| | | | | |
Net asset value, beginning of period | | | | | | |
Income from investment operations: | | | | | | |
Net investment income (loss) | | | | | | |
Net realized and unrealized gain (loss) | | | | | | |
Total from investment operations | | | | | | |
Distributions paid to shareholders from: | | | | | | |
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Net asset value, end of period | | | | | | |
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Ratios to average net assets/supplemental data: | | | | | | |
Net assets, end of period (in 000’s) | | | | | | |
Ratio of total expenses to average net assets | | | | | | |
Ratio of net expenses to average net assets | | | | | | |
Ratio of net investment income (loss) to average net assets | | | | | | |
Portfolio turnover rate (d) | | | | | | |
| Based on average shares outstanding. |
| Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. The total returns would have been lower if certain fees had not been waived and expenses reimbursed by the investment advisor. |
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| Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. |
See Notes to Financial Statements
First Trust Exchange-Traded Fund
Financial Highlights (Continued)
For a share outstanding throughout each period
First Trust Water ETF (FIW)
| Six Months
Ended
6/30/2023
(Unaudited) | |
| | | | | |
Net asset value, beginning of period | | | | | | |
Income from investment operations: | | | | | | |
Net investment income (loss) | | | | | | |
Net realized and unrealized gain (loss) | | | | | | |
Total from investment operations | | | | | | |
Distributions paid to shareholders from: | | | | | | |
| | | | | | |
Net asset value, end of period | | | | | | |
| | | | | | |
|
Ratios to average net assets/supplemental data: | | | | | | |
Net assets, end of period (in 000’s) | | | | | | |
Ratio of total expenses to average net assets | | | | | | |
Ratio of net investment income (loss) to average net assets | | | | | | |
Portfolio turnover rate (d) | | | | | | |
| Based on average shares outstanding. |
| Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. |
| |
| Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. |
See Notes to Financial Statements
First Trust Exchange-Traded Fund
Financial Highlights (Continued)
For a share outstanding throughout each period
First Trust Natural Gas ETF (FCG)
| Six Months
Ended
6/30/2023
(Unaudited) | |
| | | | | |
Net asset value, beginning of period | | | | | | |
Income from investment operations: | | | | | | |
Net investment income (loss) | | | | | | |
Net realized and unrealized gain (loss) | | | | | | |
Total from investment operations | | | | | | |
Distributions paid to shareholders from: | | | | | | |
| | | | | | |
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| | | | | | |
Net asset value, end of period | | | | | | |
| | | | | | |
|
Ratios to average net assets/supplemental data: | | | | | | |
Net assets, end of period (in 000’s) | | | | | | |
Ratio of total expenses to average net assets | | | | | | |
Ratio of net expenses to average net assets | | | | | | |
Ratio of net investment income (loss) to average net assets | | | | | | |
Portfolio turnover rate (e) | | | | | | |
| Based on average shares outstanding. |
| Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. The total returns would have been lower if certain fees had not been waived and expenses reimbursed by the investment advisor. |
| |
| For the year ended December 31, 2021, ratio reflects excise tax of 0.01%, which is not included in the expense cap. |
| Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. |
See Notes to Financial Statements
First Trust Exchange-Traded Fund
Financial Highlights (Continued)
For a share outstanding throughout each period
First Trust NASDAQ® ABA Community Bank Index Fund (QABA)
| Six Months
Ended
6/30/2023
(Unaudited) | |
| | | | | |
Net asset value, beginning of period | | | | | | |
Income from investment operations: | | | | | | |
Net investment income (loss) | | | | | | |
Net realized and unrealized gain (loss) | | | | | | |
Total from investment operations | | | | | | |
Distributions paid to shareholders from: | | | | | | |
| | | | | | |
Net asset value, end of period | | | | | | |
| | | | | | |
|
Ratios to average net assets/supplemental data: | | | | | | |
Net assets, end of period (in 000’s) | | | | | | |
Ratio of total expenses to average net assets | | | | | | |
Ratio of net expenses to average net assets | | | | | | |
Ratio of net investment income (loss) to average net assets | | | | | | |
Portfolio turnover rate (d) | | | | | | |
| Based on average shares outstanding. |
| Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. The total returns would have been lower if certain fees had not been waived and expenses reimbursed by the investment advisor. |
| |
| Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. |
See Notes to Financial Statements
Notes to Financial Statements
First Trust Exchange-Traded Fund
June 30, 2023 (Unaudited)
1. Organization
First Trust Exchange-Traded Fund (the “Trust”) is an open-end management investment company organized as a Massachusetts business trust on August 8, 2003, and is registered with the Securities and Exchange Commission under the Investment Company Act of 1940, as amended (the “1940 Act”).
The Trust currently consists of twenty-three exchange-traded funds. This report covers the eight funds (each a “Fund” and collectively, the “Funds”) listed below:
First Trust NASDAQ-100 Equal Weighted Index Fund – (The Nasdaq Stock Market LLC (“Nasdaq”) ticker “QQEW”) |
First Trust NASDAQ-100-Technology Sector Index Fund – (Nasdaq ticker “QTEC”) |
First Trust NASDAQ-100 Ex-Technology Sector Index Fund – (Nasdaq ticker “QQXT”) |
First Trust NASDAQ® Clean Edge® Green Energy Index Fund – (Nasdaq ticker “QCLN”) |
First Trust S&P REIT Index Fund – (NYSE Arca, Inc. (“NYSE Arca”) ticker “FRI”) |
First Trust Water ETF – (NYSE Arca ticker “FIW”) |
First Trust Natural Gas ETF – (NYSE Arca ticker “FCG”) |
First Trust NASDAQ® ABA Community Bank Index Fund – (Nasdaq ticker “QABA”) |
Each Fund represents a separate series of beneficial interest in the Trust. Unlike conventional mutual funds, each Fund issues and redeems shares on a continuous basis at net asset value (“NAV”), only in large blocks of shares known as “Creation Units.” The investment objective of each Fund is to seek investment results that correspond generally to the price and yield (before the Fund’s fees and expenses) of the following indices:
| |
First Trust NASDAQ-100 Equal Weighted Index Fund | Nasdaq-100 Equal WeightedTM Index |
First Trust NASDAQ-100-Technology Sector Index Fund | Nasdaq-100 Technology SectorTM Index |
First Trust NASDAQ-100 Ex-Technology Sector Index Fund | Nasdaq-100 Ex-Tech SectorTM Index |
First Trust NASDAQ® Clean Edge® Green Energy Index Fund | Nasdaq® Clean Edge® Green EnergyTM Index |
First Trust S&P REIT Index Fund | S&P United States REIT Index |
| ISE Clean Edge WaterTM Index |
First Trust Natural Gas ETF | ISE-Revere Natural GasTM Index |
First Trust NASDAQ® ABA Community Bank Index Fund | Nasdaq OMX® ABA Community BankTM Index |
2. Significant Accounting Policies
The Funds are each considered an investment company and follow accounting and reporting guidance under Financial Accounting Standards Board Accounting Standards Codification Topic 946, “Financial Services-Investment Companies.” The following is a summary of significant accounting policies consistently followed by the Funds in the preparation of the financial statements. The preparation of the financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.
A. Portfolio Valuation
Each Fund’s NAV is determined daily as of the close of regular trading on the New York Stock Exchange (“NYSE”), normally 4:00 p.m. Eastern time, on each day the NYSE is open for trading. If the NYSE closes early on a valuation day, the NAV is determined as of that time. Foreign securities are priced using data reflecting the earlier closing of the principal markets for those securities. Each Fund’s NAV is calculated by dividing the value of all assets of each Fund (including accrued interest and dividends), less all liabilities (including accrued expenses and dividends declared but unpaid), by the total number of shares outstanding.
Each Fund’s investments are valued daily at market value or, in the absence of market value with respect to any portfolio securities, at fair value. Market value prices represent readily available market quotations such as last sale or official closing prices from a national or foreign exchange (i.e., a regulated market) and are primarily obtained from third-party pricing services. Fair value prices represent any prices not considered market value prices and are either obtained from a third-party pricing service or are determined by the Pricing Committee of the Funds’ investment advisor, First Trust Advisors L.P. (“First Trust” or the “Advisor”), in accordance with valuation procedures approved by the Trust’s Board of Trustees, and in accordance with provisions of the 1940 Act and rules
Notes to Financial Statements (Continued)
First Trust Exchange-Traded Fund
June 30, 2023 (Unaudited)
thereunder. Investments valued by the Advisor’s Pricing Committee, if any, are footnoted as such in the footnotes to the Portfolio of Investments. Each Fund’s investments are valued as follows:
Common stocks, real estate investment trusts (“REITs”), master limited partnerships (“MLPs”) and other equity securities listed on any national or foreign exchange (excluding Nasdaq and the London Stock Exchange Alternative Investment Market (“AIM”)) are valued at the last sale price on the exchange on which they are principally traded or, for Nasdaq and AIM securities, the official closing price. Securities traded on more than one securities exchange are valued at the last sale price or official closing price, as applicable, at the close of the securities exchange representing the primary exchange for such securities.
Shares of open-end funds are valued based on NAV per share.
Equity securities traded in an over-the-counter market are valued at the close price or the last trade price.
Overnight repurchase agreements are valued at amortized cost when it represents the most appropriate reflection of fair market value.
Certain securities may not be able to be priced by pre-established pricing methods. Such securities may be valued by the Advisor’s Pricing Committee at fair value. These securities generally include, but are not limited to, restricted securities (securities which may not be publicly sold without registration under the Securities Act of 1933, as amended) for which a third-party pricing service is unable to provide a market price; securities whose trading has been formally suspended; a security whose market or fair value price is not available from a pre-established pricing source; a security with respect to which an event has occurred that is likely to materially affect the value of the security after the market has closed but before the calculation of a Fund’s NAV or make it difficult or impossible to obtain a reliable market quotation; and a security whose price, as provided by the third-party pricing service, does not reflect the security’s fair value. As a general principle, the current fair value of a security would appear to be the amount which the owner might reasonably expect to receive for the security upon its current sale. When fair value prices are used, generally they will differ from market quotations or official closing prices on the applicable exchanges. A variety of factors may be considered in determining the fair value of such securities, including, but not limited to, the following:
1)
the last sale price on the exchange on which they are principally traded or, for Nasdaq and AIM securities, the official closing price;
3)
the size of the holding;
4)
the initial cost of the security;
5)
transactions in comparable securities;
6)
price quotes from dealers and/or third-party pricing services;
7)
relationships among various securities;
8)
information obtained by contacting the issuer, analysts, or the appropriate stock exchange;
9)
an analysis of the issuer’s financial statements;
10)
the existence of merger proposals or tender offers that might affect the value of the security; and
11)
other relevant factors.
In addition, differences between the prices used to calculate a Fund’s NAV and the prices used by such Fund’s corresponding index could result in a difference between a Fund’s performance and the performance of its underlying index.
The Funds are subject to fair value accounting standards that define fair value, establish the framework for measuring fair value and provide a three-level hierarchy for fair valuation based upon the inputs to the valuation as of the measurement date. The three levels of the fair value hierarchy are as follows:
• Level 1 – Level 1 inputs are quoted prices in active markets for identical investments. An active market is a market in which transactions for the investment occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
• Level 2 – Level 2 inputs are observable inputs, either directly or indirectly, and include the following:
o Quoted prices for similar investments in active markets.
o Quoted prices for identical or similar investments in markets that are non-active. A non-active market is a market where there are few transactions for the investment, the prices are not current, or price quotations vary substantially either over time or among market makers, or in which little information is released publicly.
Notes to Financial Statements (Continued)
First Trust Exchange-Traded Fund
June 30, 2023 (Unaudited)
o Inputs other than quoted prices that are observable for the investment (for example, interest rates and yield curves observable at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks, and default rates).
o Inputs that are derived principally from or corroborated by observable market data by correlation or other means.
• Level 3 – Level 3 inputs are unobservable inputs. Unobservable inputs may reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the investment.
The inputs or methodologies used for valuing investments are not necessarily an indication of the risk associated with investing in those investments. A summary of the inputs used to value each Fund’s investments as of June 30, 2023, is included with each Fund’s Portfolio of Investments.
B. Securities Transactions and Investment Income
Securities transactions are recorded as of the trade date. Realized gains and losses from securities transactions are recorded on the identified cost basis. Dividend income is recorded on the ex-dividend date. Interest income, if any, is recorded on the accrual basis.
Withholding taxes and tax reclaims on foreign dividends have been provided for in accordance with each Fund’s understanding of the applicable country’s tax rules and rates.
Distributions received from a Fund’s investments in MLPs generally are comprised of return of capital and investment income. A Fund records estimated return of capital and investment income based on historical information available from each MLP. These estimates may subsequently be revised based on information received from the MLPs after their tax reporting periods are concluded.
Distributions received from a Fund’s investments in REITs may be comprised of return of capital, capital gains and income. The actual character of the amounts received during the year is not known until after the REITs’ fiscal year end. A Fund records the character of distributions received from the REITs during the year based on estimates available. The characterization of distributions received by a Fund may be subsequently revised based on information received from the REITs after their tax reporting periods conclude.
C. Offsetting on the Statements of Assets and Liabilities
Offsetting Assets and Liabilities requires entities to disclose both gross and net information about instruments and transactions eligible for offset on the Statements of Assets and Liabilities and disclose instruments and transactions subject to master netting or similar agreements. These disclosure requirements are intended to help investors and other financial statement users better assess the effect or potential effect of offsetting arrangements on a Fund’s financial position. The transactions subject to offsetting disclosures are derivative instruments, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions.
This disclosure, if applicable, is included within each Fund’s Portfolio of Investments under the heading “Offsetting Assets and Liabilities.” For financial reporting purposes, the Funds do not offset financial assets and financial liabilities that are subject to master netting arrangements (“MNAs”) or similar agreements on the Statements of Assets and Liabilities. MNAs provide the right, in the event of default (including bankruptcy and insolvency), for the non-defaulting counterparty to liquidate the collateral and calculate the net exposure to the defaulting party or request additional collateral.
D. Securities Lending
The Funds may lend securities representing up to 33 1/3% of the value of their total assets to broker-dealers, banks and other institutions to generate additional income. When a Fund loans its portfolio securities, it will receive, at the inception of each loan, collateral equal to at least 102% (for domestic securities) or 105% (for international securities) of the market value of the loaned securities. The collateral amount is valued at the beginning of each business day and is compared to the market value of the loaned securities from the prior business day to determine if additional collateral is required. If additional collateral is required, a request is sent to the borrower. Securities lending involves the risk that the Fund may lose money because the borrower of the Fund’s loaned securities fails to return the securities in a timely manner or at all. The Fund could also lose money in the event of (i) a decline in the value of the collateral provided for the loaned securities, (ii) a decline in the value of any investments made with cash collateral or (iii) an increase in the value of the loaned securities if the borrower does not increase the collateral accordingly and the borrower fails to return the securities. These events could also trigger adverse tax consequences for the Funds.
Under the Funds’ Securities Lending Agency Agreement, the securities lending agent will generally bear the risk that a borrower may default on its obligation to return loaned securities. Brown Brothers Harriman & Co. (“BBH”) acts as the Funds’ securities lending
Notes to Financial Statements (Continued)
First Trust Exchange-Traded Fund
June 30, 2023 (Unaudited)
agent and is responsible for executing the lending of the portfolio securities to creditworthy borrowers. The Funds, however, will be responsible for the risks associated with the investment of cash collateral. A Fund may lose money on its investment of cash collateral, which may affect its ability to repay the collateral to the borrower without the use of other Fund assets. Each Fund that engages in securities lending receives compensation (net of any rebate and securities lending agent fees) for lending its securities. Compensation can be in the form of fees received from the securities lending agent or dividends or interest earned from the investment of cash collateral. The fees received from the securities lending agent are accrued daily. The dividend and interest earned on the securities loaned is accounted for in the same manner as other dividend and interest income. At June 30, 2023, QQEW, QTEC, QQXT, QCLN, FIW, FCG, and QABA had securities in the securities lending program. During the six months ended June 30, 2023, QQEW, QTEC, QQXT, QCLN, FIW, FCG, and QABA participated in the securities lending program.
In the event of a default by a borrower with respect to any loan, BBH will exercise any and all remedies provided under the applicable borrower agreement to make the Funds whole. These remedies include purchasing replacement securities by applying the collateral held from the defaulting broker against the purchase cost of the replacement securities. If, despite such efforts by BBH to exercise these remedies, a Fund sustains losses as a result of a borrower’s default, BBH will indemnify the Fund by purchasing replacement securities at its own expense, or paying the Fund an amount equal to the market value of the replacement securities, subject to certain limitations which are set forth in detail in the Securities Lending Agency Agreement between the Trust on behalf of the Funds and BBH.
E. Repurchase Agreements
Repurchase agreements involve the purchase of securities subject to the seller’s agreement to repurchase the securities at a mutually agreed upon date and price, under the terms of a Master Repurchase Agreement (“MRA”). During the term of a repurchase agreement, the value of the underlying securities held as collateral on behalf of a Fund, including accrued interest, is required to exceed the value of the repurchase agreement, including accrued interest. The underlying securities for all repurchase agreements are held at the Funds’ custodian or designated sub-custodians under tri-party repurchase agreements.
MRAs govern transactions between a Fund and select counterparties. The MRAs contain provisions for, among other things, initiation, income payments, events of default, and maintenance of collateral for repurchase agreements.
Repurchase agreements received for lending securities are collateralized by U.S. Treasury securities. The U.S. Treasury securities are held in a joint custody account at BBH on behalf of the Funds participating in the securities lending program. In the event the counterparty defaults on the repurchase agreement, the U.S. Treasury securities can either be maintained as part of a Fund’s portfolio or sold for cash. A Fund could suffer a loss to the extent that the proceeds from the sale of the underlying collateral held by the Fund is less than the repurchase price and the Fund’s costs associated with the delay and enforcement of the MRA.
While the Funds may invest in repurchase agreements, any repurchase agreements held by the Funds during the six months ended June 30, 2023, were received as collateral for lending securities.
F. Dividends and Distributions to Shareholders
Dividends from net investment income of each Fund, if any, are declared and paid quarterly, or as the Board of Trustees may determine from time to time. Distributions of net realized gains earned by each Fund, if any, are distributed at least annually. A Fund may also designate a portion of the amount paid to redeeming shareholders as a distribution for tax purposes.
Distributions from net investment income and realized capital gains are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These permanent differences are primarily due to the varying treatment of income and gain/loss on portfolio securities held by the Funds and have no impact on net assets or NAV per share. Temporary differences, which arise from recognizing certain items of income, expense and gain/loss in different periods for financial statement and tax purposes, will reverse at some time in the future.
Notes to Financial Statements (Continued)
First Trust Exchange-Traded Fund
June 30, 2023 (Unaudited)
The tax character of distributions paid by each Fund during the fiscal year ended December 31, 2022 was as follows:
| Distributions
paid from
Ordinary
Income | Distributions
paid from
Capital
Gains | Distributions
paid from
Return of
Capital |
First Trust NASDAQ-100 Equal Weighted Index Fund | | | |
First Trust NASDAQ-100-Technology Sector Index Fund | | | |
First Trust NASDAQ-100 Ex-Technology Sector Index Fund | | | |
First Trust NASDAQ® Clean Edge® Green Energy Index Fund | | | |
First Trust S&P REIT Index Fund | | | |
| | | |
First Trust Natural Gas ETF | | | |
First Trust NASDAQ® ABA Community Bank Index Fund | | | |
As of December 31, 2022, the components of distributable earnings on a tax basis for each Fund were as follows:
| Undistributed
Ordinary
Income | Accumulated
Capital and
Other
Gain (Loss) | Net
Unrealized
Appreciation
(Depreciation) |
First Trust NASDAQ-100 Equal Weighted Index Fund | | | |
First Trust NASDAQ-100-Technology Sector Index Fund | | | |
First Trust NASDAQ-100 Ex-Technology Sector Index Fund | | | |
First Trust NASDAQ® Clean Edge® Green Energy Index Fund | | | |
First Trust S&P REIT Index Fund | | | |
| | | |
First Trust Natural Gas ETF | | | |
First Trust NASDAQ® ABA Community Bank Index Fund | | | |
G. Income Taxes
Each Fund intends to continue to qualify as a regulated investment company by complying with the requirements under Subchapter M of the Internal Revenue Code of 1986, as amended, which includes distributing substantially all of its net investment income and net realized gains to shareholders. Accordingly, no provision has been made for federal and state income taxes. However, due to the timing and amount of distributions, each Fund may be subject to an excise tax of 4% of the amount by which approximately 98% of each Fund’s taxable income exceeds the distributions from such taxable income for the calendar year.
Certain countries assess a capital gains tax on securities sold in their local markets. This tax is accrued as the securities in these foreign markets appreciate in value and is paid at the time of sale to the extent a capital gain is realized. Taxes accrued on securities in an unrealized appreciation position are included in “Net change in unrealized appreciation (depreciation) on deferred foreign capital gains tax” on the Statements of Operations. The capital gains tax paid on securities sold, if any, is included in “Net realized gain (loss) on foreign capital gains tax” on the Statements of Operations.
India’s Finance Bill, 2018 (“Finance Bill, 2018”) was enacted into law on March 29, 2018 and amongst other provisions, it introduced a long-term capital gains tax beginning April 1, 2018. Long-term capital gains on the sale of listed shares in excess of INR 0.1 million are taxed at the rate of 10% (plus applicable surcharge and cess (which is a type of tax)) subject to satisfaction of certain conditions. Long-term capital gains accruing as of January 31, 2018 are considered exempt due to a grandfather clause in the provision. The aforesaid exemption from long-term capital gains tax is available with respect to shares acquired between October 1, 2004 and March 31, 2018 only if on such acquisitions Securities Transaction Tax (“STT”) was chargeable. Certain exceptions in this regard, such as acquisition of shares in a public offer, bonus, rights issued, etc. for which the condition of chargeability of STT on acquisition is not applicable, have been notified.
In the case of the sale of listed shares held by a Fund for one year or less, the income is classified as short-term capital gains and is taxable at 15% (plus applicable surcharge and cess) provided the shares are sold on the stock exchange and subjected to STT. For above purposes, the applicable rate of surcharge is 2% or 5% (depending on the level of income of the Fund). The Finance Bill, 2018
Notes to Financial Statements (Continued)
First Trust Exchange-Traded Fund
June 30, 2023 (Unaudited)
increases the cess imposed on the sum of tax and surcharge from 3% to 4%. The cess 4% rate is applied to the capital gains tax, resulting in a higher effective rate of capital gains tax.
Where the sale of shares is outside the stock exchange and not subject to STT, the long-term capital gains are taxed at 10% (plus applicable surcharge and cess) and short-term capital gains are taxed at 30% (plus applicable surcharge and cess). The Finance Bill, 2018, approves the carry forward of long-term capital losses to be offset against long-term capital gains. Short-term losses can be netted against both short-term gains and long-term gains.
Until March 31, 2020, dividends received by a Fund from Indian companies were exempt from tax in India because Indian companies were required to pay dividend distribution tax. The Indian Finance Act, 2020 has amended the dividend taxation framework effective April 1, 2020 and accordingly dividends would now be taxable in the hands of the shareholders at 20%, plus applicable surcharge and cess. Subsequent to the Indian Finance Act, 2020, “The Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Bill, 2020” (the “Bill”) was enacted into law and is effective retroactively to April 1, 2020. The Bill caps the maximum surcharge at 15% of the tax on dividend income earned by the Fund. The highest effective tax rate proposed for non-corporate entities on dividends will be 23.92%. Note the Fund will not obtain relief under the US-India tax treaty as the treaty rate of 25% is higher than the domestic rate. Any excess taxes withheld can be off-set against capital gains tax liability during the year or claimed as a refund in the annual tax return.
Please note that the above description is based on current provisions of Indian law, and any change or modification made by subsequent legislation, regulation, or administrative or judicial decision could increase the Indian tax liability of a Fund and thus reduce the return to a Fund’s shareholders. There can be no assurance that the Indian tax authorities and/or regulators will not take a position contrary to the views expressed herein. If the Indian tax authorities and/or regulators take a position contrary to the views expressed herein, adverse unpredictable consequences may follow.
The Funds are subject to accounting standards that establish a minimum threshold for recognizing, and a system for measuring, the benefits of a tax position taken or expected to be taken in a tax return. The taxable years ended 2019, 2020, 2021, and 2022 remain open to federal and state audit. As of June 30, 2023, management has evaluated the application of these standards to the Funds and has determined that no provision for income tax is required in the Funds’ financial statements for uncertain tax positions.
Each Fund intends to utilize provisions of the federal income tax laws, which allow it to carry a realized capital loss forward indefinitely following the year of the loss and offset such loss against any future realized capital gains. Each Fund is subject to certain limitations under U.S. tax rules on the use of capital loss carryforwards and net unrealized built-in losses. These limitations apply when there has been a 50% change in ownership. At December 31, 2022, for federal income tax purposes, each applicable Fund had a capital loss carryforward available that is shown in the table below, to the extent provided by regulations, to offset future capital gains. To the extent that these loss carryforwards are used to offset future capital gains, it is probable that the capital gains so offset will not be distributed to each applicable Fund’s shareholders.
| Non-Expiring
Capital Loss
Carryforward |
First Trust NASDAQ-100 Equal Weighted Index Fund | |
First Trust NASDAQ-100-Technology Sector Index Fund | |
First Trust NASDAQ-100 Ex-Technology Sector Index Fund | |
First Trust NASDAQ® Clean Edge® Green Energy Index Fund | |
First Trust S&P REIT Index Fund | |
| |
First Trust Natural Gas ETF | |
First Trust NASDAQ® ABA Community Bank Index Fund | |
During the taxable year ended December 31, 2022, the following Fund utilized non-expiring capital loss carryforwards in the following amount:
| |
First Trust S&P REIT Index Fund | |
Notes to Financial Statements (Continued)
First Trust Exchange-Traded Fund
June 30, 2023 (Unaudited)
Certain losses realized during the current fiscal year may be deferred and treated as occurring on the first day of the following fiscal year for federal income tax purposes. For the fiscal year ended December 31, 2022, the Funds had no net late year ordinary or capital losses.
As of June 30, 2023, the aggregate cost, gross unrealized appreciation, gross unrealized depreciation, and net unrealized appreciation/(depreciation) on investments (including short positions and derivatives, if any) for federal income tax purposes were as follows:
| | Gross Unrealized
Appreciation | Gross Unrealized
(Depreciation) | Net Unrealized
Appreciation
(Depreciation) |
First Trust NASDAQ-100 Equal Weighted Index Fund | | | | |
First Trust NASDAQ-100-Technology Sector Index Fund | | | | |
First Trust NASDAQ-100 Ex-Technology Sector Index Fund | | | | |
First Trust NASDAQ® Clean Edge® Green Energy Index Fund | | | | |
First Trust S&P REIT Index Fund | | | | |
| | | | |
First Trust Natural Gas ETF | | | | |
First Trust NASDAQ® ABA Community Bank Index Fund | | | | |
H. Expenses
Expenses that are directly related to one of the Funds are charged directly to the respective Fund. General expenses of the Trust are allocated to all the Funds based upon the net assets of each Fund.
First Trust has entered into licensing agreements with each of the following “Licensors” for the respective Funds:
| |
First Trust NASDAQ-100 Equal Weighted Index Fund | |
First Trust NASDAQ-100-Technology Sector Index Fund | |
First Trust NASDAQ-100 Ex-Technology Sector Index Fund | |
First Trust NASDAQ® Clean Edge® Green Energy Index Fund | Nasdaq, Inc. and Clean Edge® |
First Trust S&P REIT Index Fund | S&P Dow Jones Indices LLC |
| International Securities Exchange, LLC |
First Trust Natural Gas ETF | International Securities Exchange, LLC |
First Trust NASDAQ® ABA Community Bank Index Fund | Nasdaq, Inc. and American Bankers Association |
The respective license agreements allow for the use by First Trust of certain trademarks and trade names of the respective Licensors. The Funds are sub-licensees to the applicable license agreement. The respective Funds are required to pay licensing fees, which are shown on the Statements of Operations.
3. Investment Advisory Fee, Affiliated Transactions and Other Fee Arrangements
First Trust, the investment advisor to the Funds, is a limited partnership with one limited partner, Grace Partners of DuPage L.P., and one general partner, The Charger Corporation. The Charger Corporation is an Illinois corporation controlled by James A. Bowen, Chief Executive Officer of First Trust. First Trust is responsible for the selection and ongoing monitoring of the securities in each Fund’s portfolio, managing the Funds’ business affairs and providing certain administrative services necessary for the management of the Funds.
The management fee payable by each Fund to First Trust for these services will be reduced at certain levels of each Fund’s net assets (“breakpoints”) and calculated pursuant to the following schedule:
Notes to Financial Statements (Continued)
First Trust Exchange-Traded Fund
June 30, 2023 (Unaudited)
| | | | | | | | |
Fund net assets up to and including $2.5 billion | | | | | | | | |
Fund net assets greater than $2.5 billion up to and including $5 billion | | | | | | | | |
Fund net assets greater than $5 billion up to and including $7.5 billion | | | | | | | | |
Fund net assets greater than $7.5 billion up to and including $10 billion | | | | | | | | |
Fund net assets greater than $10 billion up to and including $15 billion | | | | | | | | |
Fund net assets greater than $15 billion | | | | | | | | |
The Trust and the Advisor have entered into an Expense Reimbursement and Fee Waiver Agreement (“Agreement”) in which First Trust has agreed to waive fees and/or reimburse Fund expenses to the extent that the operating expenses of each Fund (excluding interest expense, brokerage commissions and other trading expenses, acquired fund fees and expenses, taxes and extraordinary expenses) exceed the below amount as a percentage of average daily net assets per year (the “Expense Cap”). The Expense Cap will be in effect until at least April 30, 2024.
| |
First Trust NASDAQ-100 Equal Weighted Index Fund | |
First Trust NASDAQ-100-Technology Sector Index Fund | |
First Trust NASDAQ-100 Ex-Technology Sector Index Fund | |
First Trust NASDAQ® Clean Edge® Green Energy Index Fund | |
First Trust S&P REIT Index Fund | |
| |
First Trust Natural Gas ETF | |
First Trust NASDAQ® ABA Community Bank Index Fund | |
The Trust has multiple service agreements with The Bank of New York Mellon (“BNYM”). Under the service agreements, BNYM performs custodial, fund accounting, certain administrative services, and transfer agency services for each Fund. As custodian, BNYM is responsible for custody of each Fund’s assets. As fund accountant and administrator, BNYM is responsible for maintaining the books and records of each Fund’s securities and cash. As transfer agent, BNYM is responsible for maintaining shareholder records for each Fund. BNYM is a subsidiary of The Bank of New York Mellon Corporation, a financial holding company.
Each Trustee who is not an officer or employee of First Trust, any sub-advisor or any of their affiliates (“Independent Trustees”) is paid a fixed annual retainer that is allocated equally among each fund in the First Trust Fund Complex. Each Independent Trustee is also paid an annual per fund fee that varies based on whether the fund is a closed-end or other actively managed fund, a target outcome fund or an index fund.
Additionally, the Lead Independent Trustee and the Chairs of the Audit Committee, Nominating and Governance Committee and Valuation Committee are paid annual fees to serve in such capacities, with such compensation allocated pro rata among each fund in the First Trust Fund Complex based on net assets. Independent Trustees are reimbursed for travel and out-of-pocket expenses in connection with all meetings. The Lead Independent Trustee and Committee Chairs rotate every three years. The officers and “Interested” Trustee receive no compensation from the Trust for acting in such capacities.
4. Purchases and Sales of Securities
For the six months ended June 30, 2023, the cost of purchases and proceeds from sales of investments for each Fund, excluding short-term investments and in-kind transactions, were as follows:
| | |
First Trust NASDAQ-100 Equal Weighted Index Fund | | |
First Trust NASDAQ-100-Technology Sector Index Fund | | |
First Trust NASDAQ-100 Ex-Technology Sector Index Fund | | |
First Trust NASDAQ® Clean Edge® Green Energy Index Fund | | |
First Trust S&P REIT Index Fund | | |
Notes to Financial Statements (Continued)
First Trust Exchange-Traded Fund
June 30, 2023 (Unaudited)
| | |
| | |
First Trust Natural Gas ETF | | |
First Trust NASDAQ® ABA Community Bank Index Fund | | |
For the six months ended June 30, 2023, the cost of in-kind purchases and proceeds from in-kind sales for each Fund were as follows:
| | |
First Trust NASDAQ-100 Equal Weighted Index Fund | | |
First Trust NASDAQ-100-Technology Sector Index Fund | | |
First Trust NASDAQ-100 Ex-Technology Sector Index Fund | | |
First Trust NASDAQ® Clean Edge® Green Energy Index Fund | | |
First Trust S&P REIT Index Fund | | |
| | |
First Trust Natural Gas ETF | | |
First Trust NASDAQ® ABA Community Bank Index Fund | | |
5. Creations, Redemptions and Transaction Fees
Each Fund generally issues and redeems its shares in primary market transactions through a creation and redemption mechanism and does not sell or redeem individual shares. Instead, financial entities known as “Authorized Participants” have contractual arrangements with a Fund or one of the Fund’s service providers to purchase and redeem Fund shares directly with the Fund in large blocks of shares known as “Creation Units.” Prior to the start of trading on every business day, a Fund publishes through the National Securities Clearing Corporation (“NSCC”) the “basket” of securities, cash or other assets that it will accept in exchange for a Creation Unit of the Fund’s shares. An Authorized Participant that wishes to effectuate a creation of a Fund’s shares deposits with the Fund the “basket” of securities, cash or other assets identified by the Fund that day, and then receives the Creation Unit of the Fund’s shares in return for those assets. After purchasing a Creation Unit, the Authorized Participant may continue to hold the Fund’s shares or sell them in the secondary market. The redemption process is the reverse of the purchase process:the Authorized Participant redeems a Creation Unit of a Fund’s shares for a basket of securities, cash or other assets. The combination of the creation and redemption process with secondary market trading in a Fund’s shares and underlying securities provides arbitrage opportunities that are designed to help keep the market price of a Fund’s shares at or close to the NAV per share of the Fund.
Each Fund imposes fees in connection with the purchase of Creation Units. These fees may vary based upon various fact-based circumstances, including, but not limited to, the composition of the securities included in the Creation Unit or the countries in which the transactions are settled. The price for each Creation Unit will equal the daily NAV per share of a Fund times the number of shares in a Creation Unit, plus the fees described above and, if applicable, any operational processing and brokerage costs, transfer fees, stamp taxes and part or all of the spread between the expected bid and offer side of the market related to the securities comprising the creation basket.
Each Fund also imposes fees in connection with the redemption of Creation Units. These fees may vary based upon various fact-based circumstances, including, but not limited to, the composition of the securities included in the Creation Unit or the countries in which the transactions are settled. The price received for each Creation Unit will equal the daily NAV per share of a Fund times the number of shares in a Creation Unit, minus the fees described above and, if applicable, any operational processing and brokerage costs, transfer fees, stamp taxes and part or all of the spread between the expected bid and offer side of the market related to the securities comprising the redemption basket. Investors who use the services of a broker or other such intermediary in addition to an Authorized Participant to effect a redemption of a Creation Unit may also be assessed an amount to cover the cost of such services. The redemption fee charged by a Fund will comply with Rule 22c-2 of the 1940 Act which limits redemption fees to no more than 2% of the value of the shares redeemed.
6. Distribution Plan
The Board of Trustees adopted a Distribution and Service Plan pursuant to Rule 12b-1 under the 1940 Act. In accordance with the Rule 12b-1 plan, the Funds are authorized to pay an amount up to 0.25% of their average daily net assets each year to reimburse First Trust Portfolios L.P. (“FTP”), the distributor of the Funds, for amounts expended to finance activities primarily intended to result in
Notes to Financial Statements (Continued)
First Trust Exchange-Traded Fund
June 30, 2023 (Unaudited)
the sale of Creation Units or the provision of investor services. FTP may also use this amount to compensate securities dealers or other persons that are Authorized Participants for providing distribution assistance, including broker-dealer and shareholder support and educational and promotional services.
No 12b-1 fees are currently paid by the Funds, and pursuant to a contractual arrangement, no 12b-1 fees will be paid any time before April 30, 2024.
7. Indemnification
The Trust, on behalf of the Funds, has a variety of indemnification obligations under contracts with its service providers. The Trust’s maximum exposure under these arrangements is unknown. However, the Trust has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
8. Subsequent Events
Management has evaluated the impact of all subsequent events on the Funds through the date the financial statements were issued and has determined that there were no subsequent events requiring recognition or disclosure in the financial statements that have not already been disclosed.
First Trust Exchange-Traded Fund
June 30, 2023 (Unaudited)
Proxy Voting Policies and Procedures
A description of the policies and procedures that the Trust uses to determine how to vote proxies and information on how each Fund voted proxies relating to its portfolio securities during the most recent 12-month period ended June 30 is available (1) without charge, upon request, by calling (800) 988-5891; (2) on each Fund’s website at www.ftportfolios.com; and (3) on the Securities and Exchange Commission’s (“SEC”) website at www.sec.gov.
Portfolio Holdings
Each Fund files portfolio holdings information for each month in a fiscal quarter within 60 days after the end of the relevant fiscal quarter on Form N-PORT. Portfolio holdings information for the third month of each fiscal quarter will be publicly available on the SEC’s website at www.sec.gov. Each Fund’s complete schedule of portfolio holdings for the second and fourth quarters of each fiscal year is included in the semi-annual and annual reports to shareholders, respectively, and is filed with the SEC on Form N-CSR. The semi-annual and annual report for each Fund is available to investors within 60 days after the period to which it relates. Each Fund’s Forms N-PORT and Forms N-CSR are available on the SEC’s website listed above.
Risk Considerations
Risks are inherent in all investing. Certain general risks that may be applicable to a Fund are identified below, but not all of the material risks relevant to each Fund are included in this report and not all of the risks below apply to each Fund. The material risks of investing in each Fund are spelled out in its prospectus, statement of additional information and other regulatory filings. Before investing, you should consider each Fund’s investment objective, risks, charges and expenses, and read each Fund’s prospectus and statement of additional information carefully. You can download each Fund’s prospectus at www.ftportfolios.com or contact First Trust Portfolios L.P. at (800) 621-1675 to request a prospectus, which contains this and other information about each Fund.
Concentration Risk. To the extent that a fund is able to invest a significant percentage of its assets in a single asset class or the securities of issuers within the same country, state, region, industry or sector, an adverse economic, business or political development may affect the value of the fund’s investments more than if the fund were more broadly diversified. A fund that tracks an index will be concentrated to the extent the fund’s corresponding index is concentrated. A concentration makes a fund more susceptible to any single occurrence and may subject the fund to greater market risk than a fund that is more broadly diversified.
Credit Risk. Credit risk is the risk that an issuer of a security will be unable or unwilling to make dividend, interest and/or principal payments when due and the related risk that the value of a security may decline because of concerns about the issuer’s ability to make such payments.
Cyber Security Risk. The funds are susceptible to potential operational risks through breaches in cyber security. A breach in cyber security refers to both intentional and unintentional events that may cause a fund to lose proprietary information, suffer data corruption or lose operational capacity. Such events could cause a fund to incur regulatory penalties, reputational damage, additional compliance costs associated with corrective measures and/or financial loss. In addition, cyber security breaches of a fund’s third-party service providers, such as its administrator, transfer agent, custodian, or sub-advisor, as applicable, or issuers in which the fund invests, can also subject a fund to many of the same risks associated with direct cyber security breaches.
Defined Outcome Funds Risk. To the extent a fund’s investment strategy is designed to deliver returns tied to the price performance of an underlying ETF, an investor may not realize the returns the fund seeks to achieve if that investor does not hold shares for the entire target outcome period. In the event an investor purchases shares after the first day of the target outcome period or sells shares prior to the end of the target outcome period, the buffer that the fund seeks to provide against a decline in the value of the underlying ETF may not be available, the enhanced returns that the fund seeks to provide (if any) may not be available and the investor may not participate in a gain in the value of the underlying ETF up to the cap for the investor’s investment period. Additionally, the fund will not participate in gains of the underlying ETF above the cap and a shareholder may lose their entire investment. If the fund seeks enhanced returns, there are certain time periods when the value of the fund may fall faster than the value of the underlying ETF, and it is very unlikely that, on any given day during which the underlying ETF share price increases in value, the fund’s share price will increase at the same rate as the enhanced returns sought by the fund, which is designed for an entire target outcome period. Trading flexible exchange options involves risks different from, or possibly greater than, the risks associated with investing directly in securities, such as less liquidity and correlation and valuation risks. A fund may experience substantial downside from specific flexible exchange option positions and certain positions may expire worthless.
Additional Information (Continued)
First Trust Exchange-Traded Fund
June 30, 2023 (Unaudited)
Derivatives Risk. To the extent a fund uses derivative instruments such as futures contracts, options contracts and swaps, the fund may experience losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivative. These risks are heightened when a fund’s portfolio managers use derivatives to enhance the fund’s return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the fund.
Equity Securities Risk. To the extent a fund invests in equity securities, the value of the fund’s shares will fluctuate with changes in the value of the equity securities. Equity securities prices fluctuate for several reasons, including changes in investors’ perceptions of the financial condition of an issuer or the general condition of the relevant stock market, such as market volatility, or when political or economic events affecting the issuers occur. In addition, common stock prices may be particularly sensitive to rising interest rates, as the cost of capital rises and borrowing costs increase. Equity securities may decline significantly in price over short or extended periods of time, and such declines may occur in the equity market as a whole, or they may occur in only a particular country, company, industry or sector of the market.
ETF Risk. The shares of an ETF trade like common stock and represent an interest in a portfolio of securities. The risks of owning an ETF generally reflect the risks of owning the underlying securities, although lack of liquidity in an ETF could result in it being more volatile and ETFs have management fees that increase their costs. Shares of an ETF trade on an exchange at market prices rather than net asset value, which may cause the shares to trade at a price greater than net asset value (premium) or less than net asset value (discount). In times of market stress, decisions by market makers to reduce or step away from their role of providing a market for an ETF’s shares, or decisions by an ETF’s authorized participants that they are unable or unwilling to proceed with creation and/or redemption orders of an ETF’s shares, could result in shares of the ETF trading at a discount to net asset value and in greater than normal intraday bid-ask spreads.
Fixed Income Securities Risk. To the extent a fund invests in fixed income securities, the fund will be subject to credit risk, income risk, interest rate risk, liquidity risk and prepayment risk. Income risk is the risk that income from a fund’s fixed income investments could decline during periods of falling interest rates. Interest rate risk is the risk that the value of a fund’s fixed income securities will decline because of rising interest rates. Liquidity risk is the risk that a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. Prepayment risk is the risk that the securities will be redeemed or prepaid by the issuer, resulting in lower interest payments received by the fund. In addition to these risks, high yield securities, or “junk” bonds, are subject to greater market fluctuations and risk of loss than securities with higher ratings, and the market for high yield securities is generally smaller and less liquid than that for investment grade securities.
Index or Model Constituent Risk. Certain funds may be a constituent of one or more indices or ETF models. As a result, such a fund may be included in one or more index-tracking exchange-traded funds or mutual funds. Being a component security of such a vehicle could greatly affect the trading activity involving a fund, the size of the fund and the market volatility of the fund. Inclusion in an index could increase demand for the fund and removal from an index could result in outsized selling activity in a relatively short period of time. As a result, a fund’s net asset value could be negatively impacted and the fund’s market price may be significantly below its net asset value during certain periods. In addition, index rebalances may potentially result in increased trading activity in a fund’s shares.
Index Provider Risk. To the extent a fund seeks to track an index, it is subject to Index Provider Risk. There is no assurance that the Index Provider will compile the Index accurately, or that the Index will be determined, maintained, constructed, reconstituted, rebalanced, composed, calculated or disseminated accurately. To correct any such error, the Index Provider may carry out an unscheduled rebalance or other modification of the Index constituents or weightings, which may increase the fund’s costs. The Index Provider does not provide any representation or warranty in relation to the quality, accuracy or completeness of data in the Index, and it does not guarantee that the Index will be calculated in accordance with its stated methodology. Losses or costs associated with any Index Provider errors generally will be borne by the fund and its shareholders.
Investment Companies Risk. To the extent a fund invests in the securities of other investment vehicles, the fund will incur additional fees and expenses that would not be present in a direct investment in those investment vehicles. Furthermore, the fund’s investment performance and risks are directly related to the investment performance and risks of the investment vehicles in which the fund invests.
LIBOR Risk. To the extent a fund invests in floating or variable rate obligations that use the London Interbank Offered Rate (“LIBOR”) as a reference interest rate, it is subject to LIBOR Risk. The United Kingdom’s Financial Conduct Authority, which regulates LIBOR, has ceased making LIBOR available as a reference rate over a phase-out period that began December 31, 2021.
Additional Information (Continued)
First Trust Exchange-Traded Fund
June 30, 2023 (Unaudited)
There is no assurance that any alternative reference rate, including the Secured Overnight Financing Rate (“SOFR”) will be similar to or produce the same value or economic equivalence as LIBOR or that instruments using an alternative rate will have the same volume or liquidity. The unavailability or replacement of LIBOR may affect the value, liquidity or return on certain fund investments and may result in costs incurred in connection with closing out positions and entering into new trades. Any potential effects of the transition away from LIBOR on the fund or on certain instruments in which the fund invests can be difficult to ascertain, and they may vary depending on a variety of factors, and they could result in losses to the fund.
Management Risk. To the extent that a fund is actively managed, it is subject to management risk. In managing an actively-managed fund’s investment portfolio, the fund’s portfolio managers will apply investment techniques and risk analyses that may not have the desired result. There can be no guarantee that a fund will meet its investment objective.
Market Risk. Market risk is the risk that a particular security, or shares of a fund in general, may fall in value. Securities held by a fund, as well as shares of a fund itself, are subject to market fluctuations caused by factors such as general economic conditions, political events, regulatory or market developments, changes in interest rates and perceived trends in securities prices. Shares of a fund could decline in value or underperform other investments as a result of the risk of loss associated with these market fluctuations. In addition, local, regional or global events such as war, acts of terrorism, spread of infectious diseases or other public health issues, recessions, or other events could have a significant negative impact on a fund and its investments. Such events may affect certain geographic regions, countries, sectors and industries more significantly than others. In February 2022, Russia invaded Ukraine which has caused and could continue to cause significant market disruptions and volatility within the markets in Russia, Europe, and the United States. The hostilities and sanctions resulting from those hostilities could have a significant impact on certain fund investments as well as fund performance. The COVID-19 global pandemic and the ensuing policies enacted by governments and central banks have caused and may continue to cause significant volatility and uncertainty in global financial markets. While the U.S. has resumed “reasonably” normal business activity, many countries continue to impose lockdown measures. Additionally, there is no guarantee that vaccines will be effective against emerging variants of the disease. These events also adversely affect the prices and liquidity of a fund’s portfolio securities or other instruments and could result in disruptions in the trading markets. Any of such circumstances could have a materially negative impact on the value of a fund’s shares and result in increased market volatility. During any such events, a fund’s shares may trade at increased premiums or discounts to their net asset value and the bid/ask spread on a fund’s shares may widen.
Non-U.S. Securities Risk. To the extent a fund invests in non-U.S. securities, it is subject to additional risks not associated with securities of domestic issuers. Non-U.S. securities are subject to higher volatility than securities of domestic issuers due to:possible adverse political, social or economic developments; restrictions on foreign investment or exchange of securities; capital controls; lack of liquidity; currency exchange rates; excessive taxation; government seizure of assets; the imposition of sanctions by foreign governments; different legal or accounting standards; and less government supervision and regulation of exchanges in foreign countries. Investments in non-U.S. securities may involve higher costs than investments in U.S. securities, including higher transaction and custody costs, as well as additional taxes imposed by non-U.S. governments. These risks may be heightened for securities of companies located, or with significant operations, in emerging market countries.
Operational Risk. Each fund is subject to risks arising from various operational factors, including, but not limited to, human error, processing and communication errors, errors of a fund’s service providers, counterparties or other third-parties, failed or inadequate processes and technology or systems failures. Each fund relies on third-parties for a range of services, including custody. Any delay or failure relating to engaging or maintaining such service providers may affect a fund’s ability to meet its investment objective. Although the funds and the funds’ investment advisor seek to reduce these operational risks through controls and procedures, there is no way to completely protect against such risks.
Passive Investment Risk. To the extent a fund seeks to track an index, the fund will invest in the securities included in, or representative of, the index regardless of their investment merit. A fund generally will not attempt to take defensive positions in declining markets.
Preferred Securities Risk. Preferred securities combine some of the characteristics of both common stocks and bonds. Preferred securities are typically subordinated to bonds and other debt securities in a company’s capital structure in terms of priority to corporate income, subjecting them to greater credit risk than those debt securities. Generally, holders of preferred securities have no voting rights with respect to the issuing company unless preferred dividends have been in arrears for a specified number of periods, at which time the preferred security holders may obtain limited rights. In certain circumstances, an issuer of preferred securities may defer
Additional Information (Continued)
First Trust Exchange-Traded Fund
June 30, 2023 (Unaudited)
payment on the securities and, in some cases, redeem the securities prior to a specified date. Preferred securities may also be substantially less liquid than other securities, including common stock.
Valuation Risk. The valuation of certain securities may carry more risk than that of common stock. Uncertainties in the conditions of the financial markets, unreliable reference data, lack of transparency and inconsistency of valuation models and processes may lead to inaccurate asset pricing. A fund may hold investments in sizes smaller than institutionally sized round lot positions (sometimes referred to as odd lots). However, third-party pricing services generally provide evaluations on the basis of institutionally-sized round lots. If a fund sells certain of its investments in an odd lot transaction, the sale price may be less than the value at which such securities have been held by the fund. Odd lots often trade at lower prices than institutional round lots. There is no assurance that the fund will be able to sell a portfolio security at the price established by the pricing service, which could result in a loss to the fund.
NOT FDIC INSURED NOT BANK GUARANTEED MAY LOSE VALUE
Advisory Agreements
Board Considerations Regarding Approval of Continuation of Investment Management Agreement
The Board of Trustees of First Trust Exchange-Traded Fund (the “Trust”), including the Independent Trustees, unanimously approved the continuation of the Investment Management Agreement (the “Agreement”) with First Trust Advisors L.P. (the “Advisor”) on behalf of the following series of the Trust (each a “Fund” and collectively, the “Funds”):
First Trust NASDAQ-100 Equal Weighted Index Fund (QQEW) |
First Trust NASDAQ-100-Technology Sector Index Fund (QTEC) |
First Trust NASDAQ-100 Ex-Technology Sector Index Fund (QQXT) |
First Trust NASDAQ® Clean Edge® Green Energy Index Fund (QCLN) |
First Trust S&P REIT Index Fund (FRI) |
First Trust Water ETF (FIW) |
First Trust Natural Gas ETF (FCG) |
First Trust NASDAQ® ABA Community Bank Index Fund (QABA) |
The Board approved the continuation of the Agreement for each Fund for a one-year period ending June 30, 2024 at a meeting held on June 4–5, 2023. The Board determined for each Fund that the continuation of the Agreement is in the best interests of the Fund in light of the nature, extent and quality of the services provided and such other matters as the Board considered to be relevant in the exercise of its business judgment.
To reach this determination for each Fund, the Board considered its duties under the Investment Company Act of 1940, as amended (the “1940 Act”), as well as under the general principles of state law, in reviewing and approving advisory contracts; the requirements of the 1940 Act in such matters; the fiduciary duty of investment advisors with respect to advisory agreements and compensation; the standards used by courts in determining whether investment company boards have fulfilled their duties; and the factors to be considered by the Board in voting on such agreements. At meetings held on April 17, 2023 and June 4–5, 2023, the Board, including the Independent Trustees, reviewed materials provided by the Advisor responding to requests for information from counsel to the Independent Trustees, submitted on behalf of the Independent Trustees, that, among other things, outlined:the services provided by the Advisor to each Fund (including the relevant personnel responsible for these services and their experience); the advisory fee rate schedule payable by each Fund as compared to fees charged to a peer group of funds (the “Expense Group”) and a broad peer universe of funds (the “Expense Universe”), each assembled by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent source, and as compared to fees charged to other clients of the Advisor, including other exchange-traded funds (“ETFs”) managed by the Advisor; the expense ratio of each Fund as compared to expense ratios of the funds in the Fund’s Expense Group and Expense Universe; performance information for each Fund, including comparisons of each Fund’s performance to that of one or more relevant benchmark indexes and to that of a performance group of funds and a broad performance universe of funds (the “Performance Universe”), each assembled by Broadridge; the nature of expenses incurred in providing services to each Fund and the potential for the Advisor to realize economies of scale, if any; profitability and other financial data for the Advisor; any indirect benefits to the Advisor and its affiliate, First Trust Portfolios L.P. (“FTP”); and information on the Advisor’s compliance program. The Board reviewed initial materials with the Advisor at the meeting held on April 17, 2023, prior to which the Independent Trustees and their counsel met separately to discuss the information provided by the Advisor. Following the April meeting, counsel to the Independent Trustees, on behalf of the Independent Trustees, requested certain clarifications and supplements to the materials provided, and the information provided in response to those requests was considered at an executive session of the Independent Trustees and their counsel held prior
Additional Information (Continued)
First Trust Exchange-Traded Fund
June 30, 2023 (Unaudited)
to the June 4–5, 2023 meeting, as well as at the June meeting. The Board applied its business judgment to determine whether the arrangement between the Trust and the Advisor continues to be a reasonable business arrangement from each Fund’s perspective. The Board determined that, given the totality of the information provided with respect to the Agreement, the Board had received sufficient information to renew the Agreement. The Board considered that shareholders chose to invest or remain invested in a Fund knowing that the Advisor manages the Fund and knowing the Fund’s advisory fee.
In reviewing the Agreement for each Fund, the Board considered the nature, extent and quality of the services provided by the Advisor under the Agreement. The Board considered that the Advisor is responsible for the overall management and administration of the Trust and each Fund and reviewed all of the services provided by the Advisor to the Funds, as well as the background and experience of the persons responsible for such services. In reviewing the services provided, the Board noted the compliance program that had been developed by the Advisor and considered that it includes a robust program for monitoring the Advisor’s and each Fund’s compliance with the 1940 Act, as well as each Fund’s compliance with its investment objective, policies and restrictions. The Board also considered a report from the Advisor with respect to its risk management functions related to the operation of the Funds. Finally, as part of the Board’s consideration of the Advisor’s services, the Advisor, in its written materials and at the April 17, 2023 meeting, described to the Board the scope of its ongoing investment in additional personnel and infrastructure to maintain and improve the quality of services provided to the Funds and the other funds in the First Trust Fund Complex. In light of the information presented and the considerations made, the Board concluded that the nature, extent and quality of the services provided to the Trust and each Fund by the Advisor under the Agreement have been and are expected to remain satisfactory and that the Advisor has managed each Fund consistent with its investment objective, policies and restrictions.
The Board considered the advisory fee rate schedule payable by each Fund under the Agreement for the services provided. The Board considered that the Advisor agreed to extend the current expense cap for each Fund through April 30, 2025. The Board received and reviewed information showing the fee rates and expense ratios of the peer funds in the Expense Groups, as well as advisory and unitary fee rates charged by the Advisor to other fund (including ETFs) and non-fund clients, as applicable. Because each Fund’s Expense Group included peer funds that pay a unitary fee, the Board determined that expense ratios were the most relevant comparative data point. Based on the information provided, the Board noted that the total (net) expense ratio for each Fund was above the median total (net) expense ratio of the peer funds in its respective Expense Group. With respect to the Expense Groups, the Board, at the April 17, 2023 meeting, discussed with Broadridge its methodology for assembling peer groups and discussed with the Advisor limitations in creating peer groups for index ETFs, including differences in underlying indexes and index-tracking methodologies that can result in greater management complexities across seemingly comparable ETFs, and different business models that may affect the pricing of services among ETF sponsors. The Board took these limitations and differences into account in considering the peer data. With respect to fees charged to other non-ETF clients, the Board considered differences between the Funds and other non-ETF clients that limited their comparability. In considering the advisory fee rate schedules overall, the Board also considered the Advisor’s statement that it seeks to meet investor needs through innovative and value-added investment solutions and the Advisor’s demonstrated long-term commitment to each Fund and the other funds in the First Trust Fund Complex.
The Board considered performance information for each Fund. The Board noted the process it has established for monitoring each Fund’s performance and portfolio risk on an ongoing basis, which includes quarterly performance reporting from the Advisor for the Funds. The Board determined that this process continues to be effective for reviewing each Fund’s performance. The Board received and reviewed information for periods ended December 31, 2022 regarding the performance of each Fund’s underlying index, the correlation between each Fund’s performance and that of its underlying index, each Fund’s tracking difference and each Fund’s excess return as compared to its benchmark index. Based on the information provided and its ongoing review of performance, the Board concluded that each Fund was correlated to its underlying index and that the tracking difference for each Fund was within a reasonable range. In addition, the Board reviewed data prepared by Broadridge comparing each Fund’s performance to that of its respective Performance Universe and to that of a broad-based benchmark index and noted the Advisor’s discussion of FCG’s performance at the April 17, 2023 meeting. However, given each Fund’s objective of seeking investment results that correspond generally to the performance of its underlying index, the Board placed more emphasis on its review of correlation and tracking difference.
On the basis of all the information provided on the fees, expenses and performance of each Fund and the ongoing oversight by the Board, the Board concluded that the advisory fee for each Fund continues to be reasonable and appropriate in light of the nature, extent and quality of the services provided by the Advisor to each Fund under the Agreement.
The Board considered information and discussed with the Advisor whether there were any economies of scale in connection with providing advisory services to the Funds at current asset levels and whether the Funds may benefit from any economies of scale. The Board noted that the advisory fee rate schedule for each Fund includes breakpoints pursuant to which the advisory fee rate will be
Additional Information (Continued)
First Trust Exchange-Traded Fund
June 30, 2023 (Unaudited)
reduced as assets of the Fund meet certain thresholds. The Board considered the Advisor’s statement that it believes that its expenses relating to providing advisory services to the Funds will increase during the next twelve months as the Advisor continues to build infrastructure and add new staff. The Board concluded that the advisory fee rate schedule for each Fund reflects an appropriate level of sharing of any economies of scale that may be realized in the management of the Fund at current asset levels. The Board considered the revenues and allocated costs (including the allocation methodology) of the Advisor in serving as investment advisor to each Fund for the twelve months ended December 31, 2022 and the estimated profitability level for each Fund calculated by the Advisor based on such data, as well as complex-wide and product-line profitability data, for the same period. The Board noted the inherent limitations in the profitability analysis and concluded that, based on the information provided, the Advisor’s profitability level for each Fund was not unreasonable. In addition, the Board considered indirect benefits described by the Advisor that may be realized from its relationship with the Funds. The Board considered that the Advisor had identified as an indirect benefit to the Advisor and FTP their exposure to investors and brokers who, absent their exposure to the Funds, may have had no dealings with the Advisor or FTP, and noted that the Advisor does not utilize soft dollars in connection with the Funds. The Board concluded that the character and amount of potential indirect benefits to the Advisor were not unreasonable.
Based on all of the information considered and the conclusions reached, the Board, including the Independent Trustees, unanimously determined that the terms of the Agreement continue to be fair and reasonable and that the continuation of the Agreement is in the best interests of each Fund. No single factor was determinative in the Board’s analysis.
Liquidity Risk Management Program
In accordance with Rule 22e-4 under the Investment Company Act of 1940, as amended (the “1940 Act”), the Funds and each other fund in the First Trust Fund Complex, other than the closed-end funds, have adopted and implemented a liquidity risk management program (the “Program”) reasonably designed to assess and manage the funds’ liquidity risk, i.e., the risk that a fund could not meet requests to redeem shares issued by the fund without significant dilution of remaining investors’ interests in the fund. The Board of Trustees of the First Trust Funds has appointed First Trust Advisors, L.P. (the “Advisor”) as the person designated to administer the Program, and in this capacity the Advisor performs its duties primarily through the activities and efforts of the First Trust Liquidity Committee (the “Liquidity Committee”).
Pursuant to the Program, the Liquidity Committee classifies the liquidity of each fund’s portfolio investments into one of the four liquidity categories specified by Rule 22e-4: highly liquid investments, moderately liquid investments, less liquid investments and illiquid investments. The Liquidity Committee determines certain of the inputs for this classification process, including reasonably anticipated trade sizes and significant investor dilution thresholds. The Liquidity Committee also determines and periodically reviews a highly liquid investment minimum for certain funds, monitors the funds’ holdings of assets classified as illiquid investments to seek to ensure they do not exceed 15% of a fund’s net assets and establishes policies and procedures regarding redemptions in kind.
At the April 17, 2023 meeting of the Board of Trustees, as required by Rule 22e-4 and the Program, the Advisor provided the Board with a written report prepared by the Advisor that addressed the operation of the Program during the period from March 17, 2022 through the Liquidity Committee’s annual meeting held on March 23, 2023 and assessed the Program’s adequacy and effectiveness of implementation during this period, including the operation of the highly liquid investment minimum for each fund that is required under the Program to have one, and any material changes to the Program. Note that because the Funds primarily hold assets that are highly liquid investments, the Funds have not adopted any highly liquid investment minimums.
As stated in the written report, during the review period, two funds breached the 15% limitation on illiquid investments for one day each, as a result of an unscheduled week-long closure of the stock exchange in Istanbul following devastating earthquakes in February, causing all Turkish equities to be re-classified as “illiquid” for one day. Each fund filed a Form N-RN on the day after the breach occurred, and one day later after the breach was cured. No fund with a highly liquid investment minimum breached that minimum during the reporting period. The Advisor concluded that each fund’s investment strategy is appropriate for an open-end fund; that the Program operated effectively in all material respects during the review period; and that the Program is reasonably designed to assess and manage the liquidity risk of each fund and to maintain compliance with Rule 22e-4.
First Trust Exchange-Traded Fund
INVESTMENT ADVISOR
First Trust Advisors L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
ADMINISTRATOR, CUSTODIAN,
FUND ACCOUNTANT &
TRANSFER AGENT
The Bank of New York Mellon
240 Greenwich Street
New York, NY 10286
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
111 South Wacker Drive
Chicago, IL 60606
LEGAL COUNSEL
Chapman and Cutler LLP
320 South Canal Street
Chicago, IL 60606
Semi-Annual Report
For the Period Ended
June 30, 2023
First Trust Exchange-Traded Fund
First Trust Dividend Strength ETF (FTDS) |
First Trust Dow 30 Equal Weight ETF (EDOW) |
First Trust Lunt U.S. Factor Rotation ETF (FCTR) |
First Trust Growth Strength ETF (FTGS) |
First Trust Indxx Aerospace & Defense ETF (MISL) |
First Trust Bloomberg Inflation Sensitive Equity ETF (FTIF) |
First Trust Exchange-Traded Fund
Semi-Annual Report
June 30, 2023
Caution Regarding Forward-Looking Statements
This report contains certain forward-looking statements within the meaning of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. Forward-looking statements include statements regarding the goals, beliefs, plans or current expectations of First Trust Advisors L.P. (“First Trust” or the “Advisor”) and its representatives, taking into account the information currently available to them. Forward-looking statements include all statements that do not relate solely to current or historical fact. For example, forward-looking statements include the use of words such as “anticipate,” “estimate,” “intend,” “expect,” “believe,” “plan,” “may,” “should,” “would” or other words that convey uncertainty of future events or outcomes.
Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of any series of First Trust Exchange-Traded Fund (the “Trust”) described in this report (each such series is referred to as a “Fund” and collectively, as the “Funds”) to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. When evaluating the information included in this report, you are cautioned not to place undue reliance on these forward-looking statements, which reflect the judgment of the Advisor and its representatives only as of the date hereof. We undertake no obligation to publicly revise or update these forward-looking statements to reflect events and circumstances that arise after the date hereof.
Performance and Risk Disclosure
There is no assurance that any Fund described in this report will achieve its investment objective. Each Fund is subject to market risk, which is the possibility that the market values of securities owned by the Fund will decline and that the value of the Fund’s shares may therefore be less than what you paid for them. Accordingly, you can lose money by investing in a Fund. See “Risk Considerations” in the Additional Information section of this report for a discussion of certain other risks of investing in the Funds.
Performance data quoted represents past performance, which is no guarantee of future results, and current performance may be lower or higher than the figures shown. For the most recent month-end performance figures, please visit www.ftportfolios.com or speak with your financial advisor. Investment returns, net asset value and share price will fluctuate and Fund shares, when sold, may be worth more or less than their original cost.
The Advisor may also periodically provide additional information on Fund performance on each Fund’s webpage at www.ftportfolios.com.
How to Read This Report
This report contains information that may help you evaluate your investment. It includes details about each Fund and presents data and analysis that provide insight into each Fund’s performance and investment approach.
By reading the market overview by Robert F. Carey, Chief Market Strategist of the Advisor, you may obtain an understanding of how the market environment affected the performance of each Fund. The statistical information that follows may help you understand each Fund’s performance compared to that of relevant market benchmarks.
It is important to keep in mind that the opinions expressed by personnel of the Advisor are just that:informed opinions. They should not be considered to be promises or advice. The opinions, like the statistics, cover the period through the date on the cover of this report. The material risks of investing in each Fund are spelled out in its prospectus, statement of additional information, and other Fund regulatory filings.
First Trust Exchange-Traded Fund
Semi-Annual Letter from the Chairman and CEO
June 30, 2023
Dear Shareholders,
First Trust is pleased to provide you with the semi-annual report for certain series of the First Trust Exchange-Traded Fund (the “Funds”), which contains detailed information about the Funds for the six months ended June 30, 2023. Please note that the First Trust Bloomberg Inflation Sensitive Equity ETF was incepted on March 13, 2023 and therefore, any information in this letter or the
semi-annual report prior to that Fund’s inception date does not apply to this Fund.
One economic topic that continues to dominate headlines is whether the Federal Reserve (the “Fed”) will be able to pull off a “soft landing” for the U.S. economy, raising interest rates just high enough to curb inflation, but not so high that they stunt economic growth and cause a recession. Historically, soft landings are exceedingly rare. Over the past 60 years, the Fed has only been able to orchestrate this phenomenon once. This occurred between February 1994 and February 1995 when the Fed doubled the Federal Funds target rate (upper bound), raising it from 3.0% to 6.0%. For comparative purposes, the Federal Funds target rate (upper bound) stood at 5.25% on June 30, 2023, a full 500 basis points above its most recent low of 0.25% on March 15, 2022. Inflation, as measured by the rate of change in the Consumer Price Index (“CPI”), appears to be declining. The CPI stood at 3.0% on June 30, 2023, substantially lower than its most recent peak of 9.1% on June 30, 2022. Despite the Fed’s tighter monetary policy, the U.S. economy continues to show resilience, with gross domestic product (“GDP”) growing in each of the past three quarters.
I am continually amazed by the efficiencies that technological advances can have on production. Take, for example, the recent interest in artificial intelligence (“AI”). The U.S. Census Bureau reported that construction spending by manufacturers in the U.S. has more than doubled in the past year, reaching an annual rate of nearly $190 billion in April 2023, according to Bloomberg. Manufacturing now accounts for close to 13% of all non-government construction, its highest share on record. A portion of the growth in U.S. manufacturing is due to the CHIPS and Science Act, which provided nearly $280 billion in funding to boost domestic research and manufacturing of semiconductors in the U.S. We have also seen the excitement regarding developments in AI drive the S&P 500® Index (the “Index”) higher this year. Year-to-date through June 30, 2023, the Index posted a total return of 16.89%. When the stock market increases by 20% or more from its most recent low, it is often referred to as a “bull market.” On June 8, 2023, the Index closed at 4,293.93, 20.04% above its most recent low of 3,577.03 (which occurred on October 12, 2022).
The U.S. economy has been resilient, posting positive changes to GDP even as monetary policy tightened significantly. That said, there are also economic indicators that point to the potential for weakness over the coming quarters. The Conference Board, a
non-profit business membership and research group organization, reported that its Leading Economic Index, which is composed of 10 economic indicators whose changes tend to precede changes in the overall economy, fell by 0.7% to a reading of 106.1 in June 2023, according to Reuters. The result represents the fifteenth consecutive monthly decline in the index, the longest streak of
month-over-month decreases since just before the financial crisis in 2007. From our perspective, even if the Fed can pull off a soft landing, it is likely to be a very bumpy ride.
Thank you for giving First Trust the opportunity to play a role in your financial future. We value our relationship with you and will report on the Funds again in six months.
Sincerely,
James A. Bowen
Chairman of the Board of Trustees
Chief Executive Officer of First Trust Advisors L.P.
First Trust Exchange-Traded Fund
Semi-Annual Report
June 30, 2023
Robert F. Carey, CFA
Senior Vice President and Chief Market Strategist
First Trust Advisors L.P.
Mr. Carey is responsible for the overall management of research and analysis of the First Trust product line. Mr. Carey has more than 30 years of experience as an Equity and Fixed-Income Analyst and is a recipient of the Chartered Financial Analyst (“CFA”) designation. He is a graduate of the University of Illinois at Champaign-Urbana with a B.S. in Physics. He is also a member of the Investment Analysts Society of Chicago and the CFA Institute. Mr. Carey has appeared as a guest on such programs as Bloomberg TV, CNBC, and WBBM Radio, and has been quoted by several publications, including The Wall Street Journal, The Wall Street Reporter, Bloomberg News Service and Registered Rep.
State of the Economy/Investing
As we head into the second half of 2023, a hot topic of discussion appears to be whether the Federal Reserve (the “Fed”) will resume interest rate hikes at their upcoming meeting on July 26, 2023. Central to this discussion is the pace of inflation. Inflation, as measured by the trailing 12-month rate of change in the Consumer Price Index, stood at 3.0% on June 30, 2023, a significant decline from its high of 9.1% where it stood on June 30, 2022 (the year prior), according to the U.S. Bureau of Labor Statistics. In what is known as a “soft landing,” the Fed intends to tighten monetary policy just enough to reduce inflation to 2.0%, but not so much that they cause a retraction in economic growth.
The latest growth forecast from the International Monetary Fund (“IMF”) released in July 2023 sees U.S. real gross domestic product (“GDP”) rising by 1.8% in 2023, up from its April 2023 estimate of 1.6%. The IMF notes that July’s upwardly revised real GDP reflects resilient consumer consumption in the first quarter of 2023, a trend they are quick to note is not likely to last. The IMF estimates that in 2024, U.S. real GDP could fall to just 1.0%. Overall, Advanced Economies are projected to register a 1.5% growth rate in 2023, before declining to 1.4% in 2024. Emerging Market and Developing Economies are projected to grow faster than Advanced Economies. The IMF estimates their growth rate to register 4.0% and 4.1% in 2023 and 2024, respectively.
U.S. Stocks and Bonds
The major U.S. stock indices delivered positive results over the past six months. The S&P 500®, S&P MidCap 400® and S&P SmallCap 600® Indices posted total returns of 16.89%, 8.84% and 6.03%, respectively, for the six-month period ended June 30, 2023. Seven of the eleven major sectors that comprise the S&P 500® Index were up on a total return basis. The top performer was the Information Technology sector, which was up 42.77%, while the worst showing came from the Utilities sector, which was down 5.69%.
Results were also positive in the U.S. bond market over the period. The top performing major debt group we track was long-term municipal bonds. The Bloomberg Municipal Bond:Long Bond (22+) Index posted a total return of 4.96% for the six-month period ended June 30, 2023. The worst-performing U.S. debt group that we track was intermediate U.S. Treasuries. The Bloomberg U.S. Treasury:Intermediate Index posted a total return of 1.10%. The yield on the benchmark 10-Year Treasury Note (“T-Note”) fell by just 4 basis points in the period to close at 3.84% on June 30, 2023, according to Bloomberg. For comparative purposes, the average yield on the 10-Year T-Note was 2.90% for the 10-year period ended June 30, 2023.
Foreign Stocks and Bonds
The broader foreign stock indices posted positive total returns over the past six months. Between December 30, 2022, and June 30, 2023, the MSCI World ex USA and MSCI Emerging Markets equity indices posted total returns of 11.29% (USD) and 4.89% (USD), respectively, according to Bloomberg. The major foreign bond indices were also up over the same period. The Bloomberg Global Aggregate Index of higher quality debt posted a total return of 1.43% (USD), while the Bloomberg EM Hard Currency Aggregate Index of emerging markets debt increased by 3.55% (USD), according to Bloomberg. The U.S. Dollar fell by just 0.59% over the past six months against a basket of major currencies, as measured by the U.S. Dollar Index.
Fund Performance Overview (Unaudited)
First Trust Dividend Strength ETF (FTDS)
The First Trust Dividend Strength ETF (the “Fund”) seeks investment results that correspond generally to the price and yield (before the Fund’s fees and expenses) of an index called The Dividend StrengthTM Index (the “Index”). The Index is owned, developed, maintained and sponsored by Nasdaq, Inc. (the “Index Provider”). The Fund will normally invest at least 90% of its net assets (including investment borrowings) in the securities that comprise the Index. The Index is designed to provide exposure to well-capitalized companies with a history of increasing their dividends. The term “well-capitalized” reflects companies that have strong balance sheets with durable cash flow and a record of profitability. The Index screens companies for strong balance sheets, a high degree of liquidity, the ability to increase dividends and a record of dividend growth. According to the Index Provider, to be included in the Index, a security’s issuer must have: (i) a long-term debt to market cap ratio of less than 40%; (ii) a return on equity of greater than 10%; (iii) a 5-year compounded dividend growth rate greater than 5%; and (iv) a dividend payout ratio of less than 50%. Securities within each of the 11 industries used by the Industry Classification Benchmark are ranked by dividend yield relative to their industry peers, with the highest indicated dividend yielding security receiving a rank of 1. The top 15 securities per industry are selected and combined for the final evaluation universe. For the final selection, each remaining security from the combined evaluation universe is reranked based on indicated dividend yield with a rank of 1 representing the highest indicated dividend yield. The top 50 securities are selected for inclusion in the final portfolio and are then equally-weighted. The Index is rebalanced and reconstituted quarterly based on the Index’s rules-based methodology, and the Fund will make corresponding changes to its portfolio shortly after the Index changes are made public. The Fund’s shares are listed for trading on The Nasdaq Stock Market LLC. The first day of secondary market trading in shares of the Fund was December 7, 2006.
|
| | | Average Annual Total Returns | |
| | | | | Inception
(12/5/06)
to 6/30/23 | | | Inception
(12/5/06)
to 6/30/23 |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Dow Jones U.S. Select Dividend Index | | | | | | | | |
| | | | | | | | |
| On April 29, 2022, the Fund’s underlying index changed from the Nasdaq AlphaDEX® Total US Market Index to The Dividend StrengthTM Index. Therefore, the Fund’s performance and total returns shown are not necessarily indicative of the performance the Fund, based on its current index, would have generated. |
| Because the Fund’s underlying Index has an inception date of March 7, 2022, performance data for the Index is not available for all periods shown in the table. |
| The S&P 500® Index will serve as the Fund’s new primary benchmark index. The Fund’s portfolio managers believe that the S&P 500® Index provides a more appropriate comparison to Fund returns. |
(See Notes to Fund Performance Overview on page 16.)
Nasdaq® and The Dividend StrengthTM Index are registered trademarks and service marks of Nasdaq, Inc. (together with its affiliates hereinafter referred to as the “Corporations”) and are licensed for use by First Trust. The Fund has not been passed on by the Corporations as to its legality or suitability. The Fund is not issued, endorsed, sold or promoted by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE FUND.
Fund Performance Overview (Unaudited) (Continued)
First Trust Dividend Strength ETF (FTDS) (Continued)
| % of Total
Long-Term
Investments |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| % of Total
Long-Term
Investments |
| |
| |
| |
| |
| |
| |
Cognizant Technology Solutions Corp., Class A | |
| |
| |
Huntington Ingalls Industries, Inc. | |
| |
| Performance figures assume reinvestment of all distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund’s past performance does not predict future performance. |
Frequency Distribution of Discounts and Premiums
Information showing the number of days the market price of the Fund’s shares was greater (at a premium) and less (at a discount) than the Fund’s net asset value for the most recently completed year, and the most recently completed calendar quarters since that year (or life of the Fund, if shorter) is available at https://www.ftportfolios.com/Retail/etf/home.aspx.
Fund Performance Overview (Unaudited) (Continued)
First Trust Dow 30 Equal Weight ETF (EDOW)
The First Trust Dow 30 Equal Weight ETF (the “Fund”) seeks investment results that correspond generally to the price and yield (before the Fund’s fees and expenses) of an index called the Dow Jones Industrial Average® Equal Weight Index (the “Index”). The Index is developed, maintained and sponsored by S&P Dow Jones Indices LLC (the “Index Provider”). The Fund will normally invest at least 90% of its net assets (including investment borrowings) in the securities that comprise the Index. The Index is an equal weight version of the Dow Jones Industrial AverageTM (the “DJIA”). The DJIA is composed of 30 securities issued by bluechip U.S. companies covering all industries, with the exception of transportation and utilities. According to the Index Provider, inclusion in the DJIA is not governed by quantitative rules but rather is based on the following criteria: (i) the company is not a utility or in the transportation business; (ii) the company has a premier reputation in its field; (iii) the company has a history of successful growth; (iv) there is wide interest in the company among individual and institutional investors; and (v) the company should be incorporated and headquartered in the U.S. According to the Index Provider, whenever one component is changed, the others are reviewed. For the sake of historical continuity, composition changes are rarely made. In the event that there is a change in the components of the DJIA, the component removed from the DJIA will simultaneously be removed from the Index, and the component that replaces the removed component will be added to the Index at the same weight as the component that was removed. The Index is rebalanced quarterly and reconstituted as needed and the Fund will make corresponding changes to its portfolio shortly after the Index changes are made public. The Fund’s shares are listed for trading on the NYSE Arca, Inc. The first day of secondary market trading in shares of the Fund was August 9, 2017.
|
| | | Average Annual Total Returns | |
| | | | Inception
(8/8/17)
to 6/30/23 | | Inception
(8/8/17)
to 6/30/23 |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
Dow Jones Industrial Average® Equal Weight Index | | | | | | |
Dow Jones Industrial AverageTM | | | | | | |
| | | | | | |
(See Notes to Fund Performance Overview on page 16.)
| % of Total
Long-Term
Investments |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| % of Total
Long-Term
Investments |
| |
| |
| |
Verizon Communications, Inc. | |
Honeywell International, Inc. | |
| |
| |
| |
| |
| |
| |
Dow Jones Industrial Average® Equal Weight Index (“Index”) is a product of S&P Dow Jones Indices LLC or its affiliates (“SPDJI”) and has been licensed for use by First Trust. S&P® is a registered trademark of Standard & Poor’s Financial Services LLC (“S&P”); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”); and these trademarks have been licensed for use by SPDJI and sublicensed for certain purposes by First Trust. The Fund is not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, or their respective affiliates and none of such parties make any representation regarding the advisability of investing in such product nor do they have any liability for any errors, omissions, or interruptions of the Index.
Fund Performance Overview (Unaudited) (Continued)
First Trust Dow 30 Equal Weight ETF (EDOW) (Continued)
| Performance figures assume reinvestment of all distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund’s past performance does not predict future performance. |
Frequency Distribution of Discounts and Premiums
Information showing the number of days the market price of the Fund’s shares was greater (at a premium) and less (at a discount) than the Fund’s net asset value for the most recently completed year, and the most recently completed calendar quarters since that year (or life of the Fund, if shorter) is available at https://www.ftportfolios.com/Retail/etf/home.aspx.
Fund Performance Overview (Unaudited) (Continued)
First Trust Lunt U.S. Factor Rotation ETF (FCTR)
The First Trust Lunt U.S. Factor Rotation ETF (the “Fund”) seeks investment results that correspond generally to the price and yield (before the Fund’s fees and expenses) of an equity index called the Lunt Capital Large Cap Factor Rotation Index (the “Index”). The Fund will normally invest at least 90% of its net assets (including investment borrowings) in the securities that comprise the Index. The Index is owned and was developed by Lunt Capital Management, Inc. (the “Index Provider”) and is calculated and maintained by Nasdaq, Inc. The Index is designed to track the performance of U.S. securities exhibiting desirable factor exposure. According to the Index Provider, the Index utilizes the Index Provider’s risk-adjusted relative strength methodology to allocate exposure to securities exhibiting either high or low levels of the characteristics associated with one of four primary investing factors:(i) momentum, (ii) value, (iii) quality and (iv) volatility. The Index is rebalanced and reconstituted periodically and the Fund will make corresponding changes to its portfolio after the Index changes are made public. The Fund’s shares are listed for trading on CBOE BZX Exchange, Inc. The first day of secondary market trading in shares of the Fund was July 26, 2018.
|
| | | Average Annual Total Returns | |
| | | Inception
(7/25/18)
to 6/30/23 | Inception
(7/25/18)
to 6/30/23 |
| | | | |
| | | | |
| | | | |
| | | | |
Lunt Capital Large Cap Factor Rotation Index | | | | |
Nasdaq US 500 Large CapTM Index | | | | |
| | | | |
(See Notes to Fund Performance Overview on page 16.)
| % of Total
Long-Term
Investments |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| % of Total
Long-Term
Investments |
Rivian Automotive, Inc., Class A | |
| |
Apollo Global Management, Inc. | |
| |
Fidelity National Information Services, Inc. | |
Royal Caribbean Cruises Ltd. | |
| |
| |
| |
| |
| |
Lunt Capital Management, Inc. (“Lunt”) and Lunt Capital Large Cap Factor Rotation Index (“Lunt Index”) are trademarks of Lunt and have been licensed for use for certain purposes by First Trust. The First Trust Lunt U.S. Factor Rotation ETF is based on the Lunt Index and is not sponsored, endorsed, sold or promoted by Lunt, and Lunt makes no representation regarding the advisability of trading in such fund. Lunt has contracted with Nasdaq, Inc. to calculate and maintain the Lunt Index. The Fund is not sponsored, endorsed, sold or promoted by Nasdaq, Inc. or its affiliates (Nasdaq, with its affiliates, hereinafter referred to as the “Corporations”). The Corporations have not passed on the legality or suitability of, or the accuracy or adequacy of descriptions and disclosures relating to, the Fund. The Corporations make no representation or warranty, express or implied to the owners of the Fund or any member of the public regarding the advisability of investing in securities generally or in the Fund particularly, or the ability of the Lunt Index to track general stock performance.
Fund Performance Overview (Unaudited) (Continued)
First Trust Lunt U.S. Factor Rotation ETF (FCTR) (Continued)
| Performance figures assume reinvestment of all distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund’s past performance does not predict future performance. |
Frequency Distribution of Discounts and Premiums
Information showing the number of days the market price of the Fund’s shares was greater (at a premium) and less (at a discount) than the Fund’s net asset value for the most recently completed year, and the most recently completed calendar quarters since that year (or life of the Fund, if shorter) is available at https://www.ftportfolios.com/Retail/etf/home.aspx.
Fund Performance Overview (Unaudited) (Continued)
First Trust Growth Strength ETF (FTGS)
The First Trust Growth Strength ETF (the “Fund”) seeks investment results that correspond generally to the price and yield (before the Fund’s fees and expenses) of an equity index called The Growth StrengthTM Index (the “Index”). Under normal market conditions, the Fund will invest at least 80% of its net assets (plus any borrowings for investment purposes) in the securities that comprise the Index. The Index is developed, maintained and sponsored by Nasdaq, Inc. (the “Index Provider”). According to the Index Provider, the Index seeks to provide exposure to (without limitation) a mix of domestic common stocks and real estate investment trusts (“REITs”) with filters for liquidity, return on equity, long-term debt, revenue and cash flow growth. Companies that do not meet requirements for minimum metrics on those criteria are filtered out of, or excluded from, the Index, according to the Index Provider. The Index is rebalanced and reconstituted quarterly and the Fund will make corresponding changes to its portfolio shortly after the Index changes are made public. The Fund’s shares are listed for trading on The Nasdaq Stock Market LLC. The first day of secondary market trading in shares of the Fund was October 26, 2022.
|
| | |
| | Inception
(10/25/22)
to 6/30/23 |
| | |
| | |
| | |
| | |
The Growth StrengthTM Index | | |
| | |
(See Notes to Fund Performance Overview on page 16.)
| % of Total
Long-Term
Investments |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| % of Total
Long-Term
Investments |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
Nasdaq® and The Growth StrengthTM Index are registered trademarks and service marks of Nasdaq, Inc. (together with its affiliates hereinafter referred to as the “Corporations”) and are licensed for use by First Trust. The Fund has not been passed on by the Corporations as to its legality or suitability. The Fund is not issued, endorsed, sold or promoted by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE FUND.
Fund Performance Overview (Unaudited) (Continued)
First Trust Growth Strength ETF (FTGS) (Continued)
| Performance figures assume reinvestment of all distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund’s past performance does not predict future performance. |
Frequency Distribution of Discounts and Premiums
Information showing the number of days the market price of the Fund’s shares was greater (at a premium) and less (at a discount) than the Fund’s net asset value for the most recently completed year, and the most recently completed calendar quarters since that year (or life of the Fund, if shorter) is available at https://www.ftportfolios.com/Retail/etf/home.aspx.
Fund Performance Overview (Unaudited) (Continued)
First Trust Indxx Aerospace & Defense ETF (MISL)
The First Trust Indxx Aerospace & Defense ETF (the “Fund”) seeks investment results that correspond generally to the price and yield (before the Fund’s fees and expenses) of an equity index called the Indxx US Aerospace & Defense Index (the “Index”). Under normal market conditions, the Fund will invest at least 80% of its net assets (plus any borrowings for investment purposes) in the securities that comprise the Index. The Fund will generally employ a full replication strategy, meaning that it will normally invest in all of the securities comprising the Index in proportion to their weightings in the Index. The Index is developed, maintained and sponsored by Indxx, Inc. (the “Index Provider”).
According to the Index Provider, the Index’s starting universe consists of U.S. companies engaged in business activities associated with the following aerospace and defense sub-themes, as identified by the Index Provider: (1) Hypersonic:Companies involved in developing Hypersonic warfare weapons technology for defense related applications; (2) Directed Energy:Companies involved in developing weapons like high power microwaves, laser technology products and electromagnetic weapons for defense related applications; (3) Space Technologies:Companies involved in developing rockets, satellites and launch vehicles; (4) Unmanned Aerial Vehicle/Advanced Air Mobility:Companies that develop military aircrafts guided by remote control or programmed autonomously and companies involved in developing an air transportation system that moves cargo and people for defense related applications; or (5) Autonomous, Cybersecurity and C5ISR Systems:Companies involved in providing autonomous, cybersecurity, and C5ISR solutions for improving national security, enhancing public safety and designing better combat results. These sub-themes also include the commercial (non-government/defense) application of such activities. According to the Index Provider, the starting universe also includes Traditional Aerospace & Defense companies that manufacture construction materials, electronics, and telecommunications equipment used in the manufacture of aircraft for both defense and commercial aviation. From the starting universe, only companies that derive at least 50% of revenues from aerospace and defense activities in one or more of the sub-themes identified above will be eligible for inclusion in the Index, according to the Index Provider. These companies have their principal business strategies and/or growth prospects inextricably linked to aerospace and defense. According to the Index Provider, from the list of eligible companies, a total of 50 companies ranked from highest to lowest market capitalization will be selected. In the event there are less than 50 companies that meet the 50% revenue test, all eligible companies will be selected (i.e., there may be fewer than 50 companies in the Index). The selected securities are assigned weights based on their market capitalization. The Index is rebalanced quarterly and reconstituted semi-annually, and the Fund will make corresponding changes to its portfolio shortly after the Index changes are made public. The Fund’s shares are listed for trading on the NYSE Arca, Inc. The first day of secondary market trading in shares of the Fund was October 26, 2022.
|
| | |
| | Inception
(10/25/22)
to 6/30/23 |
| | |
| | |
| | |
| | |
Indxx US Aerospace & Defense Index | | |
| | |
S&P Composite 1500® Aerospace & Defense Index | | |
(See Notes to Fund Performance Overview on page 16.)
Indxx and Indxx US Aerospace & Defense Index (“Index”) are trademarks of Indxx, Inc. (“Indxx”) and have been licensed for use for certain purposes by First Trust. The Fund is not sponsored, endorsed, sold or promoted by Indxx and Indxx makes no representation regarding the advisability of trading in such product. The Index is determined, composed and calculated by Indxx without regard to First Trust or the Fund.
Fund Performance Overview (Unaudited) (Continued)
First Trust Indxx Aerospace & Defense ETF (MISL) (Continued)
| % of Total
Long-Term
Investments |
| |
| |
| |
| % of Total
Long-Term
Investments |
| |
| |
| |
| |
| |
| |
| |
| |
| |
L3Harris Technologies, Inc. | |
| |
| Performance figures assume reinvestment of all distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund’s past performance does not predict future performance. |
Frequency Distribution of Discounts and Premiums
Information showing the number of days the market price of the Fund’s shares was greater (at a premium) and less (at a discount) than the Fund’s net asset value for the most recently completed year, and the most recently completed calendar quarters since that year (or life of the Fund, if shorter) is available at https://www.ftportfolios.com/Retail/etf/home.aspx.
Fund Performance Overview (Unaudited) (Continued)
First Trust Bloomberg Inflation Sensitive Equity ETF (FTIF)
The First Trust Bloomberg Inflation Sensitive Equity ETF (the “Fund”) seeks investment results that correspond generally to the price and yield, before fees and expenses, of an equity index called the Bloomberg Inflation Sensitive Equity Index (the “Index”). Under normal market conditions, the Fund will invest at least 80% of its net assets (plus any borrowings for investment purposes) in the common stocks that comprise the Index. The Fund, using an indexing investment approach, attempts to replicate, before fees and expenses, the total return performance of the Index, which includes dividends paid by the common stocks in the Index. The Fund will generally employ a full replication strategy, meaning that it will normally invest in all of the securities comprising the Index in proportion to their weightings in the Index. The Index is developed, maintained and sponsored by Bloomberg Index Services Limited (the “Index Provider”). The Fund’s shares are listed for trading on the NYSE Arca, Inc. The first day of secondary market trading in shares of the Fund was March 14, 2023.
|
| |
| Inception
(3/13/23)
to 6/30/23 |
| |
| |
| |
| |
Bloomberg Inflation Sensitive Equity Index | |
| |
(See Notes to Fund Performance Overview on page 16.)
| % of Total
Long-Term
Investments |
| |
| |
| |
| |
| |
| % of Total
Long-Term
Investments |
| |
Reliance Steel & Aluminum Co. | |
| |
| |
| |
| |
| |
| |
| |
LyondellBasell Industries N.V., Class A | |
| |
“Bloomberg®” and Bloomberg Inflation Sensitive Equity Index licensed herein (the “Indices”) are service marks of Bloomberg Finance L.P. and its affiliates, including Bloomberg Index Services Limited (“BISL”), the administrator of the Indices (collectively, “Bloomberg”) and have been licensed for use for certain purposes by First Trust Advisors L.P. (the “Licensee”). Bloomberg is not affiliated with the Licensee, and Bloomberg does not approve, endorse, review, or recommend the financial products referenced herein (the “Financial Products”). Bloomberg does not guarantee the timeliness, accurateness, or completeness of any data or information relating to the Indices or the Financial Products.
Fund Performance Overview (Unaudited) (Continued)
First Trust Bloomberg Inflation Sensitive Equity ETF (FTIF) (Continued)
| Performance figures assume reinvestment of all distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund’s past performance does not predict future performance. |
Frequency Distribution of Discounts and Premiums
Information showing the number of days the market price of the Fund’s shares was greater (at a premium) and less (at a discount) than the Fund’s net asset value for the most recently completed year, and the most recently completed calendar quarters since that year (or life of the Fund, if shorter) is available at https://www.ftportfolios.com/Retail/etf/home.aspx.
Notes to Fund Performance Overview (Unaudited)
Total returns for the periods since inception are calculated from the inception date of each Fund. “Average Annual Total Returns” represent the average annual change in value of an investment over the periods indicated. “Cumulative Total Returns” represent the total change in value of an investment over the periods indicated. The total returns would have been lower if certain fees had not been waived and expenses reimbursed by the Advisor.
Each Fund’s per share net asset value (“NAV”) is the value of one share of the Fund and is computed by dividing the value of all assets of the Fund (including accrued interest and dividends), less all liabilities (including accrued expenses and dividends declared but unpaid), by the total number of outstanding shares. The price used to calculate market return (“Market Price”) is determined by using the midpoint of the national best bid and offer price (“NBBO”) as of the time that the Fund’s NAV is calculated. Under SEC rules, the NBBO consists of the highest displayed buy and lowest sell prices among the various exchanges trading the Fund at the time the Fund’s NAV is calculated. Prior to January 1, 2019, the price used was the midpoint between the highest bid and the lowest offer on the stock exchange on which shares of the Fund were listed for trading as of the time that the Fund’s NAV was calculated. Since shares of each Fund did not trade in the secondary market until after the Fund’s inception, for the period from inception to the first day of secondary market trading in shares of the Fund, the NAV of each Fund is used as a proxy for the secondary market trading price to calculate market returns. NAV and market returns assume that all distributions have been reinvested in each Fund at NAV and Market Price, respectively.
An index is a statistical composite that tracks a specified financial market or sector. Unlike each Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by each Fund. These expenses negatively impact the performance of each Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The total returns presented reflect the reinvestment of dividends on securities in the indices. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. The investment return and principal value of shares of each Fund will vary with changes in market conditions. Shares of each Fund may be worth more or less than their original cost when they are redeemed or sold in the market. Each Fund’s past performance is no guarantee of future performance.
First Trust Exchange-Traded Fund
Understanding Your Fund Expenses
June 30, 2023 (Unaudited)
As a shareholder of First Trust Dividend Strength ETF, First Trust Dow 30 Equal Weight ETF, First Trust Lunt U.S. Factor Rotation ETF, First Trust Growth Strength ETF, First Trust Indxx Aerospace & Defense ETF or First Trust Bloomberg Inflation Sensitive Equity ETF (each a “Fund” and collectively, the “Funds”), you incur two types of costs: (1) transaction costs; and (2) ongoing costs, including management fees, distribution and/or service (12b-1) fees, if any, and other Fund expenses. This Example is intended to help you understand your ongoing costs of investing in the Funds and to compare these costs with the ongoing costs of investing in other funds.
The Example is based on an investment of $1,000 invested at the beginning of the period (or since inception) and held through the six-month (or shorter) period ended June 30, 2023.
Actual Expenses
The first line in the following table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During the Period” to estimate the expenses you paid on your account during this six-month (or shorter) period.
Hypothetical Example for Comparison Purposes
The second line in the following table provides information about hypothetical account values and hypothetical expenses based on each Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not each Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Funds and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs such as brokerage commissions. Therefore, the second line in the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
| Beginning
Account Value
January 1, 2023 | Ending
Account Value
June 30, 2023 | Annualized
Expense Ratio
Based on the
Six-Month
Period | Expenses Paid
During the
Six-Month
Period (a) |
First Trust Dividend Strength ETF (FTDS) |
| | | | |
Hypothetical (5% return before expenses) | | | | |
First Trust Dow 30 Equal Weight ETF (EDOW) |
| | | | |
Hypothetical (5% return before expenses) | | | | |
First Trust Lunt U.S. Factor Rotation ETF (FCTR) |
| | | | |
Hypothetical (5% return before expenses) | | | | |
First Trust Growth Strength ETF (FTGS) |
| | | | |
Hypothetical (5% return before expenses) | | | | |
First Trust Indxx Aerospace & Defense ETF (MISL) |
| | | | |
Hypothetical (5% return before expenses) | | | | |
First Trust Exchange-Traded Fund
Understanding Your Fund Expenses (Continued)
June 30, 2023 (Unaudited)
| Beginning
Account Value
March 13, 2023 (c) | Ending
Account Value
June 30, 2023 | Annualized
Expense Ratio
Based on the
Number of Days
in the Period | Expenses Paid
During the Period
March 13, 2023 (c)
to
June 30, 2023 (d) |
First Trust Bloomberg Inflation Sensitive Equity ETF (FTIF) |
| | | | |
Hypothetical (5% return before expenses) | | | | |
| Expenses are equal to the annualized expense ratio as indicated in the table multiplied by the average account value over the period (January 1, 2023 through June 30, 2023), multiplied by 181/365 (to reflect the six-month period). |
| These expense ratios reflect an expense cap. See Note3 in the Notes to Financial Statements. |
| |
| Actual expenses are equal to the annualized expense ratio as indicated in the table multiplied by the average account value over the period (March 13, 2023 through June 30, 2023), multiplied by 110/365. Hypothetical expenses are assumed for the most recent six-month period. |
First Trust Dividend Strength ETF (FTDS)
Portfolio of Investments
June 30, 2023 (Unaudited)
| | |
|
| Aerospace & Defense — 4.1% | |
| | |
| Huntington Ingalls Industries, Inc. | |
| | |
| Air Freight & Logistics — | |
| C.H. Robinson Worldwide, Inc. | |
| United Parcel Service, Inc., Class B | |
| | |
| | |
| Commerce Bancshares, Inc. | |
| Cullen/Frost Bankers, Inc. | |
| | |
| | |
| | |
| | |
| | |
| | |
| Charles Schwab (The) Corp. | |
| | |
| | |
| | |
| | |
| CF Industries Holdings, Inc. | |
| | |
| | |
| | |
| | |
| | |
| Packaging Corp. of America | |
| | |
| | |
| | |
| Archer-Daniels-Midland Co. | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| | |
| | |
| | |
| | |
| Hotels, Restaurants & Leisure | |
| | |
| | |
| First Industrial Realty Trust, Inc. | |
| | |
| | |
| Fidelity National Financial, Inc. | |
| Hartford Financial Services Group (The), Inc. | |
| Travelers (The) Cos., Inc. | |
| | |
| | |
| Cognizant Technology Solutions Corp., Class A | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Interpublic Group of (The) Cos., Inc. | |
| Oil, Gas & Consumable Fuels | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Professional Services — 2.0% | |
| Robert Half International, Inc. | |
| Semiconductors & Semiconductor Equipment | |
| | |
| | |
| | |
See Notes to Financial Statements
First Trust Dividend Strength ETF (FTDS)
Portfolio of Investments (Continued)
June 30, 2023 (Unaudited)
| | |
COMMON STOCKS (Continued) |
| | |
| | |
| | |
| | |
| Technology Hardware, Storage | |
| | |
| | |
| | |
MONEY MARKET FUNDS — 0.0% |
| Morgan Stanley Institutional Liquidity Funds - Treasury Portfolio - Institutional Class - 4.94% (a) | |
| | |
|
|
| Total Investments — 100.0% | |
| | |
| Net Other Assets and Liabilities — (0.0)% | |
| | |
| Rate shown reflects yield as of June 30, 2023. |
Valuation InputsA summary of the inputs used to value the Fund’s investments as of June 30, 2023 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements):
| | | Level 2
Significant
Observable
Inputs | Level 3
Significant
Unobservable
Inputs |
| | | | |
| | | | |
| | | | |
| See Portfolio of Investments for industry breakout. |
See Notes to Financial Statements
First Trust Dow 30 Equal Weight ETF (EDOW)
Portfolio of Investments
June 30, 2023 (Unaudited)
| | |
|
| Aerospace & Defense — 3.2% | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Goldman Sachs Group (The), Inc. | |
| | |
| | |
| | |
| | |
| | |
| | |
| Consumer Staples Distribution | |
| Walgreens Boots Alliance, Inc. | |
| | |
| | |
| Diversified Telecommunication | |
| Verizon Communications, Inc. | |
| | |
| Walt Disney (The) Co. (a) | |
| Financial Services — 3.5% | |
| | |
| | |
| | |
| Hotels, Restaurants & Leisure | |
| | |
| Household Products — 3.4% | |
| Procter & Gamble (The) Co. | |
| Industrial Conglomerates — | |
| | |
| Honeywell International, Inc. | |
| | |
| | |
| Travelers (The) Cos., Inc. | |
| | |
| International Business Machines Corp. | |
| | |
|
| | |
| | |
| Oil, Gas & Consumable Fuels | |
| | |
| | |
| | |
| | |
| | |
| Semiconductors & Semiconductor Equipment | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Technology Hardware, Storage | |
| | |
| Textiles, Apparel & Luxury | |
| | |
|
|
| Total Investments — 99.9% | |
| | |
| Net Other Assets and Liabilities — 0.1% | |
| | |
| Non-income producing security. |
Valuation InputsA summary of the inputs used to value the Fund’s investments as of June 30, 2023 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements):
| | | Level 2
Significant
Observable
Inputs | Level 3
Significant
Unobservable
Inputs |
| | | | |
| See Portfolio of Investments for industry breakout. |
See Notes to Financial Statements
First Trust Lunt U.S. Factor Rotation ETF (FCTR)
Portfolio of Investments
June 30, 2023 (Unaudited)
| | |
|
| Aerospace & Defense — 2.6% | |
| Axon Enterprise, Inc. (a) | |
| | |
| | |
| | |
| | |
| | |
| | |
| Rivian Automotive, Inc., Class A (a) | |
| | |
| | |
| | |
| Citizens Financial Group, Inc. | |
| | |
| Huntington Bancshares, Inc. | |
| | |
| | |
| PNC Financial Services Group (The), Inc. | |
| | |
| | |
| | |
| | |
| | |
| | |
| Alnylam Pharmaceuticals, Inc. (a) | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Ares Management Corp., Class A | |
| | |
| Carlyle Group (The), Inc. | |
| Charles Schwab (The) Corp. | |
| | |
| LPL Financial Holdings, Inc. | |
| | |
| | |
| | |
| | |
| | |
| CF Industries Holdings, Inc. | |
| | |
|
| | |
| International Flavors & Fragrances, Inc. | |
| | |
| | |
| | |
| | |
| Energy Equipment & Services | |
| | |
| | |
| | |
| | |
| | |
| Live Nation Entertainment, Inc. (a) | |
| ROBLOX Corp., Class A (a) | |
| Take-Two Interactive Software, Inc. (a) | |
| Warner Bros Discovery, Inc. (a) | |
| | |
| Financial Services — 7.1% | |
| Apollo Global Management, Inc. | |
| | |
| Fidelity National Information Services, Inc. | |
| Jack Henry & Associates, Inc. | |
| Mastercard, Inc., Class A | |
| | |
| | |
| | |
| | |
| Tyson Foods, Inc., Class A | |
| | |
| | |
| Uber Technologies, Inc. (a) | |
| | |
| Baxter International, Inc. | |
| | |
| IDEXX Laboratories, Inc. (a) | |
| | |
| Intuitive Surgical, Inc. (a) | |
| | |
| | |
| | |
| | |
| | |
See Notes to Financial Statements
First Trust Lunt U.S. Factor Rotation ETF (FCTR)
Portfolio of Investments (Continued)
June 30, 2023 (Unaudited)
| | |
COMMON STOCKS (Continued) |
| | |
| Healthpeak Properties, Inc. | |
| | |
| | |
| | |
| Veeva Systems, Inc., Class A (a) | |
| Hotels, Restaurants & Leisure | |
| | |
| DoorDash, Inc., Class A (a) | |
| Las Vegas Sands Corp. (a) | |
| | |
| MGM Resorts International | |
| Royal Caribbean Cruises Ltd. (a) | |
| | |
| | |
| Industrial Conglomerates — | |
| | |
| | |
| | |
| | |
| | |
| American International Group, Inc. | |
| Cincinnati Financial Corp. | |
| | |
| | |
| Prudential Financial, Inc. | |
| | |
| Interactive Media & Services | |
| | |
| Pinterest, Inc., Class A (a) | |
| | |
| | |
| | |
| Cloudflare, Inc., Class A (a) | |
| | |
| Snowflake, Inc., Class A (a) | |
| | |
| | |
| Life Sciences Tools & Services | |
| | |
| Mettler-Toledo International, Inc. (a) | |
| | |
| | |
|
| | |
| Stanley Black & Decker, Inc. | |
| | |
| Paramount Global, Class B | |
| Trade Desk (The), Inc., Class A (a) | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Alexandria Real Estate Equities, Inc. | |
| Oil, Gas & Consumable Fuels | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Pioneer Natural Resources Co. | |
| | |
| | |
| Passenger Airlines — 0.6% | |
| | |
| | |
| | |
| | |
| | |
| Professional Services — 0.8% | |
| | |
| | |
| | |
| | |
| AvalonBay Communities, Inc. | |
| | |
| Equity LifeStyle Properties, Inc. | |
| | |
| Essex Property Trust, Inc. | |
| | |
See Notes to Financial Statements
First Trust Lunt U.S. Factor Rotation ETF (FCTR)
Portfolio of Investments (Continued)
June 30, 2023 (Unaudited)
| | |
COMMON STOCKS (Continued) |
| Semiconductors & Semiconductor Equipment | |
| Advanced Micro Devices, Inc. (a) | |
| | |
| | |
| | |
| | |
| Monolithic Power Systems, Inc. | |
| | |
| | |
| | |
| | |
| Aspen Technology, Inc. (a) | |
| | |
| | |
| Cadence Design Systems, Inc. (a) | |
| Crowdstrike Holdings, Inc., Class A (a) | |
| Datadog, Inc., Class A (a) | |
| | |
| | |
| | |
| | |
| | |
| Palo Alto Networks, Inc. (a) | |
| | |
| | |
| | |
| | |
| | |
| Workday, Inc., Class A (a) | |
| Zoom Video Communications, Inc., Class A (a) | |
| | |
| | |
| | |
| | |
| | |
| Digital Realty Trust, Inc. | |
| | |
| | |
| | |
| Burlington Stores, Inc. (a) | |
| Technology Hardware, Storage | |
| Western Digital Corp. (a) | |
| | |
|
| | |
| | |
| | |
| | |
MONEY MARKET FUNDS — 0.1% |
| Morgan Stanley Institutional Liquidity Funds - Treasury Portfolio - Institutional Class - 4.94% (b) | |
| | |
|
|
| Total Investments — 100.0% | |
| | |
| Net Other Assets and Liabilities — 0.0% | |
| | |
| Non-income producing security. |
| Rate shown reflects yield as of June 30, 2023. |
Valuation InputsA summary of the inputs used to value the Fund’s investments as of June 30, 2023 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements):
| | | Level 2
Significant
Observable
Inputs | Level 3
Significant
Unobservable
Inputs |
| | | | |
| | | | |
| | | | |
| See Portfolio of Investments for industry breakout. |
See Notes to Financial Statements
First Trust Growth Strength ETF (FTGS)
Portfolio of Investments
June 30, 2023 (Unaudited)
| | |
|
| Air Freight & Logistics — | |
| Expeditors International of Washington, Inc. | |
| United Parcel Service, Inc., Class B | |
| | |
| | |
| | |
| | |
| | |
| Regeneron Pharmaceuticals, Inc. (a) | |
| Vertex Pharmaceuticals, Inc. (a) | |
| | |
| | |
| CF Industries Holdings, Inc. | |
| | |
| | |
| Electronic Equipment, Instruments & Components | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Molina Healthcare, Inc. (a) | |
| Household Durables — 6.3% | |
| | |
| | |
| | |
| | |
| | |
| | |
| Interactive Media & Services | |
| Alphabet, Inc., Class A (a) | |
| | |
| | |
| | |
|
| Life Sciences Tools & Services | |
| Agilent Technologies, Inc. | |
| | |
| Thermo Fisher Scientific, Inc. | |
| | |
| | |
| | |
| | |
| | |
| Reliance Steel & Aluminum Co. | |
| | |
| | |
| Oil, Gas & Consumable Fuels | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Semiconductors & Semiconductor Equipment | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| ON Semiconductor Corp. (a) | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Technology Hardware, Storage | |
| | |
See Notes to Financial Statements
First Trust Growth Strength ETF (FTGS)
Portfolio of Investments (Continued)
June 30, 2023 (Unaudited)
| | |
COMMON STOCKS (Continued) |
| Textiles, Apparel & Luxury | |
| Deckers Outdoor Corp. (a) | |
|
|
| Total Investments — 100.0% | |
| | |
| Net Other Assets and Liabilities — 0.0% | |
| | |
| Non-income producing security. |
Valuation InputsA summary of the inputs used to value the Fund’s investments as of June 30, 2023 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements):
| | | Level 2
Significant
Observable
Inputs | Level 3
Significant
Unobservable
Inputs |
| | | | |
| See Portfolio of Investments for industry breakout. |
See Notes to Financial Statements
First Trust Indxx Aerospace & Defense ETF (MISL)
Portfolio of Investments
June 30, 2023 (Unaudited)
| | |
|
| Aerospace & Defense — 86.1% | |
| | |
| Aerojet Rocketdyne Holdings, Inc. (a) | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Huntington Ingalls Industries, Inc. | |
| | |
| Kratos Defense & Security Solutions, Inc. (a) | |
| L3Harris Technologies, Inc. | |
| | |
| | |
| Mercury Systems, Inc. (a) | |
| | |
| | |
| | |
| | |
| | |
| Spirit AeroSystems Holdings, Inc., Class A | |
| | |
| | |
| | |
| Virgin Galactic Holdings, Inc. (a) | |
| | |
| | |
| Diversified Telecommunication | |
| AST SpaceMobile, Inc. (a) | |
| Professional Services — 13.4% | |
| CACI International, Inc., Class A (a) | |
| | |
| | |
|
| Professional Services (Continued) | |
| | |
| Science Applications International Corp. | |
| | |
|
|
| Total Investments — 99.9% | |
| | |
| Net Other Assets and Liabilities — 0.1% | |
| | |
| Non-income producing security. |
Valuation InputsA summary of the inputs used to value the Fund’s investments as of June 30, 2023 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements):
| | | Level 2
Significant
Observable
Inputs | Level 3
Significant
Unobservable
Inputs |
| | | | |
| See Portfolio of Investments for industry breakout. |
See Notes to Financial Statements
First Trust Bloomberg Inflation Sensitive Equity ETF (FTIF)
Portfolio of Investments
June 30, 2023 (Unaudited)
| | |
|
| Aerospace & Defense — 7.4% | |
| | |
| L3Harris Technologies, Inc. | |
| | |
| | |
| | |
| | |
| | |
| | |
| CF Industries Holdings, Inc. | |
| | |
| LyondellBasell Industries N.V., Class A | |
| | |
| | |
| | |
| | |
| Packaging Corp. of America | |
| | |
| | |
| | |
| | |
| | |
| | |
| Healthcare Realty Trust, Inc. | |
| Hotel & Resort REITs — 2.1% | |
| Host Hotels & Resorts, Inc. | |
| | |
| | |
| Westinghouse Air Brake Technologies Corp. | |
| | |
| | |
| | |
| Cleveland-Cliffs, Inc. (a) | |
| | |
| | |
| | |
| | |
| Reliance Steel & Aluminum Co. | |
| | |
| United States Steel Corp. | |
| | |
| Oil, Gas & Consumable Fuels | |
| Antero Resources Corp. (a) | |
| | |
| | |
|
| Oil, Gas & Consumable Fuels (Continued) | |
| | |
| | |
| | |
| | |
| | |
| Magnolia Oil & Gas Corp., Class A | |
| | |
| | |
| | |
| Occidental Petroleum Corp. | |
| | |
| PBF Energy, Inc., Class A | |
| | |
| | |
| | |
| | |
| | |
| Essex Property Trust, Inc. | |
| | |
| | |
| Simon Property Group, Inc. | |
| | |
| | |
| Gaming and Leisure Properties, Inc. | |
| Lamar Advertising Co., Class A | |
| | |
| | |
|
|
| Total Investments — 99.9% | |
| | |
| Net Other Assets and Liabilities — 0.1% | |
| | |
| Non-income producing security. |
Valuation InputsA summary of the inputs used to value the Fund’s investments as of June 30, 2023 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements):
| | | Level 2
Significant
Observable
Inputs | Level 3
Significant
Unobservable
Inputs |
| | | | |
| See Portfolio of Investments for industry breakout. |
See Notes to Financial Statements
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First Trust Exchange-Traded Fund
Statements of Assets and Liabilities
June 30, 2023 (Unaudited)
| First Trust Dividend Strength ETF
(FTDS) | First Trust Dow 30 Equal Weight ETF
(EDOW) | First Trust Lunt U.S. Factor Rotation ETF
(FCTR) |
| | | |
| | | |
| | | |
| | | |
| | | |
Investment securities sold | | | |
| | | |
| | | |
| | | |
|
| | | |
| | | |
| | | |
Shareholder reporting fees | | | |
| | | |
| | | |
Investment securities purchased | | | |
| | | |
| | | |
| | | |
| | | |
|
| | | |
| | | |
| | | |
Accumulated distributable earnings (loss) | | | |
| | | |
NET ASSET VALUE, per share | | | |
Number of shares outstanding (unlimited number of shares authorized, par value $0.01 per share) | | | |
| | | |
See Notes to Financial Statements
First Trust Growth Strength ETF
(FTGS) | First Trust Indxx Aerospace & Defense ETF
(MISL) | First Trust Bloomberg Inflation Sensitive Equity ETF
(FTIF) |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
See Notes to Financial Statements
First Trust Exchange-Traded Fund
Statements of Operations
For the Period Ended June 30, 2023 (Unaudited)
| First Trust Dividend Strength ETF
(FTDS) | First Trust Dow 30 Equal Weight ETF
(EDOW) | First Trust Lunt U.S. Factor Rotation ETF
(FCTR) |
| | | |
| | | |
| | | |
| | | |
|
| | | |
| | | |
| | | |
Shareholder reporting fees | | | |
Accounting and administration fees | | | |
| | | |
Trustees’ fees and expenses | | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
Less fees waived and expenses reimbursed by the investment advisor | | | |
| | | |
NET INVESTMENT INCOME (LOSS) | | | |
|
NET REALIZED AND UNREALIZED GAIN (LOSS): | | | |
Net realized gain (loss) on: | | | |
| | | |
| | | |
| | | |
Net change in unrealized appreciation (depreciation) on investments | | | |
NET REALIZED AND UNREALIZED GAIN (LOSS) | | | |
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | | | |
| Inception date is March 13, 2023, which is consistent with the commencement of investment operations and is the date the initial creation units were established. |
| Fund is subject to a unitary fee (see Note 3 in the Notes to Financial Statements). |
See Notes to Financial Statements
First Trust Growth Strength ETF
(FTGS) | First Trust Indxx Aerospace & Defense ETF
(MISL) | First Trust Bloomberg Inflation Sensitive Equity ETF
(FTIF) (a) |
| | |
| | |
| | |
| | |
|
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
See Notes to Financial Statements
First Trust Exchange-Traded Fund
Statements of Changes in Net Assets
| First Trust Dividend Strength ETF (FTDS) | First Trust Dow 30 Equal Weight ETF (EDOW) |
| Six Months
Ended
6/30/2023 (Unaudited) | | Six Months
Ended
6/30/2023 (Unaudited) | |
| | | | |
Net investment income (loss) | | | | |
| | | | |
Net change in unrealized appreciation (depreciation) | | | | |
Net increase (decrease) in net assets resulting from operations | | | | |
|
DISTRIBUTIONS TO SHAREHOLDERS FROM: | | | | |
| | | | |
|
SHAREHOLDER TRANSACTIONS: | | | | |
Proceeds from shares sold | | | | |
| | | | |
Net increase (decrease) in net assets resulting from shareholder transactions | | | | |
Total increase (decrease) in net assets | | | | |
|
| | | | |
| | | | |
| | | | |
|
CHANGES IN SHARES OUTSTANDING: | | | | |
Shares outstanding, beginning of period | | | | |
| | | | |
| | | | |
Shares outstanding, end of period | | | | |
| Inception date is October 25, 2022, which is consistent with the commencement of investment operations and is the date the initial creation units were established. |
| Inception date is March 13, 2023, which is consistent with the commencement of investment operations and is the date the initial creation units were established. |
See Notes to Financial Statements
First Trust Lunt U.S. Factor Rotation ETF (FCTR) | First Trust Growth Strength ETF (FTGS) | First Trust Indxx Aerospace & Defense ETF (MISL) | First Trust Bloomberg Inflation Sensitive Equity ETF (FTIF) |
Six Months
Ended
6/30/2023 (Unaudited) | | Six Months
Ended
6/30/2023 (Unaudited) | Period
Ended
12/31/2022 (a) | Six Months
Ended
6/30/2023 (Unaudited) | Period
Ended
12/31/2022 (a) | Period
Ended
6/30/2023 (b)
(Unaudited) |
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See Notes to Financial Statements
First Trust Exchange-Traded Fund
Financial Highlights
For a share outstanding throughout each period
First Trust Dividend Strength ETF (FTDS)
| Six Months
Ended
6/30/2023
(Unaudited) | |
| | | | | |
Net asset value, beginning of period | | | | | | |
Income from investment operations: | | | | | | |
Net investment income (loss) | | | | | | |
Net realized and unrealized gain (loss) | | | | | | |
Total from investment operations | | | | | | |
Distributions paid to shareholders from: | | | | | | |
| | | | | | |
Net asset value, end of period | | | | | | |
| | | | | | |
|
Ratios to average net assets/supplemental data: | | | | | | |
Net assets, end of period (in 000’s) | | | | | | |
Ratio of total expenses to average net assets | | | | | | |
Ratio of net expenses to average net assets | | | | | | |
Ratio of net investment income (loss) to average net assets | | | | | | |
Portfolio turnover rate (d) | | | | | | |
| Based on average shares outstanding. |
| Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. The total returns would have been lower if certain fees had not been waived and expenses reimbursed by the investment advisor. |
| |
| Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. |
| The variation in the portfolio turnover rate is due to the change in the Fund’s underlying index effective April 29, 2022, which resulted in a complete rebalance of the Fund’s portfolio. |
See Notes to Financial Statements
First Trust Exchange-Traded Fund
Financial Highlights (Continued)
For a share outstanding throughout each period
First Trust Dow 30 Equal Weight ETF (EDOW)
| Six Months
Ended
6/30/2023
(Unaudited) | |
| | | | | |
Net asset value, beginning of period | | | | | | |
Income from investment operations: | | | | | | |
Net investment income (loss) | | | | | | |
Net realized and unrealized gain (loss) | | | | | | |
Total from investment operations | | | | | | |
Distributions paid to shareholders from: | | | | | | |
| | | | | | |
Net asset value, end of period | | | | | | |
| | | | | | |
|
Ratios to average net assets/supplemental data: | | | | | | |
Net assets, end of period (in 000’s) | | | | | | |
Ratio of total expenses to average net assets | | | | | | |
Ratio of net investment income (loss) to average net assets | | | | | | |
Portfolio turnover rate (d) | | | | | | |
| Based on average shares outstanding. |
| Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. |
| |
| Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. |
See Notes to Financial Statements
First Trust Exchange-Traded Fund
Financial Highlights (Continued)
For a share outstanding throughout each period
First Trust Lunt U.S. Factor Rotation ETF (FCTR)
| Six Months
Ended
6/30/2023
(Unaudited) | | Period
Ended
12/31/2018 (a) |
| | | | |
Net asset value, beginning of period | | | | | | |
Income from investment operations: | | | | | | |
Net investment income (loss) | | | | | | |
Net realized and unrealized gain (loss) | | | | | | |
Total from investment operations | | | | | | |
Distributions paid to shareholders from: | | | | | | |
| | | | | | |
Net asset value, end of period | | | | | | |
| | | | | | |
|
Ratios to average net assets/supplemental data: | | | | | | |
Net assets, end of period (in 000’s) | | | | | | |
Ratio of total expenses to average net assets | | | | | | |
Ratio of net investment income (loss) to average net assets | | | | | | |
Portfolio turnover rate (e) | | | | | | |
| Inception date is July 25, 2018, which is consistent with the commencement of investment operations and is the date the initial creation units were established. |
| Based on average shares outstanding. |
| Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. |
| |
| Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. |
See Notes to Financial Statements
First Trust Exchange-Traded Fund
Financial Highlights (Continued)
For a share outstanding throughout each period
First Trust Growth Strength ETF (FTGS)
| Six Months
Ended
6/30/2023
(Unaudited) | Period
Ended
12/31/2022 (a) |
|
Net asset value, beginning of period | | |
Income from investment operations: | | |
Net investment income (loss) | | |
Net realized and unrealized gain | | |
Total from investment operations | | |
Distributions paid to shareholders from: | | |
| | |
Net asset value, end of period | | |
| | |
|
Ratios to average net assets/supplemental data: | | |
Net assets, end of period (in 000’s) | | |
Ratio of total expenses to average net assets | | |
Ratio of net investment income (loss) to average net assets | | |
Portfolio turnover rate (f) | | |
| Inception date is October 25, 2022, which is consistent with the commencement of investment operations and is the date the initial creation units were established. |
| Based on average shares outstanding. |
| Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. |
| |
| Includes excise tax. If this excise tax expense was not included, the expense ratio would have been 0.60%. |
| Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. |
See Notes to Financial Statements
First Trust Exchange-Traded Fund
Financial Highlights (Continued)
For a share outstanding throughout each period
First Trust Indxx Aerospace & Defense ETF (MISL)
| Six Months
Ended
6/30/2023
(Unaudited) | Period
Ended
12/31/2022 (a) |
|
Net asset value, beginning of period | | |
Income from investment operations: | | |
Net investment income (loss) | | |
Net realized and unrealized gain | | |
Total from investment operations | | |
Distributions paid to shareholders from: | | |
| | |
Net asset value, end of period | | |
| | |
|
Ratios to average net assets/supplemental data: | | |
Net assets, end of period (in 000’s) | | |
Ratio of total expenses to average net assets | | |
Ratio of net investment income (loss) to average net assets | | |
Portfolio turnover rate (e) | | |
| Inception date is October 25, 2022, which is consistent with the commencement of investment operations and is the date the initial creation units were established. |
| Based on average shares outstanding. |
| Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. |
| |
| Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. |
See Notes to Financial Statements
First Trust Exchange-Traded Fund
Financial Highlights (Continued)
For a share outstanding throughout the period
First Trust Bloomberg Inflation Sensitive Equity ETF (FTIF)
| Period
Ended
6/30/2023 (a)
(Unaudited) |
|
Net asset value, beginning of period | |
Income from investment operations: | |
Net investment income (loss) | |
Net realized and unrealized gain | |
Total from investment operations | |
Distributions paid to shareholders from: | |
| |
Net asset value, end of period | |
| |
|
Ratios to average net assets/supplemental data: | |
Net assets, end of period (in 000’s) | |
Ratio of total expenses to average net assets | |
Ratio of net investment income (loss) to average net assets | |
Portfolio turnover rate (e) | |
| Inception date is March 13, 2023, which is consistent with the commencement of investment operations and is the date the initial creation units were established. |
| Based on average shares outstanding. |
| Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The return presented does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. |
| |
| Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. |
See Notes to Financial Statements
Notes to Financial Statements
First Trust Exchange-Traded Fund
June 30, 2023 (Unaudited)
1. Organization
First Trust Exchange-Traded Fund (the “Trust”) is an open-end management investment company organized as a Massachusetts business trust on August 8, 2003, and is registered with the Securities and Exchange Commission under the Investment Company Act of 1940, as amended (the “1940 Act”).
The Trust currently consists of twenty-three exchange-traded funds. This report covers the six funds (each a “Fund” and collectively, the “Funds”) listed below:
First Trust Dividend Strength ETF – (The Nasdaq Stock Market LLC (“Nasdaq”) ticker “FTDS”) |
First Trust Dow 30 Equal Weight ETF – (NYSE Arca, Inc. (“NYSE Arca”) ticker “EDOW”) |
First Trust Lunt U.S. Factor Rotation ETF – (Cboe BZX Exchange, Inc. ticker “FCTR”) |
First Trust Growth Strength ETF – (Nasdaq ticker “FTGS”) |
First Trust Indxx Aerospace & Defense ETF – (NYSE Arca ticker “MISL”) |
First Trust Bloomberg Inflation Sensitive Equity ETF – (NYSE Arca ticker “FTIF”)(1) |
| Commenced investment operations on March 13, 2023. |
Each Fund represents a separate series of beneficial interest in the Trust. Unlike conventional mutual funds, each Fund issues and redeems shares on a continuous basis at net asset value (“NAV”), only in large blocks of shares known as “Creation Units.” The investment objective of each Fund is to seek investment results that correspond generally to the price and yield (before the Fund’s fees and expenses) of the following indices:
| |
First Trust Dividend Strength ETF | The Dividend StrengthTM Index |
First Trust Dow 30 Equal Weight ETF | Dow Jones Industrial Average® Equal Weight Index |
First Trust Lunt U.S. Factor Rotation ETF | Lunt Capital Large Cap Factor Rotation Index |
First Trust Growth Strength ETF | The Growth StrengthTM Index |
First Trust Indxx Aerospace & Defense ETF | Indxx US Aerospace & Defense Index |
First Trust Bloomberg Inflation Sensitive Equity ETF | Bloomberg Inflation Sensitive Equity Index |
2. Significant Accounting Policies
The Funds are each considered an investment company and follow accounting and reporting guidance under Financial Accounting Standards Board Accounting Standards Codification Topic 946, “Financial Services-Investment Companies.” The following is a summary of significant accounting policies consistently followed by the Funds in the preparation of the financial statements. The preparation of the financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.
A. Portfolio Valuation
Each Fund’s NAV is determined daily as of the close of regular trading on the New York Stock Exchange (“NYSE”), normally 4:00 p.m. Eastern time, on each day the NYSE is open for trading. If the NYSE closes early on a valuation day, the NAV is determined as of that time. Each Fund’s NAV is calculated by dividing the value of all assets of each Fund (including accrued interest and dividends), less all liabilities (including accrued expenses and dividends declared but unpaid), by the total number of shares outstanding.
Each Fund’s investments are valued daily at market value or, in the absence of market value with respect to any portfolio securities, at fair value. Market value prices represent readily available market quotations such as last sale or official closing prices from a national or foreign exchange (i.e., a regulated market) and are primarily obtained from third-party pricing services. Fair value prices represent any prices not considered market value prices and are either obtained from a third-party pricing service or are determined by the Pricing Committee of the Funds’ investment advisor, First Trust Advisors L.P. (“First Trust” or the “Advisor”), in accordance with valuation procedures approved by the Trust’s Board of Trustees, and in accordance with provisions of the 1940 Act and rules thereunder. Investments valued by the Advisor’s Pricing Committee, if any, are footnoted as such in the footnotes to the Portfolio of Investments. Each Fund’s investments are valued as follows:
Notes to Financial Statements (Continued)
First Trust Exchange-Traded Fund
June 30, 2023 (Unaudited)
Common stocks and other equity securities listed on any national or foreign exchange (excluding Nasdaq and the London Stock Exchange Alternative Investment Market (“AIM”)) are valued at the last sale price on the exchange on which they are principally traded or, for Nasdaq and AIM securities, the official closing price. Securities traded on more than one securities exchange are valued at the last sale price or official closing price, as applicable, at the close of the securities exchange representing the primary exchange for such securities.
Shares of open-end funds are valued based on NAV per share.
Equity securities traded in an over-the-counter market are valued at the close price or the last trade price.
Overnight repurchase agreements are valued at amortized cost when it represents the most appropriate reflection of fair market value.
Certain securities may not be able to be priced by pre-established pricing methods. Such securities may be valued by the Advisor’s Pricing Committee at fair value. These securities generally include, but are not limited to, restricted securities (securities which may not be publicly sold without registration under the Securities Act of 1933, as amended) for which a third-party pricing service is unable to provide a market price; securities whose trading has been formally suspended; a security whose market or fair value price is not available from a pre-established pricing source; a security with respect to which an event has occurred that is likely to materially affect the value of the security after the market has closed but before the calculation of a Fund’s NAV or make it difficult or impossible to obtain a reliable market quotation; and a security whose price, as provided by the third-party pricing service, does not reflect the security’s fair value. As a general principle, the current fair value of a security would appear to be the amount which the owner might reasonably expect to receive for the security upon its current sale. When fair value prices are used, generally they will differ from market quotations or official closing prices on the applicable exchanges. A variety of factors may be considered in determining the fair value of such securities, including, but not limited to, the following:
1)
the last sale price on the exchange on which they are principally traded or, for Nasdaq and AIM securities, the official closing price;
3)
the size of the holding;
4)
the initial cost of the security;
5)
transactions in comparable securities;
6)
price quotes from dealers and/or third-party pricing services;
7)
relationships among various securities;
8)
information obtained by contacting the issuer, analysts, or the appropriate stock exchange;
9)
an analysis of the issuer’s financial statements;
10)
the existence of merger proposals or tender offers that might affect the value of the security; and
11)
other relevant factors.
In addition, differences between the prices used to calculate a Fund’s NAV and the prices used by such Fund’s corresponding index could result in a difference between a Fund’s performance and the performance of its underlying index.
The Funds are subject to fair value accounting standards that define fair value, establish the framework for measuring fair value and provide a three-level hierarchy for fair valuation based upon the inputs to the valuation as of the measurement date. The three levels of the fair value hierarchy are as follows:
• Level 1 – Level 1 inputs are quoted prices in active markets for identical investments. An active market is a market in which transactions for the investment occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
• Level 2 – Level 2 inputs are observable inputs, either directly or indirectly, and include the following:
o Quoted prices for similar investments in active markets.
o Quoted prices for identical or similar investments in markets that are non-active. A non-active market is a market where there are few transactions for the investment, the prices are not current, or price quotations vary substantially either over time or among market makers, or in which little information is released publicly.
o Inputs other than quoted prices that are observable for the investment (for example, interest rates and yield curves observable at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks, and default rates).
o Inputs that are derived principally from or corroborated by observable market data by correlation or other means.
Notes to Financial Statements (Continued)
First Trust Exchange-Traded Fund
June 30, 2023 (Unaudited)
• Level 3 – Level 3 inputs are unobservable inputs. Unobservable inputs may reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the investment.
The inputs or methodologies used for valuing investments are not necessarily an indication of the risk associated with investing in those investments. A summary of the inputs used to value each Fund’s investments as of June 30, 2023, is included with each Fund’s Portfolio of Investments.
B. Securities Transactions and Investment Income
Securities transactions are recorded as of the trade date. Realized gains and losses from securities transactions are recorded on the identified cost basis. Dividend income is recorded on the ex-dividend date. Interest income, if any, is recorded on the accrual basis.
Withholding taxes and tax reclaims on foreign dividends have been provided for in accordance with each Fund’s understanding of the applicable country’s tax rules and rates.
Distributions received from a Fund’s investments in real estate investment trusts (“REITs”) may be comprised of return of capital, capital gains and income. The actual character of the amounts received during the year is not known until after the REITs’ fiscal year end. A Fund records the character of distributions received from the REITs during the year based on estimates available. The characterization of distributions received by a Fund may be subsequently revised based on information received from the REITs after their tax reporting periods conclude.
C. Offsetting on the Statements of Assets and Liabilities
Offsetting Assets and Liabilities requires entities to disclose both gross and net information about instruments and transactions eligible for offset on the Statements of Assets and Liabilities and disclose instruments and transactions subject to master netting or similar agreements. These disclosure requirements are intended to help investors and other financial statement users better assess the effect or potential effect of offsetting arrangements on a Fund’s financial position. The transactions subject to offsetting disclosures are derivative instruments, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions.
This disclosure, if applicable, is included within each Fund’s Portfolio of Investments under the heading “Offsetting Assets and Liabilities.” For financial reporting purposes, the Funds do not offset financial assets and financial liabilities that are subject to master netting arrangements (“MNAs”) or similar agreements on the Statements of Assets and Liabilities. MNAs provide the right, in the event of default (including bankruptcy and insolvency), for the non-defaulting counterparty to liquidate the collateral and calculate the net exposure to the defaulting party or request additional collateral.
D. Securities Lending
The Funds may lend securities representing up to 33 1/3% of the value of their total assets to broker-dealers, banks and other institutions to generate additional income. When a Fund loans its portfolio securities, it will receive, at the inception of each loan, collateral equal to at least 102% (for domestic securities) or 105% (for international securities) of the market value of the loaned securities. The collateral amount is valued at the beginning of each business day and is compared to the market value of the loaned securities from the prior business day to determine if additional collateral is required. If additional collateral is required, a request is sent to the borrower. Securities lending involves the risk that the Fund may lose money because the borrower of the Fund’s loaned securities fails to return the securities in a timely manner or at all. The Fund could also lose money in the event of (i) a decline in the value of the collateral provided for the loaned securities, (ii) a decline in the value of any investments made with cash collateral or (iii) an increase in the value of the loaned securities if the borrower does not increase the collateral accordingly and the borrower fails to return the securities. These events could also trigger adverse tax consequences for the Funds.
Under the Funds’ Securities Lending Agency Agreement, the securities lending agent will generally bear the risk that a borrower may default on its obligation to return loaned securities. Brown Brothers Harriman & Co. (“BBH”) acts as the Funds’ securities lending agent and is responsible for executing the lending of the portfolio securities to creditworthy borrowers. The Funds, however, will be responsible for the risks associated with the investment of cash collateral. A Fund may lose money on its investment of cash collateral, which may affect its ability to repay the collateral to the borrower without the use of other Fund assets. Each Fund that engages in securities lending receives compensation (net of any rebate and securities lending agent fees) for lending its securities. Compensation can be in the form of fees received from the securities lending agent or dividends or interest earned from the investment of cash collateral. The fees received from the securities lending agent are accrued daily. The dividend and interest earned on the securities
Notes to Financial Statements (Continued)
First Trust Exchange-Traded Fund
June 30, 2023 (Unaudited)
loaned is accounted for in the same manner as other dividend and interest income. At June 30, 2023, none of the Funds had securities in the securities lending program. During the period ended June 30, 2023, none of the Funds participated in the securities lending program.
In the event of a default by a borrower with respect to any loan, BBH will exercise any and all remedies provided under the applicable borrower agreement to make the Funds whole. These remedies include purchasing replacement securities by applying the collateral held from the defaulting broker against the purchase cost of the replacement securities. If, despite such efforts by BBH to exercise these remedies, a Fund sustains losses as a result of a borrower’s default, BBH will indemnify the Fund by purchasing replacement securities at its own expense, or paying the Fund an amount equal to the market value of the replacement securities, subject to certain limitations which are set forth in detail in the Securities Lending Agency Agreement between the Trust on behalf of the Funds and BBH.
E. Repurchase Agreements
Repurchase agreements involve the purchase of securities subject to the seller’s agreement to repurchase the securities at a mutually agreed upon date and price, under the terms of a Master Repurchase Agreement (“MRA”). During the term of a repurchase agreement, the value of the underlying securities held as collateral on behalf of a Fund, including accrued interest, is required to exceed the value of the repurchase agreement, including accrued interest. The underlying securities for all repurchase agreements are held at the Funds’ custodian or designated sub-custodians under tri-party repurchase agreements.
MRAs govern transactions between a Fund and select counterparties. The MRAs contain provisions for, among other things, initiation, income payments, events of default, and maintenance of collateral for repurchase agreements.
Repurchase agreements received for lending securities are collateralized by U.S. Treasury securities. The U.S. Treasury securities are held in a joint custody account at BBH on behalf of the Funds participating in the securities lending program. In the event the counterparty defaults on the repurchase agreement, the U.S. Treasury securities can either be maintained as part of a Fund’s portfolio or sold for cash. A Fund could suffer a loss to the extent that the proceeds from the sale of the underlying collateral held by the Fund is less than the repurchase price and the Fund’s costs associated with the delay and enforcement of the MRA.
While the Funds may invest in repurchase agreements, any repurchase agreements held by the Funds during the period ended June 30, 2023, were received as collateral for lending securities. There were no repurchase agreements held by the Funds as of June 30, 2023.
F. Dividends and Distributions to Shareholders
Dividends from net investment income of each Fund, if any, are declared and paid quarterly, or as the Board of Trustees may determine from time to time. Distributions of net realized gains earned by each Fund, if any, are distributed at least annually. A Fund may also designate a portion of the amount paid to redeeming shareholders as a distribution for tax purposes.
Distributions from net investment income and realized capital gains are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These permanent differences are primarily due to the varying treatment of income and gain/loss on portfolio securities held by the Funds and have no impact on net assets or NAV per share. Temporary differences, which arise from recognizing certain items of income, expense and gain/loss in different periods for financial statement and tax purposes, will reverse at some time in the future.
The tax character of distributions paid by each Fund during the fiscal period ended December 31, 2022 was as follows:
| Distributions
paid from
Ordinary
Income | Distributions
paid from
Capital
Gains | Distributions
paid from
Return of
Capital |
First Trust Dividend Strength ETF | | | |
First Trust Dow 30 Equal Weight ETF | | | |
First Trust Lunt U.S. Factor Rotation ETF | | | |
First Trust Growth Strength ETF | | | |
First Trust Indxx Aerospace & Defense ETF | | | |
Notes to Financial Statements (Continued)
First Trust Exchange-Traded Fund
June 30, 2023 (Unaudited)
As of December 31, 2022, the components of distributable earnings on a tax basis for each Fund were as follows:
| Undistributed
Ordinary
Income | Accumulated
Capital and
Other
Gain (Loss) | Net
Unrealized
Appreciation
(Depreciation) |
First Trust Dividend Strength ETF | | | |
First Trust Dow 30 Equal Weight ETF | | | |
First Trust Lunt U.S. Factor Rotation ETF | | | |
First Trust Growth Strength ETF | | | |
First Trust Indxx Aerospace & Defense ETF | | | |
G. Income Taxes
Each Fund intends to qualify or continue to qualify as a regulated investment company by complying with the requirements under Subchapter M of the Internal Revenue Code of 1986, as amended, which includes distributing substantially all of its net investment income and net realized gains to shareholders. Accordingly, no provision has been made for federal and state income taxes. However, due to the timing and amount of distributions, each Fund may be subject to an excise tax of 4% of the amount by which approximately 98% of each Fund’s taxable income exceeds the distributions from such taxable income for the calendar year.
The Funds are subject to accounting standards that establish a minimum threshold for recognizing, and a system for measuring, the benefits of a tax position taken or expected to be taken in a tax return. For FTDS, EDOW, and FCTR, the taxable years ended 2019, 2020, 2021, and 2022 remain open to federal and state audit. For FTGS and MISL, the taxable period ended 2022 remains open to federal and state audit. As of June 30, 2023, management has evaluated the application of these standards to the Funds and has determined that no provision for income tax is required in the Funds’ financial statements for uncertain tax positions.
Each Fund intends to utilize provisions of the federal income tax laws, which allow it to carry a realized capital loss forward indefinitely following the year of the loss and offset such loss against any future realized capital gains. Each Fund is subject to certain limitations under U.S. tax rules on the use of capital loss carryforwards and net unrealized built-in losses. These limitations apply when there has been a 50% change in ownership. At December 31, 2022, for federal income tax purposes, each applicable Fund had a capital loss carryforward available that is shown in the table below, to the extent provided by regulations, to offset future capital gains. To the extent that these loss carryforwards are used to offset future capital gains, it is probable that the capital gains so offset will not be distributed to each applicable Fund’s shareholders.
| Non-Expiring
Capital Loss
Carryforward |
First Trust Dividend Strength ETF | |
First Trust Dow 30 Equal Weight ETF* | |
First Trust Lunt U.S. Factor Rotation ETF | |
First Trust Growth Strength ETF | |
First Trust Indxx Aerospace & Defense ETF | |
| $3,196,504 of First Trust Dow 30 Equal Weight ETF’s non-expiring net capital losses is subject to loss limitation resulting from reorganization activity. This limitation generally reduces the utilization of these losses to a maximum of $212,620 per year. |
Certain losses realized during the current fiscal period may be deferred and treated as occurring on the first day of the following fiscal year for federal income tax purposes. For the fiscal period ended December 31, 2022, the Funds had no net late year ordinary or capital losses.
Notes to Financial Statements (Continued)
First Trust Exchange-Traded Fund
June 30, 2023 (Unaudited)
As of June 30, 2023, the aggregate cost, gross unrealized appreciation, gross unrealized depreciation, and net unrealized appreciation/(depreciation) on investments (including short positions and derivatives, if any) for federal income tax purposes were as follows:
| | Gross Unrealized
Appreciation | Gross Unrealized
(Depreciation) | Net Unrealized
Appreciation
(Depreciation) |
First Trust Dividend Strength ETF | | | | |
First Trust Dow 30 Equal Weight ETF | | | | |
First Trust Lunt U.S. Factor Rotation ETF | | | | |
First Trust Growth Strength ETF | | | | |
First Trust Indxx Aerospace & Defense ETF | | | | |
First Trust Bloomberg Inflation Sensitive Equity ETF | | | | |
H. Expenses
Expenses that are directly related to First Trust Dividend Strength ETF are charged directly to the Fund. Expenses for First Trust Dow 30 Equal Weight ETF, First Trust Lunt U.S. Factor Rotation ETF, First Trust Growth Strength ETF, First Trust Indxx Aerospace & Defense ETF, and First Trust Bloomberg Inflation Sensitive Equity ETF (the “Unitary Fee Funds”), other than excluded expenses (discussed in Note 3), are paid by the Advisor. General expenses of the Trust are allocated to all the Funds based upon the net assets of each Fund.
First Trust has entered into licensing agreements with each of the following “Licensors” for the respective Funds:
| |
First Trust Dividend Strength ETF | |
First Trust Dow 30 Equal Weight ETF | S&P Dow Jones Indices LLC |
First Trust Lunt U.S. Factor Rotation ETF | Lunt Capital Management, Inc. |
First Trust Growth Strength ETF | |
First Trust Indxx Aerospace & Defense ETF | |
First Trust Bloomberg Inflation Sensitive Equity ETF | Bloomberg Index Services Limited |
The respective license agreements allow for the use by First Trust of certain trademarks and trade names of the respective Licensors. The Funds are sub-licensees to the applicable license agreements. The Funds, except for the Unitary Fee Funds, are required to pay licensing fees, which are shown on the Statements of Operations. The licensing fees for the Unitary Fee Funds are paid by First Trust from the unitary investment advisory fees it receives from each of these Funds.
3. Investment Advisory Fee, Affiliated Transactions and Other Fee Arrangements
First Trust, the investment advisor to the Funds, is a limited partnership with one limited partner, Grace Partners of DuPage L.P., and one general partner, The Charger Corporation. The Charger Corporation is an Illinois corporation controlled by James A. Bowen, Chief Executive Officer of First Trust. First Trust is responsible for the selection and ongoing monitoring of the securities in each Fund’s portfolio, managing the Funds’ business affairs and providing certain administrative services necessary for the management of the Funds.
The management fee payable by First Trust Dividend Strength ETF to First Trust for these services will be reduced at certain levels of First Trust Dividend Strength ETF’s net assets (“breakpoints”) and calculated pursuant to the following schedule:
| |
Fund net assets up to and including $2.5 billion | |
Fund net assets greater than $2.5 billion up to and including $5 billion | |
Fund net assets greater than $5 billion up to and including $7.5 billion | |
Fund net assets greater than $7.5 billion up to and including $10 billion | |
Fund net assets greater than $10 billion up to and including $15 billion | |
Fund net assets greater than $15 billion | |
Notes to Financial Statements (Continued)
First Trust Exchange-Traded Fund
June 30, 2023 (Unaudited)
For the First Trust Dividend Strength ETF, the Trust and the Advisor have entered into an Expense Reimbursement and Fee Waiver Agreement (“Agreement”) in which First Trust has agreed to waive fees and/or reimburse Fund expenses to the extent that the operating expenses of the Fund (excluding interest expense, brokerage commissions and other trading expenses, acquired fund fees and expenses, taxes and extraordinary expenses) exceed 0.70% of average daily net assets per year (the “Expense Cap”). The Expense Cap will be in effect until at least April 30, 2024.
For First Trust Dow 30 Equal Weight ETF, First Trust Lunt U.S. Factor Rotation ETF, First Trust Growth Strength ETF, First Trust Indxx Aerospace & Defense ETF, and First Trust Bloomberg Inflation Sensitive Equity ETF, First Trust is paid an annual unitary management fee of such Fund’s average daily net assets and is responsible for the expenses of such Fund including the cost of transfer agency, custody, fund administration, legal, audit, licensing and other services, but excluding fee payments under the Investment Management Agreement, distribution and service fees pursuant to a Rule 12b-1 plan, if any, brokerage commissions and other expenses connected with the execution of portfolio transactions, acquired fund fees and expenses, taxes, interest, and extraordinary expenses. The annual unitary management fee payable by each Fund to First Trust for these services will be reduced at certain levels of each Fund’s net assets (“breakpoints”) and calculated pursuant to the following schedule:
| | | | | |
Fund net assets up to and including $2.5 billion | | | | | |
Fund net assets greater than $2.5 billion up to and including $5 billion | | | | | |
Fund net assets greater than $5 billion up to and including $7.5 billion | | | | | |
Fund net assets greater than $7.5 billion up to and including $10 billion | | | | | |
Fund net assets greater than $10 billion up to and including $15 billion | | | | | |
Fund net assets greater than $15 billion | | | | | |
The Trust has multiple service agreements with The Bank of New York Mellon (“BNYM”). Under the service agreements, BNYM performs custodial, fund accounting, certain administrative services, and transfer agency services for each Fund. As custodian, BNYM is responsible for custody of each Fund’s assets. As fund accountant and administrator, BNYM is responsible for maintaining the books and records of each Fund’s securities and cash. As transfer agent, BNYM is responsible for maintaining shareholder records for each Fund. BNYM is a subsidiary of The Bank of New York Mellon Corporation, a financial holding company.
Each Trustee who is not an officer or employee of First Trust, any sub-advisor or any of their affiliates (“Independent Trustees”) is paid a fixed annual retainer that is allocated equally among each fund in the First Trust Fund Complex. Each Independent Trustee is also paid an annual per fund fee that varies based on whether the fund is a closed-end or other actively managed fund, a target outcome fund or an index fund.
Additionally, the Lead Independent Trustee and the Chairs of the Audit Committee, Nominating and Governance Committee and Valuation Committee are paid annual fees to serve in such capacities, with such compensation allocated pro rata among each fund in the First Trust Fund Complex based on net assets. Independent Trustees are reimbursed for travel and out-of-pocket expenses in connection with all meetings. The Lead Independent Trustee and Committee Chairs rotate every three years. The officers and “Interested” Trustee receive no compensation from the Trust for acting in such capacities.
4. Purchases and Sales of Securities
For the period ended June 30, 2023, the cost of purchases and proceeds from sales of investments for each Fund, excluding short-term investments and in-kind transactions, were as follows:
| | |
First Trust Dividend Strength ETF | | |
First Trust Dow 30 Equal Weight ETF | | |
First Trust Lunt U.S. Factor Rotation ETF | | |
First Trust Growth Strength ETF | | |
First Trust Indxx Aerospace & Defense ETF | | |
First Trust Bloomberg Inflation Sensitive Equity ETF | | |
Notes to Financial Statements (Continued)
First Trust Exchange-Traded Fund
June 30, 2023 (Unaudited)
For the period ended June 30, 2023, the cost of in-kind purchases and proceeds from in-kind sales for each Fund were as follows:
| | |
First Trust Dividend Strength ETF | | |
First Trust Dow 30 Equal Weight ETF | | |
First Trust Lunt U.S. Factor Rotation ETF | | |
First Trust Growth Strength ETF | | |
First Trust Indxx Aerospace & Defense ETF | | |
First Trust Bloomberg Inflation Sensitive Equity ETF | | |
5. Creations, Redemptions and Transaction Fees
Each Fund generally issues and redeems its shares in primary market transactions through a creation and redemption mechanism and does not sell or redeem individual shares. Instead, financial entities known as “Authorized Participants” have contractual arrangements with a Fund or one of the Fund’s service providers to purchase and redeem Fund shares directly with the Fund in large blocks of shares known as “Creation Units.” Prior to the start of trading on every business day, a Fund publishes through the National Securities Clearing Corporation (“NSCC”) the “basket” of securities, cash or other assets that it will accept in exchange for a Creation Unit of the Fund’s shares. An Authorized Participant that wishes to effectuate a creation of a Fund’s shares deposits with the Fund the “basket” of securities, cash or other assets identified by the Fund that day, and then receives the Creation Unit of the Fund’s shares in return for those assets. After purchasing a Creation Unit, the Authorized Participant may continue to hold the Fund’s shares or sell them in the secondary market. The redemption process is the reverse of the purchase process:the Authorized Participant redeems a Creation Unit of a Fund’s shares for a basket of securities, cash or other assets. The combination of the creation and redemption process with secondary market trading in a Fund’s shares and underlying securities provides arbitrage opportunities that are designed to help keep the market price of a Fund’s shares at or close to the NAV per share of the Fund.
Each Fund imposes fees in connection with the purchase of Creation Units. These fees may vary based upon various fact-based circumstances, including, but not limited to, the composition of the securities included in the Creation Unit or the countries in which the transactions are settled. The price for each Creation Unit will equal the daily NAV per share of a Fund times the number of shares in a Creation Unit, plus the fees described above and, if applicable, any operational processing and brokerage costs, transfer fees, stamp taxes and part or all of the spread between the expected bid and offer side of the market related to the securities comprising the creation basket.
Each Fund also imposes fees in connection with the redemption of Creation Units. These fees may vary based upon various fact-based circumstances, including, but not limited to, the composition of the securities included in the Creation Unit or the countries in which the transactions are settled. The price received for each Creation Unit will equal the daily NAV per share of a Fund times the number of shares in a Creation Unit, minus the fees described above and, if applicable, any operational processing and brokerage costs, transfer fees, stamp taxes and part or all of the spread between the expected bid and offer side of the market related to the securities comprising the redemption basket. Investors who use the services of a broker or other such intermediary in addition to an Authorized Participant to effect a redemption of a Creation Unit may also be assessed an amount to cover the cost of such services. The redemption fee charged by a Fund will comply with Rule 22c-2 of the 1940 Act which limits redemption fees to no more than 2% of the value of the shares redeemed.
6. Distribution Plan
The Board of Trustees adopted a Distribution and Service Plan pursuant to Rule 12b-1 under the 1940 Act. In accordance with the Rule 12b-1 plan, the Funds are authorized to pay an amount up to 0.25% of their average daily net assets each year to reimburse First Trust Portfolios L.P. (“FTP”), the distributor of the Funds, for amounts expended to finance activities primarily intended to result in the sale of Creation Units or the provision of investor services. FTP may also use this amount to compensate securities dealers or other persons that are Authorized Participants for providing distribution assistance, including broker-dealer and shareholder support and educational and promotional services.
No 12b-1 fees are currently paid by the Funds, and pursuant to a contractual arrangement, no 12b-1 fees will be paid any time before April 30, 2024 for FTDS, EDOW, and FCTR, October 20, 2024 for FTGS and MISL, and March 9, 2025 for FTIF.
Notes to Financial Statements (Continued)
First Trust Exchange-Traded Fund
June 30, 2023 (Unaudited)
7. Indemnification
The Trust, on behalf of the Funds, has a variety of indemnification obligations under contracts with its service providers. The Trust’s maximum exposure under these arrangements is unknown. However, the Trust has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
8. Subsequent Events
Management has evaluated the impact of all subsequent events on the Funds through the date the financial statements were issued and has determined that there were no subsequent events requiring recognition or disclosure in the financial statements that have not already been disclosed.
First Trust Exchange-Traded Fund
June 30, 2023 (Unaudited)
Proxy Voting Policies and Procedures
A description of the policies and procedures that the Trust uses to determine how to vote proxies and information on how each Fund voted proxies relating to its portfolio securities during the most recent 12-month period ended June 30 is available (1) without charge, upon request, by calling (800) 988-5891; (2) on each Fund’s website at www.ftportfolios.com; and (3) on the Securities and Exchange Commission’s (“SEC”) website at www.sec.gov.
Portfolio Holdings
Each Fund files portfolio holdings information for each month in a fiscal quarter within 60 days after the end of the relevant fiscal quarter on Form N-PORT. Portfolio holdings information for the third month of each fiscal quarter will be publicly available on the SEC’s website at www.sec.gov. Each Fund’s complete schedule of portfolio holdings for the second and fourth quarters of each fiscal year is included in the semi-annual and annual reports to shareholders, respectively, and is filed with the SEC on Form N-CSR. The semi-annual and annual report for each Fund is available to investors within 60 days after the period to which it relates. Each Fund’s Forms N-PORT and Forms N-CSR are available on the SEC’s website listed above.
Risk Considerations
Risks are inherent in all investing. Certain general risks that may be applicable to a Fund are identified below, but not all of the material risks relevant to each Fund are included in this report and not all of the risks below apply to each Fund. The material risks of investing in each Fund are spelled out in its prospectus, statement of additional information and other regulatory filings. Before investing, you should consider each Fund’s investment objective, risks, charges and expenses, and read each Fund’s prospectus and statement of additional information carefully. You can download each Fund’s prospectus at www.ftportfolios.com or contact First Trust Portfolios L.P. at (800) 621-1675 to request a prospectus, which contains this and other information about each Fund.
Concentration Risk. To the extent that a fund is able to invest a significant percentage of its assets in a single asset class or the securities of issuers within the same country, state, region, industry or sector, an adverse economic, business or political development may affect the value of the fund’s investments more than if the fund were more broadly diversified. A fund that tracks an index will be concentrated to the extent the fund’s corresponding index is concentrated. A concentration makes a fund more susceptible to any single occurrence and may subject the fund to greater market risk than a fund that is more broadly diversified.
Credit Risk. Credit risk is the risk that an issuer of a security will be unable or unwilling to make dividend, interest and/or principal payments when due and the related risk that the value of a security may decline because of concerns about the issuer’s ability to make such payments.
Cyber Security Risk. The funds are susceptible to potential operational risks through breaches in cyber security. A breach in cyber security refers to both intentional and unintentional events that may cause a fund to lose proprietary information, suffer data corruption or lose operational capacity. Such events could cause a fund to incur regulatory penalties, reputational damage, additional compliance costs associated with corrective measures and/or financial loss. In addition, cyber security breaches of a fund’s third-party service providers, such as its administrator, transfer agent, custodian, or sub-advisor, as applicable, or issuers in which the fund invests, can also subject a fund to many of the same risks associated with direct cyber security breaches.
Defined Outcome Funds Risk. To the extent a fund’s investment strategy is designed to deliver returns tied to the price performance of an underlying ETF, an investor may not realize the returns the fund seeks to achieve if that investor does not hold shares for the entire target outcome period. In the event an investor purchases shares after the first day of the target outcome period or sells shares prior to the end of the target outcome period, the buffer that the fund seeks to provide against a decline in the value of the underlying ETF may not be available, the enhanced returns that the fund seeks to provide (if any) may not be available and the investor may not participate in a gain in the value of the underlying ETF up to the cap for the investor’s investment period. Additionally, the fund will not participate in gains of the underlying ETF above the cap and a shareholder may lose their entire investment. If the fund seeks enhanced returns, there are certain time periods when the value of the fund may fall faster than the value of the underlying ETF, and it is very unlikely that, on any given day during which the underlying ETF share price increases in value, the fund’s share price will increase at the same rate as the enhanced returns sought by the fund, which is designed for an entire target outcome period. Trading flexible exchange options involves risks different from, or possibly greater than, the risks associated with investing directly in securities, such as less liquidity and correlation and valuation risks. A fund may experience substantial downside from specific flexible exchange option positions and certain positions may expire worthless.
Additional Information (Continued)
First Trust Exchange-Traded Fund
June 30, 2023 (Unaudited)
Derivatives Risk. To the extent a fund uses derivative instruments such as futures contracts, options contracts and swaps, the fund may experience losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivative. These risks are heightened when a fund’s portfolio managers use derivatives to enhance the fund’s return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the fund.
Equity Securities Risk. To the extent a fund invests in equity securities, the value of the fund’s shares will fluctuate with changes in the value of the equity securities. Equity securities prices fluctuate for several reasons, including changes in investors’ perceptions of the financial condition of an issuer or the general condition of the relevant stock market, such as market volatility, or when political or economic events affecting the issuers occur. In addition, common stock prices may be particularly sensitive to rising interest rates, as the cost of capital rises and borrowing costs increase. Equity securities may decline significantly in price over short or extended periods of time, and such declines may occur in the equity market as a whole, or they may occur in only a particular country, company, industry or sector of the market.
ETF Risk. The shares of an ETF trade like common stock and represent an interest in a portfolio of securities. The risks of owning an ETF generally reflect the risks of owning the underlying securities, although lack of liquidity in an ETF could result in it being more volatile and ETFs have management fees that increase their costs. Shares of an ETF trade on an exchange at market prices rather than net asset value, which may cause the shares to trade at a price greater than net asset value (premium) or less than net asset value (discount). In times of market stress, decisions by market makers to reduce or step away from their role of providing a market for an ETF’s shares, or decisions by an ETF’s authorized participants that they are unable or unwilling to proceed with creation and/or redemption orders of an ETF’s shares, could result in shares of the ETF trading at a discount to net asset value and in greater than normal intraday bid-ask spreads.
Fixed Income Securities Risk. To the extent a fund invests in fixed income securities, the fund will be subject to credit risk, income risk, interest rate risk, liquidity risk and prepayment risk. Income risk is the risk that income from a fund’s fixed income investments could decline during periods of falling interest rates. Interest rate risk is the risk that the value of a fund’s fixed income securities will decline because of rising interest rates. Liquidity risk is the risk that a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. Prepayment risk is the risk that the securities will be redeemed or prepaid by the issuer, resulting in lower interest payments received by the fund. In addition to these risks, high yield securities, or “junk” bonds, are subject to greater market fluctuations and risk of loss than securities with higher ratings, and the market for high yield securities is generally smaller and less liquid than that for investment grade securities.
Index or Model Constituent Risk. Certain funds may be a constituent of one or more indices or ETF models. As a result, such a fund may be included in one or more index-tracking exchange-traded funds or mutual funds. Being a component security of such a vehicle could greatly affect the trading activity involving a fund, the size of the fund and the market volatility of the fund. Inclusion in an index could increase demand for the fund and removal from an index could result in outsized selling activity in a relatively short period of time. As a result, a fund’s net asset value could be negatively impacted and the fund’s market price may be significantly below its net asset value during certain periods. In addition, index rebalances may potentially result in increased trading activity in a fund’s shares.
Index Provider Risk. To the extent a fund seeks to track an index, it is subject to Index Provider Risk. There is no assurance that the Index Provider will compile the Index accurately, or that the Index will be determined, maintained, constructed, reconstituted, rebalanced, composed, calculated or disseminated accurately. To correct any such error, the Index Provider may carry out an unscheduled rebalance or other modification of the Index constituents or weightings, which may increase the fund’s costs. The Index Provider does not provide any representation or warranty in relation to the quality, accuracy or completeness of data in the Index, and it does not guarantee that the Index will be calculated in accordance with its stated methodology. Losses or costs associated with any Index Provider errors generally will be borne by the fund and its shareholders.
Investment Companies Risk. To the extent a fund invests in the securities of other investment vehicles, the fund will incur additional fees and expenses that would not be present in a direct investment in those investment vehicles. Furthermore, the fund’s investment performance and risks are directly related to the investment performance and risks of the investment vehicles in which the fund invests.
LIBOR Risk. To the extent a fund invests in floating or variable rate obligations that use the London Interbank Offered Rate (“LIBOR”) as a reference interest rate, it is subject to LIBOR Risk. The United Kingdom’s Financial Conduct Authority, which regulates LIBOR, has ceased making LIBOR available as a reference rate over a phase-out period that began December 31, 2021.
Additional Information (Continued)
First Trust Exchange-Traded Fund
June 30, 2023 (Unaudited)
There is no assurance that any alternative reference rate, including the Secured Overnight Financing Rate (“SOFR”) will be similar to or produce the same value or economic equivalence as LIBOR or that instruments using an alternative rate will have the same volume or liquidity. The unavailability or replacement of LIBOR may affect the value, liquidity or return on certain fund investments and may result in costs incurred in connection with closing out positions and entering into new trades. Any potential effects of the transition away from LIBOR on the fund or on certain instruments in which the fund invests can be difficult to ascertain, and they may vary depending on a variety of factors, and they could result in losses to the fund.
Management Risk. To the extent that a fund is actively managed, it is subject to management risk. In managing an actively-managed fund’s investment portfolio, the fund’s portfolio managers will apply investment techniques and risk analyses that may not have the desired result. There can be no guarantee that a fund will meet its investment objective.
Market Risk. Market risk is the risk that a particular security, or shares of a fund in general, may fall in value. Securities held by a fund, as well as shares of a fund itself, are subject to market fluctuations caused by factors such as general economic conditions, political events, regulatory or market developments, changes in interest rates and perceived trends in securities prices. Shares of a fund could decline in value or underperform other investments as a result of the risk of loss associated with these market fluctuations. In addition, local, regional or global events such as war, acts of terrorism, spread of infectious diseases or other public health issues, recessions, or other events could have a significant negative impact on a fund and its investments. Such events may affect certain geographic regions, countries, sectors and industries more significantly than others. In February 2022, Russia invaded Ukraine which has caused and could continue to cause significant market disruptions and volatility within the markets in Russia, Europe, and the United States. The hostilities and sanctions resulting from those hostilities could have a significant impact on certain fund investments as well as fund performance. The COVID-19 global pandemic and the ensuing policies enacted by governments and central banks have caused and may continue to cause significant volatility and uncertainty in global financial markets. While the U.S. has resumed “reasonably” normal business activity, many countries continue to impose lockdown measures. Additionally, there is no guarantee that vaccines will be effective against emerging variants of the disease. These events also adversely affect the prices and liquidity of a fund’s portfolio securities or other instruments and could result in disruptions in the trading markets. Any of such circumstances could have a materially negative impact on the value of a fund’s shares and result in increased market volatility. During any such events, a fund’s shares may trade at increased premiums or discounts to their net asset value and the bid/ask spread on a fund’s shares may widen.
Non-U.S. Securities Risk. To the extent a fund invests in non-U.S. securities, it is subject to additional risks not associated with securities of domestic issuers. Non-U.S. securities are subject to higher volatility than securities of domestic issuers due to:possible adverse political, social or economic developments; restrictions on foreign investment or exchange of securities; capital controls; lack of liquidity; currency exchange rates; excessive taxation; government seizure of assets; the imposition of sanctions by foreign governments; different legal or accounting standards; and less government supervision and regulation of exchanges in foreign countries. Investments in non-U.S. securities may involve higher costs than investments in U.S. securities, including higher transaction and custody costs, as well as additional taxes imposed by non-U.S. governments. These risks may be heightened for securities of companies located, or with significant operations, in emerging market countries.
Operational Risk. Each fund is subject to risks arising from various operational factors, including, but not limited to, human error, processing and communication errors, errors of a fund’s service providers, counterparties or other third-parties, failed or inadequate processes and technology or systems failures. Each fund relies on third-parties for a range of services, including custody. Any delay or failure relating to engaging or maintaining such service providers may affect a fund’s ability to meet its investment objective. Although the funds and the funds’ investment advisor seek to reduce these operational risks through controls and procedures, there is no way to completely protect against such risks.
Passive Investment Risk. To the extent a fund seeks to track an index, the fund will invest in the securities included in, or representative of, the index regardless of their investment merit. A fund generally will not attempt to take defensive positions in declining markets.
Preferred Securities Risk. Preferred securities combine some of the characteristics of both common stocks and bonds. Preferred securities are typically subordinated to bonds and other debt securities in a company’s capital structure in terms of priority to corporate income, subjecting them to greater credit risk than those debt securities. Generally, holders of preferred securities have no voting rights with respect to the issuing company unless preferred dividends have been in arrears for a specified number of periods, at which time the preferred security holders may obtain limited rights. In certain circumstances, an issuer of preferred securities may defer
Additional Information (Continued)
First Trust Exchange-Traded Fund
June 30, 2023 (Unaudited)
payment on the securities and, in some cases, redeem the securities prior to a specified date. Preferred securities may also be substantially less liquid than other securities, including common stock.
Valuation Risk. The valuation of certain securities may carry more risk than that of common stock. Uncertainties in the conditions of the financial markets, unreliable reference data, lack of transparency and inconsistency of valuation models and processes may lead to inaccurate asset pricing. A fund may hold investments in sizes smaller than institutionally sized round lot positions (sometimes referred to as odd lots). However, third-party pricing services generally provide evaluations on the basis of institutionally-sized round lots. If a fund sells certain of its investments in an odd lot transaction, the sale price may be less than the value at which such securities have been held by the fund. Odd lots often trade at lower prices than institutional round lots. There is no assurance that the fund will be able to sell a portfolio security at the price established by the pricing service, which could result in a loss to the fund.
NOT FDIC INSURED NOT BANK GUARANTEED MAY LOSE VALUE
Advisory Agreements
Board Considerations Regarding Approval of Continuation of Investment Management Agreements
The Board of Trustees of First Trust Exchange-Traded Fund (the “Trust”), including the Independent Trustees, unanimously approved the continuation of the Investment Management Agreements (as applicable to a specific Fund, the “Agreement” and collectively, the “Agreements”) with First Trust Advisors L.P. (the “Advisor”) on behalf of the following series of the Trust (each a “Fund” and collectively, the “Funds”):
First Trust Dividend Strength ETF (FTDS) |
First Trust Dow 30 Equal Weight ETF (EDOW) |
First Trust Lunt U.S. Factor Rotation ETF (FCTR) |
The Board approved the continuation of the Agreement for each Fund for a one-year period ending June 30, 2024 at a meeting held on June 4–5, 2023. The Board determined for each Fund that the continuation of the Agreement is in the best interests of the Fund in light of the nature, extent and quality of the services provided and such other matters as the Board considered to be relevant in the exercise of its business judgment.
To reach this determination for each Fund, the Board considered its duties under the Investment Company Act of 1940, as amended (the “1940 Act”), as well as under the general principles of state law, in reviewing and approving advisory contracts; the requirements of the 1940 Act in such matters; the fiduciary duty of investment advisors with respect to advisory agreements and compensation; the standards used by courts in determining whether investment company boards have fulfilled their duties; and the factors to be considered by the Board in voting on such agreements. At meetings held on April 17, 2023 and June 4–5, 2023, the Board, including the Independent Trustees, reviewed materials provided by the Advisor responding to requests for information from counsel to the Independent Trustees, submitted on behalf of the Independent Trustees, that, among other things, outlined:the services provided by the Advisor to each Fund (including the relevant personnel responsible for these services and their experience); the advisory fee rate schedule payable by FTDS and the unitary fee rate schedules payable by each of EDOW and FCTR (each a “Unitary Fee Fund” and collectively, the “Unitary Fee Funds”) as compared to fees charged to a peer group of funds (the “Expense Group”) and a broad peer universe of funds (the “Expense Universe”), each assembled by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent source, and as compared to fees charged to other clients of the Advisor, including other exchange-traded funds (“ETFs”) managed by the Advisor; the expense ratio of each Fund as compared to expense ratios of the funds in the Fund’s Expense Group and Expense Universe; performance information for each Fund, including comparisons of each Fund’s performance to that of one or more relevant benchmark indexes and to that of a performance group of funds and a broad performance universe of funds (the “Performance Universe”), each assembled by Broadridge; the nature of expenses incurred in providing services to each Fund and the potential for the Advisor to realize economies of scale, if any; profitability and other financial data for the Advisor; any indirect benefits to the Advisor and its affiliate, First Trust Portfolios L.P. (“FTP”); and information on the Advisor’s compliance program. The Board reviewed initial materials with the Advisor at the meeting held on April 17, 2023, prior to which the Independent Trustees and their counsel met separately to discuss the information provided by the Advisor. Following the April meeting, counsel to the Independent Trustees, on behalf of the Independent Trustees, requested certain clarifications and supplements to the materials provided, and the information provided in response to those requests was considered at an executive session of the Independent Trustees and their counsel held prior to the June 4–5, 2023 meeting, as well as at the June meeting. The Board applied its business judgment to determine whether the arrangement between the Trust and the Advisor continues to be a reasonable business arrangement from each Fund’s perspective. The Board determined that, given the totality of the information provided with respect to the Agreements, the Board had received sufficient
Additional Information (Continued)
First Trust Exchange-Traded Fund
June 30, 2023 (Unaudited)
information to renew the Agreements. The Board considered that shareholders chose to invest or remain invested in a Fund knowing that the Advisor manages the Fund and knowing FTDS’s advisory fee and the Unitary Fee Funds’ unitary fees.
In reviewing the Agreement for each Fund, the Board considered the nature, extent and quality of the services provided by the Advisor under the Agreement. The Board considered that the Advisor is responsible for the overall management and administration of the Trust and each Fund and reviewed all of the services provided by the Advisor to the Funds, as well as the background and experience of the persons responsible for such services. In reviewing the services provided, the Board noted the compliance program that had been developed by the Advisor and considered that it includes a robust program for monitoring the Advisor’s and each Fund’s compliance with the 1940 Act, as well as each Fund’s compliance with its investment objective, policies and restrictions. The Board also considered a report from the Advisor with respect to its risk management functions related to the operation of the Funds. Finally, as part of the Board’s consideration of the Advisor’s services, the Advisor, in its written materials and at the April 17, 2023 meeting, described to the Board the scope of its ongoing investment in additional personnel and infrastructure to maintain and improve the quality of services provided to the Funds and the other funds in the First Trust Fund Complex. In light of the information presented and the considerations made, the Board concluded that the nature, extent and quality of the services provided to the Trust and each Fund by the Advisor under the Agreements have been and are expected to remain satisfactory and that the Advisor has managed each Fund consistent with its investment objective, policies and restrictions.
With respect to FTDS, the Board considered the advisory fee rate schedule payable by FTDS under the Agreement for the services provided. The Board considered that the Advisor agreed to extend the current expense cap for FTDS through April 30, 2025. The Board received and reviewed information showing the fee rates and expense ratios of the peer funds in FTDS’s Expense Group, as well as advisory and unitary fee rates charged by the Advisor to other fund (including ETFs) and non-fund clients, as applicable. Because FTDS’s Expense Group included peer funds that pay a unitary fee, the Board determined that expense ratios were the most relevant comparative data point. Based on the information provided, the Board noted that the total (net) expense ratio for FTDS was above the median total (net) expense ratio of the peer funds in its Expense Group. With respect to FTDS’s Expense Group, the Board, at the April 17, 2023 meeting, discussed with Broadridge its methodology for assembling peer groups and discussed with the Advisor limitations in creating peer groups for index ETFs, including differences in underlying indexes and index-tracking methodologies that can result in greater management complexities across seemingly comparable ETFs, and different business models that may affect the pricing of services among ETF sponsors. The Board took these limitations and differences into account in considering the peer data. With respect to fees charged to other non-ETF clients, the Board considered differences between FTDS and other non-ETF clients that limited their comparability. In considering the advisory fee rate schedule for FTDS overall, the Board also considered the Advisor’s statement that it seeks to meet investor needs through innovative and value-added investment solutions and the Advisor’s demonstrated long-term commitment to FTDS and the other funds in the First Trust Fund Complex.
With respect to each Unitary Fee Fund, the Board considered the unitary fee rate schedule payable by each Fund under the applicable Agreement for the services provided. The Board considered that as part of the unitary fee the Advisor is responsible for each Fund’s expenses, including the cost of transfer agency, custody, fund administration, legal, audit and other services and license fees, if any, but excluding the fee payment under the applicable Agreement and interest, taxes, brokerage commissions and other expenses connected with the execution of portfolio transactions, distribution and service fees pursuant to a Rule 12b-1 plan, if any, and extraordinary expenses, if any. The Board received and reviewed information showing the fee rates and expense ratios of the peer funds in the Unitary Fee Funds’ Expense Groups, as well as advisory and unitary fee rates charged by the Advisor to other fund (including ETFs) and non-fund clients, as applicable. Because each Unitary Fee Fund pays a unitary fee, the Board determined that expense ratios were the most relevant comparative data point. Based on the information provided, the Board noted that the total (net) expense ratio for each Unitary Fee Fund was above the median total (net) expense ratio of the peer funds in its respective Expense Group. With respect to the Expense Groups for the Unitary Fee Funds, the Board, at the April 17, 2023 meeting, discussed with Broadridge its methodology for assembling peer groups and discussed with the Advisor limitations in creating peer groups for index ETFs, including differences in underlying indexes and index-tracking methodologies that can result in greater management complexities across seemingly comparable ETFs and different business models that may affect the pricing of services among ETF sponsors. The Board took these limitations and differences into account in considering the peer data. With respect to fees charged to other non-ETF clients, the Board considered differences between the Unitary Fee Funds and other non-ETF clients that limited their comparability. In considering the unitary fee rate schedules for the Unitary Fee Funds overall, the Board also considered the Advisor’s statement that it seeks to meet investor needs through innovative and value-added investment solutions and the Advisor’s demonstrated long-term commitment to each Unitary Fee Fund and the other funds in the First Trust Fund Complex.
The Board considered performance information for each Fund. The Board noted the process it has established for monitoring each Fund’s performance and portfolio risk on an ongoing basis, which includes quarterly performance reporting from the Advisor for the
Additional Information (Continued)
First Trust Exchange-Traded Fund
June 30, 2023 (Unaudited)
Funds. The Board determined that this process continues to be effective for reviewing each Fund’s performance. The Board received and reviewed information for periods ended December 31, 2022 regarding the performance of each Fund’s underlying index, the correlation between each Fund’s performance and that of its underlying index, each Fund’s tracking difference and each Fund’s excess return as compared to its benchmark index. With respect to FTDS, the Board noted that during 2022, it approved changes to the Fund’s investment objective and, effective April 29, 2022, the Fund changed its name and ticker symbol and began tracking The Dividend Strength™ Index, and that the performance information included a blend of the old and new indexes. The Board also noted that during 2015, FTDS changed its underlying index. Based on the information provided for each Fund and its ongoing review of performance, the Board concluded that each Fund was correlated to its underlying index and that the tracking difference for each Fund was within a reasonable range. In addition, the Board reviewed data prepared by Broadridge comparing each Fund’s performance to that of its respective Performance Universe and to that of a broad-based benchmark index. However, given each Fund’s objective of seeking investment results that correspond generally to the performance of its underlying index, the Board placed more emphasis on its review of correlation and tracking difference.
On the basis of all the information provided on the fees and expenses of FTDS, the unitary fees of the Unitary Fee Funds and the performance of each Fund and the ongoing oversight by the Board, the Board concluded that the advisory fee for FTDS and the unitary fee for each Unitary Fee Fund continue to be reasonable and appropriate in light of the nature, extent and quality of the services provided by the Advisor to each Fund under the Agreements.
The Board considered information and discussed with the Advisor whether there were any economies of scale in connection with providing advisory services to the Funds at current asset levels and whether the Funds may benefit from any economies of scale. The Board noted that the advisory fee rate schedule for FTDS and the unitary fee rate schedule for each Unitary Fee Fund include breakpoints pursuant to which the fee rate will be reduced as assets of the Fund meet certain thresholds. The Board considered the Advisor’s statement that it believes that its expenses relating to providing advisory services to the Funds will increase during the next twelve months as the Advisor continues to build infrastructure and add new staff. For the Unitary Fee Funds, the Board also noted that under the unitary fee structure, any reduction in expenses associated with the management and operations of the Unitary Fee Funds would benefit the Advisor, but that the unitary fee structure provides a level of certainty in expenses for shareholders of the Unitary Fee Funds. The Board concluded that the advisory fee rate schedule for FTDS and the unitary fee rate schedule for each Unitary Fee Fund reflect an appropriate level of sharing of any economies of scale that may be realized in the management of the Fund at current asset levels. The Board considered the revenues and allocated costs (including the allocation methodology) of the Advisor in serving as investment advisor to each Fund for the twelve months ended December 31, 2022 and the estimated profitability level for each Fund calculated by the Advisor based on such data, as well as complex-wide and product-line profitability data, for the same period. The Board noted the inherent limitations in the profitability analysis and concluded that, based on the information provided, the Advisor’s profitability level for each Fund was not unreasonable. In addition, the Board considered indirect benefits described by the Advisor that may be realized from its relationship with the Funds. The Board considered that the Advisor had identified as an indirect benefit to the Advisor and FTP their exposure to investors and brokers who, absent their exposure to the Funds, may have had no dealings with the Advisor or FTP, and noted that the Advisor does not utilize soft dollars in connection with the Funds. The Board concluded that the character and amount of potential indirect benefits to the Advisor were not unreasonable. Based on all of the information considered and the conclusions reached, the Board, including the Independent Trustees, unanimously determined that the terms of the Agreements continue to be fair and reasonable and that the continuation of the Agreements is in the best interests of each Fund. No single factor was determinative in the Board’s analysis.
Board Considerations Regarding Approval of Investment Management Agreement
First Trust Bloomberg Inflation Sensitive Equity ETF
The Board of Trustees of First Trust Exchange-Traded Fund (the “Trust”), including the Independent Trustees, approved the Investment Management Agreement (the “Agreement”) with First Trust Advisors L.P. (the “Advisor”), on behalf of First Trust Bloomberg Inflation Sensitive Equity ETF (the “Fund”), for an initial two-year term at a meeting held on December 12, 2022. The Board determined that the Agreement is in the best interests of the Fund in light of the nature, extent and quality of the services expected to be provided and such other matters as the Board considered to be relevant in the exercise of its business judgment.
To reach this determination, the Board considered its duties under the Investment Company Act of 1940, as amended (the “1940 Act”), as well as under the general principles of state law, in reviewing and approving advisory contracts; the requirements of the 1940 Act in such matters; the fiduciary duty of investment advisors with respect to advisory agreements and compensation; the standards used by courts in determining whether investment company boards have fulfilled their duties; and the factors to be considered by the
Additional Information (Continued)
First Trust Exchange-Traded Fund
June 30, 2023 (Unaudited)
Board in voting on such agreements. To assist the Board in its evaluation of the Agreement for the Fund, the Independent Trustees received a report from the Advisor in advance of the Board meeting responding to a request for information from counsel to the Independent Trustees, submitted on behalf of the Independent Trustees, that, among other things, outlined:the services to be provided by the Advisor to the Fund (including the relevant personnel responsible for these services and their experience); the proposed unitary fee rate schedule payable by the Fund as compared to fees charged to a peer group of funds (the “Expense Group”) and a broad peer universe of funds (the “Expense Universe”), each assembled by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent source, and as compared to fees charged to other exchange-traded funds (“ETFs”) managed by the Advisor; the estimated expense ratio of the Fund as compared to expense ratios of the funds in the Fund’s Expense Group and Expense Universe; the nature of expenses to be incurred in providing services to the Fund and the potential for the Advisor to realize economies of scale, if any; profitability and other financial data for the Advisor; any indirect benefits to the Advisor and its affiliate, First Trust Portfolios L.P. (“FTP”); and information on the Advisor’s compliance program. The Independent Trustees and their counsel also met separately to discuss the information provided by the Advisor. The Board applied its business judgment to determine whether the arrangement between the Trust and the Advisor is a reasonable business arrangement from the Fund’s perspective.
In evaluating whether to approve the Agreement for the Fund, the Board considered the nature, extent and quality of the services to be provided by the Advisor under the Agreement and considered that employees of the Advisor provide management services to other ETFs and to other funds in the First Trust Fund Complex with diligence and care. The Board considered that the Advisor will be responsible for the overall management and administration of the Fund and reviewed all of the services to be provided by the Advisor to the Fund. The Board also considered the background and experience of the persons who will be responsible for the day-to-day management of the Fund’s investments. In reviewing the services to be provided, the Board noted the compliance program that had been developed by the Advisor and considered that it includes a robust program for monitoring the Advisor’s and the Fund’s compliance with the 1940 Act, as well as the Fund’s compliance with its investment objective, policies and restrictions. Because the Fund had yet to commence investment operations, the Board could not consider the historical investment performance of the Fund. Because the Fund is an index ETF that is designed to track the performance of an underlying index, the Board considered reports it receives on a quarterly basis showing the correlation and tracking error between other ETFs for which the Advisor serves as investment advisor and their applicable underlying indexes. In light of the information presented and the considerations made, the Board concluded that the nature, extent and quality of the services to be provided to the Fund by the Advisor under the Agreement are expected to be satisfactory.
The Board considered the proposed unitary fee rate schedule payable by the Fund under the Agreement for the services to be provided. The Board noted that, under the unitary fee arrangement, the Fund would pay the Advisor a unitary fee starting at an annual rate of 0.60% of its average daily net assets, subject to a breakpoint schedule pursuant to which the unitary fee rate would be reduced as assets of the Fund meet certain thresholds. The Board noted that the Advisor would be responsible for the Fund’s expenses, including the cost of transfer agency, custody, fund administration, legal, audit and other services and license fees, if any, but excluding the fee payment under the Agreement and interest, taxes, acquired fund fees and expenses, if any, brokerage commissions and other expenses connected with the execution of portfolio transactions, distribution and service fees pursuant to a Rule 12b-1 plan, if any, and extraordinary expenses, if any. The Board received and reviewed information showing the fee rates and expense ratios of the peer funds in the Expense Group, as well as advisory and unitary fee rates charged by the Advisor to other ETFs. Because the Fund will pay a unitary fee, the Board determined that expense ratios were the most relevant comparative data point. Based on the information provided, the Board noted that the unitary fee rate for the Fund was above the median total (net) expense ratio of the peer funds in the Expense Group. With respect to the Expense Group, the Board discussed with representatives of the Advisor how the Expense Group was assembled and how the Fund compared and differed from the peer funds. The Board took this information into account in considering the peer data. With respect to fees charged to other ETFs managed by the Advisor, the Board considered the Advisor’s statement that the Fund will be distinct compared to other funds in the First Trust Fund Complex, but similar to two other index ETFs managed by the Advisor, each of which has an advisory fee rate schedule starting at an annual rate of 0.50% of its average daily net assets and is subject to an expense cap of 0.65% or 0.70% of its average daily net assets, given each strategy’s use of fundamental screens to select a portfolio of 50 stocks with similar characteristics. In light of the information considered and the nature, extent and quality of the services expected to be provided to the Fund under the Agreement, the Board determined that the proposed unitary fee was fair and reasonable.
The Board considered whether there are any potential economies of scale to be achieved in connection with the Advisor providing investment advisory services to the Fund and whether the Fund may benefit from any economies of scale. The Board noted that the proposed unitary fee rate schedule for the Fund includes breakpoints pursuant to which the unitary fee rate would be reduced as assets of the Fund meet certain thresholds. The Board considered that the Advisor has continued to build infrastructure and add new staff to improve the services to the funds in the First Trust Fund Complex. The Board also noted that under the unitary fee structure, any
Additional Information (Continued)
First Trust Exchange-Traded Fund
June 30, 2023 (Unaudited)
reduction in expenses associated with the management and operations of the Fund generally would benefit the Advisor, but that the unitary fee structure provides a level of certainty in expenses for shareholders of the Fund. The Board concluded that the proposed unitary fee rate schedule for the Fund reflects an appropriate level of sharing of any economies of scale that may be realized in the management of the Fund at reasonably foreseeable future asset levels. The Board took into consideration the types of costs to be borne by the Advisor in connection with its services to be performed for the Fund under the Agreement. The Board considered the Advisor’s estimate of the asset level for the Fund at which the Advisor expects the Agreement to be profitable to the Advisor and the Advisor’s estimate of the profitability of the Agreement if the Fund’s assets reach $100 million. The Board noted the inherent limitations in the profitability analysis and concluded that, based on the information provided, the Advisor’s estimated profitability level for the Fund was not unreasonable. The Board considered indirect benefits described by the Advisor that may be realized from its relationship with the Fund. The Board considered that the Advisor had identified as an indirect benefit to the Advisor and FTP their exposure to investors and brokers who, absent their exposure to the Fund, may have had no dealings with the Advisor or FTP. The Board also noted that the Advisor will not utilize soft dollars in connection with the Fund. The Board concluded that the character and amount of potential indirect benefits to the Advisor were not unreasonable.
Based on all of the information considered and the conclusions reached, the Board, including the Independent Trustees, determined that the terms of the Agreement are fair and reasonable and that the approval of the Agreement is in the best interests of the Fund. No single factor was determinative in the Board’s analysis.
Liquidity Risk Management Program
In accordance with Rule 22e-4 under the Investment Company Act of 1940, as amended (the “1940 Act”), the Funds and each other fund in the First Trust Fund Complex, other than the closed-end funds, have adopted and implemented a liquidity risk management program (the “Program”) reasonably designed to assess and manage the funds’ liquidity risk, i.e., the risk that a fund could not meet requests to redeem shares issued by the fund without significant dilution of remaining investors’ interests in the fund. The Board of Trustees of the First Trust Funds has appointed First Trust Advisors, L.P. (the “Advisor”) as the person designated to administer the Program, and in this capacity the Advisor performs its duties primarily through the activities and efforts of the First Trust Liquidity Committee (the “Liquidity Committee”).
Pursuant to the Program, the Liquidity Committee classifies the liquidity of each fund’s portfolio investments into one of the four liquidity categories specified by Rule 22e-4: highly liquid investments, moderately liquid investments, less liquid investments and illiquid investments. The Liquidity Committee determines certain of the inputs for this classification process, including reasonably anticipated trade sizes and significant investor dilution thresholds. The Liquidity Committee also determines and periodically reviews a highly liquid investment minimum for certain funds, monitors the funds’ holdings of assets classified as illiquid investments to seek to ensure they do not exceed 15% of a fund’s net assets and establishes policies and procedures regarding redemptions in kind.
At the April 17, 2023 meeting of the Board of Trustees, as required by Rule 22e-4 and the Program, the Advisor provided the Board with a written report prepared by the Advisor that addressed the operation of the Program during the period from March 17, 2022 through the Liquidity Committee’s annual meeting held on March 23, 2023 and assessed the Program’s adequacy and effectiveness of implementation during this period, including the operation of the highly liquid investment minimum for each fund that is required under the Program to have one, and any material changes to the Program. Note that because the Funds primarily hold assets that are highly liquid investments, the Funds have not adopted any highly liquid investment minimums.
As stated in the written report, during the review period, two funds breached the 15% limitation on illiquid investments for one day each, as a result of an unscheduled week-long closure of the stock exchange in Istanbul following devastating earthquakes in February, causing all Turkish equities to be re-classified as “illiquid” for one day. Each fund filed a Form N-RN on the day after the breach occurred, and one day later after the breach was cured. No fund with a highly liquid investment minimum breached that minimum during the reporting period. The Advisor concluded that each fund’s investment strategy is appropriate for an open-end fund; that the Program operated effectively in all material respects during the review period; and that the Program is reasonably designed to assess and manage the liquidity risk of each fund and to maintain compliance with Rule 22e-4.
First Trust Exchange-Traded Fund
INVESTMENT ADVISOR
First Trust Advisors L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
ADMINISTRATOR, CUSTODIAN,
FUND ACCOUNTANT &
TRANSFER AGENT
The Bank of New York Mellon
240 Greenwich Street
New York, NY 10286
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
111 South Wacker Drive
Chicago, IL 60606
LEGAL COUNSEL
Chapman and Cutler LLP
320 South Canal Street
Chicago, IL 60606
Semi-Annual Report
For the Six Months Ended
June 30, 2023
First Trust Exchange-Traded Fund
FT Cboe Vest Gold Strategy Quarterly Buffer ETF (BGLD) |
FT Cboe Vest Gold Strategy Quarterly Buffer ETF (BGLD)
Semi-Annual Report
June 30, 2023
Caution Regarding Forward-Looking Statements
This report contains certain forward-looking statements within the meaning of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. Forward-looking statements include statements regarding the goals, beliefs, plans or current expectations of First Trust Advisors L.P. (“First Trust” or the “Advisor”) and/or Cboe VestSM Financial LLC (“Cboe Vest” or the “Sub-Advisor”) and their respective representatives, taking into account the information currently available to them. Forward-looking statements include all statements that do not relate solely to current or historical fact. For example, forward-looking statements include the use of words such as “anticipate,” “estimate,” “intend,” “expect,” “believe,” “plan,” “may,” “should,” “would” or other words that convey uncertainty of future events or outcomes.
Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the series of First Trust Exchange-Traded Fund (the “Trust”) described in this report (FT Cboe Vest Gold Strategy Quarterly Buffer ETF; hereinafter referred to as the “Fund”) to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. When evaluating the information included in this report, you are cautioned not to place undue reliance on these forward-looking statements, which reflect the judgment of the Advisor and/or Sub-Advisor and their respective representatives only as of the date hereof. We undertake no obligation to publicly revise or update these forward-looking statements to reflect events and circumstances that arise after the date hereof.
Performance and Risk Disclosure
There is no assurance that the Fund will achieve its investment objective. The Fund is subject to market risk, which is the possibility that the market values of securities owned by the Fund will decline and that the value of the Fund’s shares may therefore be less than what you paid for them. Accordingly, you can lose money investing in the Fund. See “Risk Considerations” in the Additional Information section of this report for a discussion of certain other risks of investing in the Fund.
Performance data quoted represents past performance, which is no guarantee of future results, and current performance may be lower or higher than the figures shown. For the most recent month-end performance figures, please visit www.ftportfolios.com or speak with your financial advisor. Investment returns, net asset value and share price will fluctuate and Fund shares, when sold, may be worth more or less than their original cost.
The Advisor may also periodically provide additional information on Fund performance on the Fund’s webpage at www.ftportfolios.com.
How to Read This Report
This report contains information that may help you evaluate your investment in the Fund. It includes details about the Fund and presents data and analysis that provide insight into the Fund’s performance and investment approach.
The statistical information that follows may help you understand the Fund’s performance compared to that of relevant market benchmarks.
It is important to keep in mind that the opinions expressed by personnel of the Advisor and/or Sub-Advisor are just that:informed opinions. They should not be considered to be promises or advice. The opinions, like the statistics, cover the period through the date on the cover of this report. The material risks of investing in the Fund are spelled out in the prospectus, the statement of additional information, and other Fund regulatory filings.
FT Cboe Vest Gold Strategy Quarterly Buffer ETF (BGLD)
Semi-Annual Letter from the Chairman and CEO
June 30, 2023
Dear Shareholders:
First Trust is pleased to provide you with the semi-annual report for the FT Cboe Vest Gold Strategy Quarterly Buffer ETF (the “Fund”), which contains detailed information about the Fund for the six months ended June 30, 2023.
One economic topic that continues to dominate headlines is whether the Federal Reserve (the “Fed”) will be able to pull off a “soft landing” for the U.S. economy, raising interest rates just high enough to curb inflation, but not so high that they stunt economic growth and cause a recession. Historically, soft landings are exceedingly rare. Over the past 60 years, the Fed has only been able to orchestrate this phenomenon once. This occurred between February 1994 and February 1995 when the Fed doubled the Federal Funds target rate (upper bound), raising it from 3.0% to 6.0%. For comparative purposes, the Federal Funds target rate (upper bound) stood at 5.25% on June 30, 2023, a full 500 basis points above its most recent low of 0.25% on March 15, 2022. Inflation, as measured by the rate of change in the Consumer Price Index (“CPI”), appears to be declining. The CPI stood at 3.0% on June 30, 2023, substantially lower than its most recent peak of 9.1% on June 30, 2022. Despite the Fed’s tighter monetary policy, the U.S. economy continues to show resilience, with gross domestic product (“GDP”) growing in each of the past three quarters.
I am continually amazed by the efficiencies that technological advances can have on production. Take, for example, the recent interest in artificial intelligence (“AI”). The U.S. Census Bureau reported that construction spending by manufacturers in the U.S. has more than doubled in the past year, reaching an annual rate of nearly $190 billion in April 2023, according to Bloomberg. Manufacturing now accounts for close to 13% of all non-government construction, its highest share on record. A portion of the growth in U.S. manufacturing is due to the CHIPS and Science Act, which provided nearly $280 billion in funding to boost domestic research and manufacturing of semiconductors in the U.S. We have also seen the excitement regarding developments in AI drive the S&P 500® Index (the “Index”) higher this year. Year-to-date through June 30, 2023, the Index posted a total return of 16.89%. When the stock market increases by 20% or more from its most recent low, it is often referred to as a “bull market.” On June 8, 2023, the Index closed at 4,293.93, 20.04% above its most recent low of 3,577.03 (which occurred on October 12, 2022).
The U.S. economy has been resilient, posting positive changes to GDP even as monetary policy tightened significantly. That said, there are also economic indicators that point to the potential for weakness over the coming quarters. The Conference Board, a
non-profit business membership and research group organization, reported that its Leading Economic Index, which is composed of 10 economic indicators whose changes tend to precede changes in the overall economy, fell by 0.7% to a reading of 106.1 in June 2023, according to Reuters. The result represents the fifteenth consecutive monthly decline in the index, the longest streak of
month-over-month decreases since just before the financial crisis in 2007. From our perspective, even if the Fed can pull off a soft landing, it is likely to be a very bumpy ride.
Thank you for giving First Trust the opportunity to play a role in your financial future. We value our relationship with you and will report on the Fund again in six months.
Sincerely,
James A. Bowen
Chairman of the Board of Trustees
Chief Executive Officer of First Trust Advisors L.P.
Fund Performance Overview (Unaudited)
FT Cboe Vest Gold Strategy Quarterly Buffer ETF (BGLD)
The investment objective of the FT Cboe Vest Gold Strategy Quarterly Buffer ETF (the “Fund”) is to seek to provide investors with returns (before fees, expenses and taxes) that match the price return of the SPDR® Gold Trust (the “Underlying ETF”), up to a predetermined upside cap of 9.25% (before fees, expenses and taxes) and 9.02% (after fees and expenses, excluding brokerage commissions, trading fees, taxes and extraordinary expenses not included in the Fund’s management fee), while providing a buffer against Underlying ETF losses between -5% and -15% (before fees, expenses and taxes) over the period from June 1, 2023 to August 31, 2023 (the “Outcome Period”). Under normal market conditions, the Fund will invest substantially all of its assets in U.S. Treasury securities, cash and cash equivalents, and in the shares of a wholly-owned subsidiary (the “Subsidiary”) that holds FLexible EXchange® Options (“FLEX Options”) that reference the price performance of the Underlying ETF. The Fund does not invest directly in FLEX Options on the Underlying ETF. The Fund gains exposure to these investments exclusively by investing in the Subsidiary. The Fund will invest up to approximately 25% of its total assets in the Subsidiary.
Subsequent Target Outcome Periods will begin on the day the prior Target Outcome Period ends and will end on the approximate three-month anniversary of that new Target Outcome Period. On the first day of each new Target Outcome Period, the Fund resets by investing in a new set of FLEX Options that are designed to provide a new cap for the new Target Outcome Period. This means that the cap will change for each Target Outcome Period based upon prevailing market conditions at the beginning of each Target Outcome Period. The Fund will be perpetually offered and not terminate after the current or any subsequent Target Outcome Period. An investor that purchases Fund shares other than on the first day of a Target Outcome Period and/or sells Fund shares prior to the end of a Target Outcome Period may experience results that are very different from the target outcomes sought by the Fund for that Target Outcome Period. The Fund is classified as non-diversified under the Investment Company Act of 1940, as amended. The shares of the Fund are listed and traded on the Cboe BZX Exchange, Inc., under the ticker symbol “BGLD.”
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| | | Average Annual Total Returns | |
| | | Inception
(1/20/21)
to 6/30/23 | Inception
(1/20/21)
to 6/30/23 |
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S&P 500® Index - Price Return | | | | |
Total returns for the period since inception are calculated from the inception date of the Fund. “Average Annual Total Returns” represent the average annual change in value of an investment over the period indicated. “Cumulative Total Returns” represent the total change in value of an investment over the period indicated.
The Fund’s per share net asset value (“NAV”) is the value of one share of the Fund and is computed by dividing the value of all assets of the Fund (including accrued interest and dividends), less all liabilities (including accrued expenses and dividends declared but unpaid), by the total number of outstanding shares. The price used to calculate market return (“Market Price”) is determined by using the midpoint of the national best bid and offer price (“NBBO”) as of the time that the Fund’s NAV is calculated. Under SEC rules, the NBBO consists of the highest displayed buy and lowest sell prices among the various exchanges trading the Fund at the time the Fund’s NAV is calculated. Since shares of the Fund did not trade in the secondary market until after the Fund’s inception, for the period from inception to the first day of secondary market trading in shares of the Fund, the NAV of the Fund is used as a proxy for the secondary market trading price to calculate market returns. NAV and market returns assume that all distributions have been reinvested in the Fund at NAV and Market Price, respectively.
An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The total returns presented reflect the reinvestment of dividends on securities in the indices. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. The investment return and principal value of shares of the Fund will vary with changes in market conditions. Shares of the Fund may be worth more or less than their original cost when they are redeemed or sold in the market. The Fund’s past performance is no guarantee of future performance.
Fund Performance Overview (Unaudited) (Continued)
FT Cboe Vest Gold Strategy Quarterly Buffer ETF (BGLD)
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Net Other Assets and Liabilities | |
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| Performance figures assume reinvestment of all distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund’s past performance does not predict future performance. |
Frequency Distribution of Discounts and Premiums
Information showing the number of days the market price of the Fund’s shares was greater (at a premium) and less (at a discount) than the Fund’s net asset value for the most recently completed year, and the most recently completed calendar quarters since that year (or life of the Fund, if shorter) is available at https://www.ftportfolios.com/Retail/etf/home.aspx.
FT Cboe Vest Gold Strategy Quarterly Buffer ETF (BGLD)
Semi-Annual Report
June 30, 2023 (Unaudited)
Advisor
First Trust Advisors L.P. (“First Trust” or the “Advisor”) is the investment advisor to FT Cboe Vest Gold Strategy Quarterly Buffer ETF (“BGLD” or the “Fund”). First Trust is responsible for the ongoing monitoring of the Fund’s investment portfolio, managing the Fund’s business affairs and providing certain administrative services necessary for the management of the Fund.
Sub-Advisor
Cboe VestSM Financial LLC (“Cboe Vest” or the “Sub-Advisor”) serves as the investment sub-advisor to the Fund. In this capacity, Cboe Vest is responsible for the selection and ongoing monitoring of the securities in the Fund’s investment portfolio. Cboe Vest, with principal offices at 8350 Broad Street, Suite 240, McLean, Virginia 22102, was founded in 2012. Cboe Vest had approximately $14.1 billion under management or committed to management as of June 30, 2023.
Portfolio Management Team
Karan Sood, Managing Director of Cboe Vest
Howard Rubin, Managing Director of Cboe Vest
The portfolio managers are primarily and jointly responsible for the day-to-day management of the Fund. Each portfolio manager has served as a part of the portfolio management team of the Fund since 2021.
FT Cboe Vest Gold Strategy Quarterly Buffer ETF (BGLD)
Understanding Your Fund Expenses
June 30, 2023 (Unaudited)
As a shareholder of FT Cboe Vest Gold Strategy Quarterly Buffer ETF (the “Fund”), you incur two types of costs: (1) transaction costs; and (2) ongoing costs, including management fees, distribution and/or service (12b-1) fees, if any, and other Fund expenses. This Example is intended to help you understand your ongoing costs of investing in the Fund and to compare these costs with the ongoing costs of investing in other funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held through the six-month period ended June 30, 2023.
Actual Expenses
The first line in the following table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During the Six-Month Period” to estimate the expenses you paid on your account during this six-month period.
Hypothetical Example for Comparison Purposes
The second line in the following table provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs such as brokerage commissions. Therefore, the second line in the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
| Beginning
Account Value
January 1, 2023 | Ending
Account Value
June 30, 2023 | Annualized
Expense Ratio
Based on the
Six-Month
Period | Expenses Paid
During the
Six-Month
Period (a) |
FT Cboe Vest Gold Strategy Quarterly Buffer ETF (BGLD) |
| | | | |
Hypothetical (5% return before expenses) | | | | |
| Expenses are equal to the annualized expense ratio as indicated in the table multiplied by the average account value over the period (January 1, 2023 through June 30, 2023), multiplied by 181/365 (to reflect the six-month period). |
FT Cboe Vest Gold Strategy Quarterly Buffer ETF (BGLD)
Consolidated Portfolio of Investments
June 30, 2023 (Unaudited)
| | | | |
U.S. TREASURY BILLS — 95.3% |
| | | | |
| | | | |
| | |
MONEY MARKET FUNDS — 0.2% |
| Dreyfus Government Cash Management Fund, Institutional Shares - 5.00% (c) | |
| | |
| Total Investments — 95.5% | |
| | |
| | | | | |
|
| Call Options Purchased — 4.2% | |
| | | | | |
| | | | | |
|
| Call Options Written — (0.1)% | |
| | | | | |
| (Premiums received $18,614) | | | | |
| Put Options Written — (0.0)% | |
| | | | | |
| (Premiums received $110,801) | | | | |
| | |
| (Premiums received $129,415) | |
| Net Other Assets and Liabilities — 0.4% | |
| | |
| All or a portion of this security is segregated as collateral for the options written. At June 30, 2023, the segregated value of this security amounts to $2,826,778. |
| |
| Rate shown reflects yield as of June 30, 2023. |
See Notes to Consolidated Financial Statements
FT Cboe Vest Gold Strategy Quarterly Buffer ETF (BGLD)
Consolidated Portfolio of Investments (Continued)
June 30, 2023 (Unaudited)
Valuation InputsA summary of the inputs used to value the Fund’s investments as of June 30, 2023 is as follows (see Note 2A - Portfolio Valuation in the Notes to Consolidated Financial Statements):
|
| | | Level 2
Significant
Observable
Inputs | Level 3
Significant
Unobservable
Inputs |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
|
| | | Level 2
Significant
Observable
Inputs | Level 3
Significant
Unobservable
Inputs |
| | | | |
See Notes to Consolidated Financial Statements
FT Cboe Vest Gold Strategy Quarterly Buffer ETF (BGLD)
Consolidated Statement of Assets and Liabilities
June 30, 2023 (Unaudited)
| |
| |
Options contracts purchased, at value | |
| |
| |
| |
|
| |
Options contracts written, at value | |
Investment advisory fees payable | |
| |
| |
|
| |
| |
| |
Accumulated distributable earnings (loss) | |
| |
NET ASSET VALUE, per share | |
Number of shares outstanding (unlimited number of shares authorized, par value $0.01 per share) | |
| |
Premiums paid on options contracts purchased | |
Premiums received on options contracts written | |
See Notes to Consolidated Financial Statements
FT Cboe Vest Gold Strategy Quarterly Buffer ETF (BGLD)
Consolidated Statement of Operations
For the Six Months Ended June 30, 2023 (Unaudited)
| |
| |
| |
| |
|
| |
| |
| |
NET INVESTMENT INCOME (LOSS) | |
|
NET REALIZED AND UNREALIZED GAIN (LOSS): | |
Net realized gain (loss) on: | |
| |
Purchased options contracts | |
Written options contracts | |
| |
Net change in unrealized appreciation (depreciation) on: | |
| |
Purchased options contracts | |
Written options contracts | |
Net change in unrealized appreciation (depreciation) | |
NET REALIZED AND UNREALIZED GAIN (LOSS) | |
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | |
See Notes to Consolidated Financial Statements
FT Cboe Vest Gold Strategy Quarterly Buffer ETF (BGLD)
Consolidated Statements of Changes in Net Assets
| Six Months
Ended
6/30/2023 (Unaudited) | |
| | |
Net investment income (loss) | | |
| | |
Net change in unrealized appreciation (depreciation) | | |
Net increase (decrease) in net assets resulting from operations | | |
|
DISTRIBUTIONS TO SHAREHOLDERS FROM: | | |
| | |
| | |
Total distributions to shareholders | | |
|
SHAREHOLDER TRANSACTIONS: | | |
Proceeds from shares sold | | |
| | |
Net increase (decrease) in net assets resulting from shareholder transactions | | |
Total increase (decrease) in net assets | | |
|
| | |
| | |
| | |
|
CHANGES IN SHARES OUTSTANDING: | | |
Shares outstanding, beginning of period | | |
| | |
| | |
Shares outstanding, end of period | | |
See Notes to Consolidated Financial Statements
FT Cboe Vest Gold Strategy Quarterly Buffer ETF (BGLD)
Consolidated Financial Highlights
For a share outstanding throughout each period
| Six Months
Ended
6/30/2023
(Unaudited) | | Period
Ended
12/31/2021 (a) |
|
Net asset value, beginning of period | | | |
Income from investment operations: | | | |
Net investment income (loss) | | | |
Net realized and unrealized gain (loss) | | | |
Total from investment operations | | | |
Distributions paid to shareholders from: | | | |
| | | |
| | | |
| | | |
Net asset value, end of period | | | |
| | | |
|
Ratios to average net assets/supplemental data: | | | |
Net assets, end of period (in 000’s) | | | |
Ratio of total expenses to average net assets | | | |
Ratio of net investment income (loss) to average net assets | | | |
Portfolio turnover rate (e) | | | |
| Inception date is January 20, 2021, which is consistent with the commencement of investment operations and is the date the initial creation units were established. |
| Based on average shares outstanding. |
| Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. |
| |
| Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions, derivatives and in-kind transactions. |
See Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
FT Cboe Vest Gold Strategy Quarterly Buffer ETF (BGLD)
June 30, 2023 (Unaudited)
1. Organization
First Trust Exchange-Traded Fund (the “Trust”) is an open-end management investment company organized as a Massachusetts business trust on August 8, 2003, and is registered with the Securities and Exchange Commission under the Investment Company Act of 1940, as amended (the “1940 Act”).
The Trust currently consists of twenty-three exchange-traded funds. This report covers the FT Cboe Vest Gold Strategy Quarterly Buffer ETF (the “Fund”), which trades under the ticker “BGLD” on the Cboe BZX Exchange, Inc. The Fund represents a separate series of shares of beneficial interest in the Trust. Unlike conventional mutual funds, the Fund issues and redeems shares on a continuous basis, at net asset value (“NAV”), only in large blocks of shares known as “Creation Units.”
The Fund is an actively managed exchange-traded fund. The Fund’s investment objective is to seek to provide investors with returns (before fees, expenses and taxes) that match the price return of the SPDR® Gold Trust (the “Underlying ETF”), up to a predetermined upside cap of 9.25% (before fees, expenses and taxes) and 9.02% (after fees and expenses, excluding brokerage commissions, trading fees, taxes and extraordinary expenses not included in the Fund’s management fee), while providing a buffer against Underlying ETF losses between -5% and -15% (before fees, expenses and taxes) over the period from June 1, 2023 to August 31, 2023 (the “Target Outcome Period”). Prior to June 1, 2023, the Fund’s investment objective included an upside cap of 6.31% and 7.36% (before fees, expenses and taxes) and 6.09% and 7.13% (after fees and expenses, excluding brokerage commissions, trading fees, taxes and extraordinary expenses not included in the Fund’s management fee) and a Target Outcome Period of December 1, 2022 to February 28, 2023 and March 1, 2023 to May 31, 2023, respectively. Under normal market conditions, the Fund will invest substantially all of its assets in U.S. Treasury securities, cash and cash equivalents, and in the shares of a wholly-owned subsidiary (the “Subsidiary”) that holds FLexible EXchange® Options (“FLEX Options”) that reference the price performance of the Underlying ETF. The Subsidiary is wholly-owned by the Fund and is organized under the laws of the Cayman Islands. The Fund does not invest directly in FLEX Options on the Underlying ETF. The Fund gains exposure to these investments exclusively by investing in the Subsidiary. The Fund will invest up to approximately 25% of its total assets in the Subsidiary. As of June 30, 2023 the Fund invested 21.48% of the Fund’s total assets in the Subsidiary. There can be no assurance that the Fund will achieve its investment objective. The Fund may not be appropriate for all investors.
2. Significant Accounting Policies
The Fund is considered an investment company and follows accounting and reporting guidance under Financial Accounting Standards Board Accounting Standards Codification Topic 946, “Financial Services-Investment Companies.” The consolidated financial statements include the accounts on a consolidated basis of the Subsidiary. All intercompany accounts and transactions have been eliminated in consolidation. The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of the consolidated financial statements. The preparation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts and disclosures in the consolidated financial statements. Actual results could differ from those estimates.
A. Portfolio Valuation
The Fund’s NAV is determined daily as of the close of regular trading on the New York Stock Exchange (“NYSE”), normally 4:00 p.m. Eastern time, on each day the NYSE is open for trading. If the NYSE closes early on a valuation day, the NAV is determined as of that time. The Fund’s NAV is calculated by dividing the value of all assets of the Fund (including accrued interest and dividends), less all liabilities (including accrued expenses and dividends declared but unpaid), by the total number of shares outstanding.
The Fund’s investments are valued daily at market value or, in the absence of market value with respect to any portfolio securities, at fair value. Market value prices represent readily available market quotations such as last sale or official closing prices from a national or foreign exchange (i.e., a regulated market) and are primarily obtained from third-party pricing services. Fair value prices represent any prices not considered market value prices and are either obtained from a third-party pricing service or are determined by the Pricing Committee of the Fund’s investment advisor, First Trust Advisors L.P. (“First Trust” or the “Advisor”), in accordance with valuation procedures approved by the Trust’s Board of Trustees, and in accordance with provisions of the 1940 Act and rules thereunder. Investments valued by the Advisor’s Pricing Committee, if any, are footnoted as such in the footnotes to the Consolidated Portfolio of Investments. The Fund’s investments are valued as follows:
Notes to Consolidated Financial Statements (Continued)
FT Cboe Vest Gold Strategy Quarterly Buffer ETF (BGLD)
June 30, 2023 (Unaudited)
Exchange-traded options contracts (other than FLEX Option contracts) are valued at the closing price in the market where such contracts are principally traded. If no closing price is available, exchange-traded options contracts are fair valued at the mean of their most recent bid and ask price, if both are available. Over-the-counter options contracts are valued as follows, depending on the market in which the instrument trades: (1) the mean of their most recent bid and ask price, if available; or (2) a price based on the equivalent exchange-traded option. FLEX Option contracts are normally valued using a model-based price provided by a third-party pricing vendor. On days when a trade in a FLEX Option contract occurs, the trade price will be used to value such FLEX Option contracts in lieu of the model price.
U.S. Treasuries are valued on the basis of valuations provided by a third-party pricing service approved by the Trust’s Board of Trustees.
Shares of open-end funds are valued based on NAV per share.
If the Fund’s investments are not able to be priced by pre-established pricing methods, such investments may be valued by the Trust’s Board of Trustees or its delegate, the Advisor’s Pricing Committee, at fair value. A variety of factors may be considered in determining the fair value of such investments.
Valuing the Fund’s holdings using fair value pricing will result in using prices for those holdings that may differ from current market valuations. The Subsidiary’s holdings will be valued in the same manner as the Fund’s holdings.
The Fund is subject to fair value accounting standards that define fair value, establish the framework for measuring fair value and provide a three-level hierarchy for fair valuation based upon the inputs to the valuation as of the measurement date. The three levels of the fair value hierarchy are as follows:
• Level 1 – Level 1 inputs are quoted prices in active markets for identical investments. An active market is a market in which transactions for the investment occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
• Level 2 – Level 2 inputs are observable inputs, either directly or indirectly, and include the following:
o Quoted prices for similar investments in active markets.
o Quoted prices for identical or similar investments in markets that are non-active. A non-active market is a market where there are few transactions for the investment, the prices are not current, or price quotations vary substantially either over time or among market makers, or in which little information is released publicly.
o Inputs other than quoted prices that are observable for the investment (for example, interest rates and yield curves observable at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks, and default rates).
o Inputs that are derived principally from or corroborated by observable market data by correlation or other means.
• Level 3 – Level 3 inputs are unobservable inputs. Unobservable inputs may reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the investment.
The inputs or methodologies used for valuing investments are not necessarily an indication of the risk associated with investing in those investments. A summary of the inputs used to value the Fund’s investments as of June 30, 2023, is included with the Fund’s Consolidated Portfolio of Investments.
B. Investment Transactions and Investment Income
Investment transactions are recorded as of the trade date. Realized gains and losses from investment transactions are recorded on the identified cost basis. Dividend income is recorded on the ex-dividend date. Interest income, if any, is recorded daily on the accrual basis. Amortization of premiums and accretion of discounts are recorded using the effective interest method.
C. FLEX Options
FLEX Options are customized equity or index option contracts that trade on an exchange, but provide investors with the ability to customize key contract terms like exercise prices, styles and expiration dates. FLEX Options are guaranteed for settlement by the Options Clearing Corporation.
The Fund, through the Subsidiary, purchases and sells call and put FLEX Options based on the performance of the Underlying ETF. The FLEX Options that the Subsidiary holds that reference the Underlying ETF will give the Subsidiary the right to receive or deliver shares of the Underlying ETF on the option expiration date at a strike price, depending on whether the option is a put or call option
Notes to Consolidated Financial Statements (Continued)
FT Cboe Vest Gold Strategy Quarterly Buffer ETF (BGLD)
June 30, 2023 (Unaudited)
and whether the Subsidiary purchases or sells the option. The FLEX Options held by the Subsidiary are European style options, which are exercisable at the strike price only on the FLEX Option expiration date.
When the Subsidiary writes (sells) an option, an amount equal to the premium received by the Subsidiary is included in “Options contracts written, at value” on the Consolidated Statement of Assets and Liabilities. Gain or loss on written options is presented separately as “Net realized gain (loss) on written options contracts” on the Consolidated Statement of Operations. When the Subsidiary purchases a call or put option, the premium paid represents the cost of the call or put option, which is included in “Options contracts purchased, at value” on the Consolidated Statement of Assets and Liabilities. Gain or loss on purchased options is included in “Net realized gain (loss) on purchased options contracts” on the Consolidated Statement of Operations.
D. Dividends and Distributions to Shareholders
Dividends from net investment income of the Fund, if any, are declared and paid annually, or as the Board of Trustees may determine from time to time. Distributions of net realized gains earned by the Fund, if any, are distributed at least annually. The Fund may also designate a portion of the amount paid to redeeming shareholders as a distribution for tax purposes.
Distributions from net investment income and realized capital gains are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the consolidated financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These permanent differences are primarily due to the varying treatment of income and gain/loss on significantly modified portfolio securities held by the Fund and have no impact on net assets or NAV per share. Temporary differences, which arise from recognizing certain items of income, expense and gain/loss in different periods for consolidated financial statement and tax purposes, will reverse at some time in the future.
The tax character of distributions paid by the Fund during the fiscal year ended December 31, 2022 was as follows:
As of December 31, 2022, the components of distributable earnings on a tax basis for the Fund were as follows:
Undistributed ordinary income | |
Accumulated capital and other gain (loss) | |
Net unrealized appreciation (depreciation) | |
E. Income Taxes
The Fund intends to continue to qualify as a regulated investment company by complying with the requirements under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), which includes distributing substantially all of its net investment income and net realized gains to shareholders. Accordingly, no provision has been made for federal and state income taxes. However, due to the timing and amount of distributions, the Fund may be subject to an excise tax of 4% of the amount by which approximately 98% of the Fund’s taxable income exceeds the distributions from such taxable income for the calendar year.
The Subsidiary is classified as a controlled foreign corporation under Subchapter N of the Code. Therefore, the Fund is required to increase its taxable income by its share of the Subsidiary’s income, whether or not such earnings are distributed by the Subsidiary to the Fund. Net investment losses of the Subsidiary cannot be deducted by the Fund in the current period nor carried forward to offset taxable income in future periods.
The Fund is subject to accounting standards that establish a minimum threshold for recognizing, and a system for measuring, the benefits of a tax position taken or expected to be taken in a tax return. The taxable years ended 2021 and 2022 remain open to federal and state audit. As of June 30, 2023, management has evaluated the application of these standards to the Fund and has determined that no provision for income tax is required in the Fund’s consolidated financial statements for uncertain tax positions.
The Fund intends to utilize provisions of the federal income tax laws, which allow it to carry a realized capital loss forward indefinitely following the year of the loss and offset such loss against any future realized capital gains. The Fund is subject to certain limitations under U.S. tax rules on the use of capital loss carryforwards and net unrealized built-in losses. These limitations apply when there has been a 50% change in ownership. At December 31, 2022, for federal income tax purposes, the Fund had $210 of non-expiring capital loss carryforwards that may be carried forward indefinitely.
Notes to Consolidated Financial Statements (Continued)
FT Cboe Vest Gold Strategy Quarterly Buffer ETF (BGLD)
June 30, 2023 (Unaudited)
Certain losses realized during the current fiscal year may be deferred and treated as occurring on the first day of the following fiscal year for federal income tax purposes. For the fiscal year ended December 31, 2022, the Fund had no net late year ordinary or capital losses.
As of June 30, 2023, the aggregate cost, gross unrealized appreciation, gross unrealized depreciation, and net unrealized appreciation/(depreciation) on investments (including short positions and derivatives, if any) for federal income tax purposes were as follows:
| Gross Unrealized
Appreciation | Gross Unrealized
(Depreciation) | Net Unrealized
Appreciation
(Depreciation) |
| | | |
F. Expenses
Expenses, other than the investment advisory fee and other excluded expenses, are paid by the Advisor (see Note 3).
3. Investment Advisory Fee, Affiliated Transactions and Other Fee Arrangements
First Trust, the investment advisor to the Fund, is a limited partnership with one limited partner, Grace Partners of DuPage L.P., and one general partner, The Charger Corporation. The Charger Corporation is an Illinois corporation controlled by James A. Bowen, Chief Executive Officer of First Trust. First Trust is responsible for the ongoing monitoring of the Fund’s and the Subsidiary’s investment portfolios, managing the Fund’s business affairs and providing certain administrative services necessary for the management of the Fund.
First Trust is responsible for the expenses of the Fund and the Subsidiary including the cost of transfer agency, sub-advisory, custody, fund administration, legal, audit and other services, but excluding fee payments under the Investment Management Agreement, interest, taxes, acquired fund fees and expenses, if any, brokerage commissions and other expenses connected with the execution of portfolio transactions, distribution and service fees payable pursuant to a Rule 12b-1 plan, if any, and extraordinary expenses. The annual unitary management fee payable by the Fund to First Trust for these services will be reduced at certain levels of the Fund’s net assets (“breakpoints”) and calculated pursuant to the schedule below:
| |
Fund net assets up to and including $2.5 billion | |
Fund net assets greater than $2.5 billion up to and including $5 billion | |
Fund net assets greater than $5 billion up to and including $7.5 billion | |
Fund net assets greater than $7.5 billion up to and including $10 billion | |
Fund net assets greater than $10 billion | |
The Subsidiary does not pay First Trust a separate management fee.
Cboe VestSM Financial LLC (“Cboe Vest”), an affiliate of First Trust, serves as the Fund’s sub-advisor and manages the Fund’s portfolio subject to First Trust’s supervision. Pursuant to the Investment Management Agreement, between the Trust, on behalf of the Fund, and the Advisor, and the Investment Sub-Advisory Agreement among the Trust, on behalf of the Fund, the Advisor and Cboe Vest, First Trust will supervise Cboe Vest and its management of the investment of the Fund’s assets and will pay Cboe Vest for its services as the Fund’s sub-advisor a sub-advisory fee equal to 50% of any remaining monthly unitary management fee paid to the Advisor after the average Fund’s expenses accrued during the most recent twelve months are subtracted from the unitary management fee for that month.
The Trust has multiple service agreements with The Bank of New York Mellon (“BNYM”). Under the service agreements, BNYM performs custodial, fund accounting, certain administrative services, and transfer agency services for the Fund. As custodian, BNYM is responsible for custody of the Fund’s assets. As fund accountant and administrator, BNYM is responsible for maintaining the books and records of the Fund’s securities and cash. As transfer agent, BNYM is responsible for maintaining shareholder records for the Fund. BNYM is a subsidiary of The Bank of New York Mellon Corporation, a financial holding company.
Notes to Consolidated Financial Statements (Continued)
FT Cboe Vest Gold Strategy Quarterly Buffer ETF (BGLD)
June 30, 2023 (Unaudited)
Each Trustee who is not an officer or employee of First Trust, any sub-advisor or any of their affiliates (“Independent Trustees”) is paid a fixed annual retainer that is allocated equally among each fund in the First Trust Fund Complex. Each Independent Trustee is also paid an annual per fund fee that varies based on whether the fund is a closed-end or other actively managed fund, a target outcome fund or an index fund.
Additionally, the Lead Independent Trustee and the Chairs of the Audit Committee, Nominating and Governance Committee and Valuation Committee are paid annual fees to serve in such capacities, with such compensation allocated pro rata among each fund in the First Trust Fund Complex based on net assets. Independent Trustees are reimbursed for travel and out-of-pocket expenses in connection with all meetings. The Lead Independent Trustee and Committee Chairs rotate every three years. The officers and “Interested” Trustee receive no compensation from the Trust for acting in such capacities.
4. Purchases and Sales of Securities
The cost of purchases and proceeds from sales of securities, excluding short-term investments, derivatives, and in-kind transactions, for the six months ended June 30, 2023, were $0 and $0, respectively.
For the six months ended June 30, 2023, the Fund had no in-kind transactions.
5. Derivative Transactions
The following table presents the types of derivatives held by the Subsidiary at June 30, 2023, the primary underlying risk exposure and the location of these instruments as presented on the Consolidated Statement of Assets and Liabilities.
| | | |
| | Consolidated
Statement of Assets and
Liabilities Location | | Consolidated
Statement of Assets and
Liabilities Location | |
| | Options contracts purchased, at value | | Options contracts written, at value | |
The following table presents the amount of net realized gain (loss) and change in net unrealized appreciation (depreciation) recognized for the six months ended June 30, 2023, on derivative instruments, as well as the primary underlying risk exposure associated with the instruments.
|
Consolidated Statement of Operations Location | |
| |
Net realized gain (loss) on: | |
Purchased options contracts | |
Written options contracts | |
Net change in unrealized appreciation (depreciation) on: | |
Purchased options contracts | |
Written options contracts | |
During the six months ended June 30, 2023, the premiums for purchased options contracts opened were $2,524,232 and the premiums for purchased options contracts closed, exercised and expired were $2,271,551.
During the six months ended June 30, 2023, the premiums for written options contracts opened were $417,959 and the premiums for written options contracts closed, exercised and expired were $446,289.
The Fund does not have the right to offset financial assets and liabilities related to options contracts on the Consolidated Statement of Assets and Liabilities.
6. Creations, Redemptions and Transaction Fees
The Fund generally issues and redeems its shares in primary market transactions through a creation and redemption mechanism and does not sell or redeem individual shares. Instead, financial entities known as “Authorized Participants” have contractual arrangements
Notes to Consolidated Financial Statements (Continued)
FT Cboe Vest Gold Strategy Quarterly Buffer ETF (BGLD)
June 30, 2023 (Unaudited)
with the Fund or one of the Fund’s service providers to purchase and redeem Fund shares directly with the Fund in large blocks of shares known as “Creation Units.” Prior to the start of trading on every business day, the Fund publishes through the National Securities Clearing Corporation (“NSCC”) the “basket” of securities, cash or other assets that it will accept in exchange for a Creation Unit of the Fund’s shares. An Authorized Participant that wishes to effectuate a creation of the Fund’s shares deposits with the Fund the “basket” of securities, cash or other assets identified by the Fund that day, and then receives the Creation Unit of the Fund’s shares in return for those assets. After purchasing a Creation Unit, the Authorized Participant may continue to hold the Fund’s shares or sell them in the secondary market. The redemption process is the reverse of the purchase process:the Authorized Participant redeems a Creation Unit of the Fund’s shares for a basket of securities, cash or other assets. The combination of the creation and redemption process with secondary market trading in the Fund’s shares and underlying securities provides arbitrage opportunities that are designed to help keep the market price of the Fund’s shares at or close to the NAV per share of the Fund.
The Fund imposes fees in connection with the purchase of Creation Units. These fees may vary based upon various fact-based circumstances, including, but not limited to, the composition of the securities included in the Creation Unit or the countries in which the transactions are settled. The price for each Creation Unit will equal the daily NAV per share of the Fund times the number of shares in a Creation Unit, plus the fees described above and, if applicable, any operational processing and brokerage costs, transfer fees, stamp taxes and part or all of the spread between the expected bid and offer side of the market related to the securities comprising the creation basket.
The Fund also imposes fees in connection with the redemption of Creation Units. These fees may vary based upon various fact-based circumstances, including, but not limited to, the composition of the securities included in the Creation Unit or the countries in which the transactions are settled. The price received for each Creation Unit will equal the daily NAV per share of the Fund times the number of shares in a Creation Unit, minus the fees described above and, if applicable, any operational processing and brokerage costs, transfer fees, stamp taxes and part or all of the spread between the expected bid and offer side of the market related to the securities comprising the redemption basket. Investors who use the services of a broker or other such intermediary in addition to an Authorized Participant to effect a redemption of a Creation Unit may also be assessed an amount to cover the cost of such services. The redemption fee charged by the Fund will comply with Rule 22c-2 of the 1940 Act which limits redemption fees to no more than 2% of the value of the shares redeemed.
7. Distribution Plan
The Board of Trustees adopted a Distribution and Service Plan pursuant to Rule 12b-1 under the 1940 Act. In accordance with the Rule 12b-1 plan, the Fund is authorized to pay an amount up to 0.25% of its average daily net assets each year to reimburse First Trust Portfolios L.P. (“FTP”), the distributor of the Fund, for amounts expended to finance activities primarily intended to result in the sale of Creation Units or the provision of investor services. FTP may also use this amount to compensate securities dealers or other persons that are Authorized Participants for providing distribution assistance, including broker-dealer and shareholder support and educational and promotional services.
No 12b-1 fees are currently paid by the Fund, and pursuant to a contractual arrangement, no 12b-1 fees will be paid any time before April 30, 2024.
8. Indemnification
The Trust, on behalf of the Fund, has a variety of indemnification obligations under contracts with its service providers. The Trust’s maximum exposure under these arrangements is unknown. However, the Trust has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
9. Subsequent Events
Management has evaluated the impact of all subsequent events on the Fund through the date the consolidated financial statements were issued and has determined that there were no subsequent events requiring recognition or disclosure in the consolidated financial statements that have not already been disclosed.
FT Cboe Vest Gold Strategy Quarterly Buffer ETF (BGLD)
June 30, 2023 (Unaudited)
Proxy Voting Policies and Procedures
A description of the policies and procedures that the Trust uses to determine how to vote proxies and information on how the Fund voted proxies relating to its portfolio securities during the most recent 12-month period ended June 30 is available (1) without charge, upon request, by calling (800) 988-5891; (2) on the Fund’s website at www.ftportfolios.com; and (3) on the Securities and Exchange Commission’s (“SEC”) website at www.sec.gov.
Portfolio Holdings
The Fund files portfolio holdings information for each month in a fiscal quarter within 60 days after the end of the relevant fiscal quarter on Form N-PORT. Portfolio holdings information for the third month of each fiscal quarter will be publicly available on the SEC’s website at www.sec.gov. The Fund’s complete schedule of portfolio holdings for the second and fourth quarters of each fiscal year is included in the semi-annual and annual reports to shareholders, respectively, and is filed with the SEC on Form N-CSR. The semi-annual and annual report for the Fund is available to investors within 60 days after the period to which it relates. The Fund’s Forms N-PORT and Forms N-CSR are available on the SEC’s website listed above.
Risk Considerations
Risks are inherent in all investing. Certain general risks that may be applicable to a Fund are identified below, but not all of the material risks relevant to each Fund are included in this report and not all of the risks below apply to each Fund. The material risks of investing in each Fund are spelled out in its prospectus, statement of additional information and other regulatory filings. Before investing, you should consider each Fund’s investment objective, risks, charges and expenses, and read each Fund’s prospectus and statement of additional information carefully. You can download each Fund’s prospectus at www.ftportfolios.com or contact First Trust Portfolios L.P. at (800) 621-1675 to request a prospectus, which contains this and other information about each Fund.
Concentration Risk. To the extent that a fund is able to invest a significant percentage of its assets in a single asset class or the securities of issuers within the same country, state, region, industry or sector, an adverse economic, business or political development may affect the value of the fund’s investments more than if the fund were more broadly diversified. A fund that tracks an index will be concentrated to the extent the fund’s corresponding index is concentrated. A concentration makes a fund more susceptible to any single occurrence and may subject the fund to greater market risk than a fund that is more broadly diversified.
Credit Risk. Credit risk is the risk that an issuer of a security will be unable or unwilling to make dividend, interest and/or principal payments when due and the related risk that the value of a security may decline because of concerns about the issuer’s ability to make such payments.
Cyber Security Risk. The funds are susceptible to potential operational risks through breaches in cyber security. A breach in cyber security refers to both intentional and unintentional events that may cause a fund to lose proprietary information, suffer data corruption or lose operational capacity. Such events could cause a fund to incur regulatory penalties, reputational damage, additional compliance costs associated with corrective measures and/or financial loss. In addition, cyber security breaches of a fund’s third-party service providers, such as its administrator, transfer agent, custodian, or sub-advisor, as applicable, or issuers in which the fund invests, can also subject a fund to many of the same risks associated with direct cyber security breaches.
Defined Outcome Funds Risk. To the extent a fund’s investment strategy is designed to deliver returns tied to the price performance of an underlying ETF, an investor may not realize the returns the fund seeks to achieve if that investor does not hold shares for the entire target outcome period. In the event an investor purchases shares after the first day of the target outcome period or sells shares prior to the end of the target outcome period, the buffer that the fund seeks to provide against a decline in the value of the underlying ETF may not be available, the enhanced returns that the fund seeks to provide (if any) may not be available and the investor may not participate in a gain in the value of the underlying ETF up to the cap for the investor’s investment period. Additionally, the fund will not participate in gains of the underlying ETF above the cap and a shareholder may lose their entire investment. If the fund seeks enhanced returns, there are certain time periods when the value of the fund may fall faster than the value of the underlying ETF, and it is very unlikely that, on any given day during which the underlying ETF share price increases in value, the fund’s share price will increase at the same rate as the enhanced returns sought by the fund, which is designed for an entire target outcome period. Trading flexible exchange options involves risks different from, or possibly greater than, the risks associated with investing directly in securities, such as less liquidity and correlation and valuation risks. A fund may experience substantial downside from specific flexible exchange option positions and certain positions may expire worthless.
Additional Information (Continued)
FT Cboe Vest Gold Strategy Quarterly Buffer ETF (BGLD)
June 30, 2023 (Unaudited)
Derivatives Risk. To the extent a fund uses derivative instruments such as futures contracts, options contracts and swaps, the fund may experience losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivative. These risks are heightened when a fund’s portfolio managers use derivatives to enhance the fund’s return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the fund.
Equity Securities Risk. To the extent a fund invests in equity securities, the value of the fund’s shares will fluctuate with changes in the value of the equity securities. Equity securities prices fluctuate for several reasons, including changes in investors’ perceptions of the financial condition of an issuer or the general condition of the relevant stock market, such as market volatility, or when political or economic events affecting the issuers occur. In addition, common stock prices may be particularly sensitive to rising interest rates, as the cost of capital rises and borrowing costs increase. Equity securities may decline significantly in price over short or extended periods of time, and such declines may occur in the equity market as a whole, or they may occur in only a particular country, company, industry or sector of the market.
ETF Risk. The shares of an ETF trade like common stock and represent an interest in a portfolio of securities. The risks of owning an ETF generally reflect the risks of owning the underlying securities, although lack of liquidity in an ETF could result in it being more volatile and ETFs have management fees that increase their costs. Shares of an ETF trade on an exchange at market prices rather than net asset value, which may cause the shares to trade at a price greater than net asset value (premium) or less than net asset value (discount). In times of market stress, decisions by market makers to reduce or step away from their role of providing a market for an ETF’s shares, or decisions by an ETF’s authorized participants that they are unable or unwilling to proceed with creation and/or redemption orders of an ETF’s shares, could result in shares of the ETF trading at a discount to net asset value and in greater than normal intraday bid-ask spreads.
Fixed Income Securities Risk. To the extent a fund invests in fixed income securities, the fund will be subject to credit risk, income risk, interest rate risk, liquidity risk and prepayment risk. Income risk is the risk that income from a fund’s fixed income investments could decline during periods of falling interest rates. Interest rate risk is the risk that the value of a fund’s fixed income securities will decline because of rising interest rates. Liquidity risk is the risk that a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. Prepayment risk is the risk that the securities will be redeemed or prepaid by the issuer, resulting in lower interest payments received by the fund. In addition to these risks, high yield securities, or “junk” bonds, are subject to greater market fluctuations and risk of loss than securities with higher ratings, and the market for high yield securities is generally smaller and less liquid than that for investment grade securities.
Index or Model Constituent Risk. Certain funds may be a constituent of one or more indices or ETF models. As a result, such a fund may be included in one or more index-tracking exchange-traded funds or mutual funds. Being a component security of such a vehicle could greatly affect the trading activity involving a fund, the size of the fund and the market volatility of the fund. Inclusion in an index could increase demand for the fund and removal from an index could result in outsized selling activity in a relatively short period of time. As a result, a fund’s net asset value could be negatively impacted and the fund’s market price may be significantly below its net asset value during certain periods. In addition, index rebalances may potentially result in increased trading activity in a fund’s shares.
Index Provider Risk. To the extent a fund seeks to track an index, it is subject to Index Provider Risk. There is no assurance that the Index Provider will compile the Index accurately, or that the Index will be determined, maintained, constructed, reconstituted, rebalanced, composed, calculated or disseminated accurately. To correct any such error, the Index Provider may carry out an unscheduled rebalance or other modification of the Index constituents or weightings, which may increase the fund’s costs. The Index Provider does not provide any representation or warranty in relation to the quality, accuracy or completeness of data in the Index, and it does not guarantee that the Index will be calculated in accordance with its stated methodology. Losses or costs associated with any Index Provider errors generally will be borne by the fund and its shareholders.
Investment Companies Risk. To the extent a fund invests in the securities of other investment vehicles, the fund will incur additional fees and expenses that would not be present in a direct investment in those investment vehicles. Furthermore, the fund’s investment performance and risks are directly related to the investment performance and risks of the investment vehicles in which the fund invests.
LIBOR Risk. To the extent a fund invests in floating or variable rate obligations that use the London Interbank Offered Rate (“LIBOR”) as a reference interest rate, it is subject to LIBOR Risk. The United Kingdom’s Financial Conduct Authority, which regulates LIBOR, has ceased making LIBOR available as a reference rate over a phase-out period that began December 31, 2021.
Additional Information (Continued)
FT Cboe Vest Gold Strategy Quarterly Buffer ETF (BGLD)
June 30, 2023 (Unaudited)
There is no assurance that any alternative reference rate, including the Secured Overnight Financing Rate (“SOFR”) will be similar to or produce the same value or economic equivalence as LIBOR or that instruments using an alternative rate will have the same volume or liquidity. The unavailability or replacement of LIBOR may affect the value, liquidity or return on certain fund investments and may result in costs incurred in connection with closing out positions and entering into new trades. Any potential effects of the transition away from LIBOR on the fund or on certain instruments in which the fund invests can be difficult to ascertain, and they may vary depending on a variety of factors, and they could result in losses to the fund.
Management Risk. To the extent that a fund is actively managed, it is subject to management risk. In managing an actively-managed fund’s investment portfolio, the fund’s portfolio managers will apply investment techniques and risk analyses that may not have the desired result. There can be no guarantee that a fund will meet its investment objective.
Market Risk. Market risk is the risk that a particular security, or shares of a fund in general, may fall in value. Securities held by a fund, as well as shares of a fund itself, are subject to market fluctuations caused by factors such as general economic conditions, political events, regulatory or market developments, changes in interest rates and perceived trends in securities prices. Shares of a fund could decline in value or underperform other investments as a result of the risk of loss associated with these market fluctuations. In addition, local, regional or global events such as war, acts of terrorism, spread of infectious diseases or other public health issues, recessions, or other events could have a significant negative impact on a fund and its investments. Such events may affect certain geographic regions, countries, sectors and industries more significantly than others. In February 2022, Russia invaded Ukraine which has caused and could continue to cause significant market disruptions and volatility within the markets in Russia, Europe, and the United States. The hostilities and sanctions resulting from those hostilities could have a significant impact on certain fund investments as well as fund performance. The COVID-19 global pandemic and the ensuing policies enacted by governments and central banks have caused and may continue to cause significant volatility and uncertainty in global financial markets. While the U.S. has resumed “reasonably” normal business activity, many countries continue to impose lockdown measures. Additionally, there is no guarantee that vaccines will be effective against emerging variants of the disease. These events also adversely affect the prices and liquidity of a fund’s portfolio securities or other instruments and could result in disruptions in the trading markets. Any of such circumstances could have a materially negative impact on the value of a fund’s shares and result in increased market volatility. During any such events, a fund’s shares may trade at increased premiums or discounts to their net asset value and the bid/ask spread on a fund’s shares may widen.
Non-U.S. Securities Risk. To the extent a fund invests in non-U.S. securities, it is subject to additional risks not associated with securities of domestic issuers. Non-U.S. securities are subject to higher volatility than securities of domestic issuers due to:possible adverse political, social or economic developments; restrictions on foreign investment or exchange of securities; capital controls; lack of liquidity; currency exchange rates; excessive taxation; government seizure of assets; the imposition of sanctions by foreign governments; different legal or accounting standards; and less government supervision and regulation of exchanges in foreign countries. Investments in non-U.S. securities may involve higher costs than investments in U.S. securities, including higher transaction and custody costs, as well as additional taxes imposed by non-U.S. governments. These risks may be heightened for securities of companies located, or with significant operations, in emerging market countries.
Operational Risk. Each fund is subject to risks arising from various operational factors, including, but not limited to, human error, processing and communication errors, errors of a fund’s service providers, counterparties or other third-parties, failed or inadequate processes and technology or systems failures. Each fund relies on third-parties for a range of services, including custody. Any delay or failure relating to engaging or maintaining such service providers may affect a fund’s ability to meet its investment objective. Although the funds and the funds’ investment advisor seek to reduce these operational risks through controls and procedures, there is no way to completely protect against such risks.
Passive Investment Risk. To the extent a fund seeks to track an index, the fund will invest in the securities included in, or representative of, the index regardless of their investment merit. A fund generally will not attempt to take defensive positions in declining markets.
Preferred Securities Risk. Preferred securities combine some of the characteristics of both common stocks and bonds. Preferred securities are typically subordinated to bonds and other debt securities in a company’s capital structure in terms of priority to corporate income, subjecting them to greater credit risk than those debt securities. Generally, holders of preferred securities have no voting rights with respect to the issuing company unless preferred dividends have been in arrears for a specified number of periods, at which time the preferred security holders may obtain limited rights. In certain circumstances, an issuer of preferred securities may defer
Additional Information (Continued)
FT Cboe Vest Gold Strategy Quarterly Buffer ETF (BGLD)
June 30, 2023 (Unaudited)
payment on the securities and, in some cases, redeem the securities prior to a specified date. Preferred securities may also be substantially less liquid than other securities, including common stock.
Valuation Risk. The valuation of certain securities may carry more risk than that of common stock. Uncertainties in the conditions of the financial markets, unreliable reference data, lack of transparency and inconsistency of valuation models and processes may lead to inaccurate asset pricing. A fund may hold investments in sizes smaller than institutionally sized round lot positions (sometimes referred to as odd lots). However, third-party pricing services generally provide evaluations on the basis of institutionally-sized round lots. If a fund sells certain of its investments in an odd lot transaction, the sale price may be less than the value at which such securities have been held by the fund. Odd lots often trade at lower prices than institutional round lots. There is no assurance that the fund will be able to sell a portfolio security at the price established by the pricing service, which could result in a loss to the fund.
Disclaimer
The Fund is not sponsored, endorsed, sold or promoted by SPDR® Gold Shares, SPDR, or Standard & Poor’s®(together with their affiliates hereinafter referred to as the “Corporations”). The Corporations have not passed on the legality or suitability of, or the accuracy or adequacy of, descriptions and disclosures relating to the Fund or the FLEX Options. The Corporations make no representations or warranties, express or implied, regarding the advisability of investing in the Fund or the FLEX Options or results to be obtained by the Fund or the FLEX Options, shareholders or any other person or entity from use of the SPDR® Gold Shares. The Corporations have no liability in connection with the management, administration, marketing or trading of the Fund or the FLEX Options.
NOT FDIC INSURED NOT BANK GUARANTEED MAY LOSE VALUE
Advisory and Sub-Advisory Agreements
Board Considerations Regarding Approval of Continuation of Investment Management Agreement and Sub-Advisory Agreement
The Board of Trustees of First Trust Exchange-Traded Fund (the “Trust”), including the Independent Trustees, unanimously approved the continuation of the Investment Management Agreement (the “Advisory Agreement”) with First Trust Advisors L.P. (the “Advisor”) on behalf of the FT Cboe Vest Gold Strategy Quarterly Buffer ETF (the “Fund”) and the Investment Sub-Advisory Agreement (the “Sub-Advisory Agreement” and together with the Advisory Agreement, the “Agreements”) among the Trust, on behalf of the Fund, the Advisor and Cboe Vest Financial LLC (the “Sub-Advisor”). The Board approved the continuation of the Agreements for a one-year period ending June 30, 2024 at a meeting held on June 4–5, 2023. The Board determined that the continuation of the Agreements is in the best interests of the Fund in light of the nature, extent and quality of the services provided and such other matters as the Board considered to be relevant in the exercise of its business judgment.
To reach this determination, the Board considered its duties under the Investment Company Act of 1940, as amended (the “1940 Act”), as well as under the general principles of state law, in reviewing and approving advisory contracts; the requirements of the 1940 Act in such matters; the fiduciary duty of investment advisors with respect to advisory agreements and compensation; the standards used by courts in determining whether investment company boards have fulfilled their duties; and the factors to be considered by the Board in voting on such agreements. At meetings held on April 17, 2023 and June 4–5, 2023, the Board, including the Independent Trustees, reviewed materials provided by the Advisor and the Sub-Advisor responding to requests for information from counsel to the Independent Trustees, submitted on behalf of the Independent Trustees, that, among other things, outlined:the services provided by the Advisor and the Sub-Advisor to the Fund (including the relevant personnel responsible for these services and their experience); the unitary fee rate schedule payable by the Fund as compared to fees charged to a peer group of funds (the “Expense Group”) and a broad peer universe of funds (the “Expense Universe”), each assembled by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent source, and as compared to fees charged to other clients of the Advisor, including other exchange-traded funds (“ETFs”) managed by the Advisor; the sub-advisory fee as compared to fees charged to other clients of the Sub-Advisor; the expense ratio of the Fund as compared to expense ratios of the funds in the Fund’s Expense Group and Expense Universe; performance information for the Fund, including comparisons of the Fund’s performance to that of one or more relevant benchmark indexes and to that of a performance group of funds and a broad performance universe of funds (the “Performance Universe”), each assembled by Broadridge; the nature of expenses incurred in providing services to the Fund and the potential for the Advisor and the Sub-Advisor to realize economies of scale, if any; profitability and other financial data for the Advisor; financial data for the Sub-Advisor; any indirect benefits to the Advisor and its affiliates, First Trust Portfolios L.P. (“FTP”) and First Trust Capital Partners, LLC (“FTCP”), and the Sub-Advisor; and information on the Advisor’s and the Sub-Advisor’s compliance programs. The Board reviewed initial materials with the Advisor at the meeting held on April 17, 2023, prior to which the Independent Trustees and their counsel met separately to
Additional Information (Continued)
FT Cboe Vest Gold Strategy Quarterly Buffer ETF (BGLD)
June 30, 2023 (Unaudited)
discuss the information provided by the Advisor and the Sub-Advisor. Following the April meeting, counsel to the Independent Trustees, on behalf of the Independent Trustees, requested certain clarifications and supplements to the materials provided, and the information provided in response to those requests was considered at an executive session of the Independent Trustees and their counsel held prior to the June 4–5, 2023 meeting, as well as at the June meeting. The Board applied its business judgment to determine whether the arrangements between the Trust and the Advisor and among the Trust, the Advisor and the Sub-Advisor continue to be reasonable business arrangements from the Fund’s perspective. The Board determined that, given the totality of the information provided with respect to the Agreements, the Board had received sufficient information to renew the Agreements. The Board considered that shareholders chose to invest or remain invested in the Fund knowing that the Advisor and the Sub-Advisor manage the Fund and knowing the Fund’s unitary fee.
In reviewing the Agreements, the Board considered the nature, extent and quality of the services provided by the Advisor and the Sub-Advisor under the Agreements. With respect to the Advisory Agreement, the Board considered that the Advisor is responsible for the overall management and administration of the Trust and the Fund and reviewed all of the services provided by the Advisor to the Fund, including the oversight of the Sub-Advisor, as well as the background and experience of the persons responsible for such services. The Board noted that the Advisor oversees the Sub-Advisor’s day-to-day management of the Fund’s investments, including portfolio risk monitoring and performance review. In reviewing the services provided, the Board noted the compliance program that had been developed by the Advisor and considered that it includes a robust program for monitoring the Advisor’s, the Sub-Advisor’s and the Fund’s compliance with the 1940 Act, as well as the Fund’s compliance with its investment objective, policies and restrictions. The Board also considered a report from the Advisor with respect to its risk management functions related to the operation of the Fund. Finally, as part of the Board’s consideration of the Advisor’s services, the Advisor, in its written materials and at the April 17, 2023 meeting, described to the Board the scope of its ongoing investment in additional personnel and infrastructure to maintain and improve the quality of services provided to the Fund and the other funds in the First Trust Fund Complex. With respect to the Sub-Advisory Agreement, the Board noted that the Fund is an actively-managed ETF and the Sub-Advisor actively manages the Fund’s investments. The Board reviewed the materials provided by the Sub-Advisor and considered the services that the Sub-Advisor provides to the Fund, including the Sub-Advisor’s day-to-day management of the Fund’s investments. In considering the Sub-Advisor’s management of the Fund, the Board noted the background and experience of the Sub-Advisor’s portfolio management team, including the Board’s prior meetings with members of the portfolio management team. In light of the information presented and the considerations made, the Board concluded that the nature, extent and quality of the services provided to the Trust and the Fund by the Advisor and the Sub-Advisor under the Agreements have been and are expected to remain satisfactory and that the Sub-Advisor, under the oversight of the Advisor, has managed the Fund consistent with its investment objective, policies and restrictions.
The Board considered the unitary fee rate schedule payable by the Fund under the Advisory Agreement for the services provided. The Board noted that the sub-advisory fee is paid by the Advisor from the unitary fee. The Board considered that as part of the unitary fee the Advisor is responsible for the Fund’s expenses, including the cost of sub-advisory, transfer agency, custody, fund administration, legal, audit and other services and license fees, if any, but excluding the fee payment under the Advisory Agreement and interest, taxes, acquired fund fees and expenses, brokerage commissions and other expenses connected with the execution of portfolio transactions, distribution and service fees pursuant to a Rule 12b-1 plan, if any, and extraordinary expenses, if any. The Board received and reviewed information showing the fee rates and expense ratios of the peer funds in the Expense Group, as well as advisory and unitary fee rates charged by the Advisor and the Sub-Advisor to other fund (including ETFs) and non-fund clients, as applicable. Because the Fund pays a unitary fee, the Board determined that expense ratios were the most relevant comparative data point. Based on the information provided, the Board noted that the total (net) expense ratio for the Fund was above the median total (net) expense ratio of the peer funds in the Expense Group. With respect to the Expense Group, the Board, at the April 17, 2023 meeting, discussed with Broadridge its methodology for assembling peer groups and discussed with the Advisor limitations in creating peer groups for actively-managed ETFs, and different business models that may affect the pricing of services among ETF sponsors. The Board also noted that not all peer funds employ an advisor/sub-advisor management structure. The Board took these limitations and differences into account in considering the peer data. With respect to fees charged to other non-ETF clients, the Board considered differences between the Fund and other non-ETF clients that limited their comparability. In considering the unitary fee rate schedule overall, the Board also considered the Advisor’s statement that it seeks to meet investor needs through innovative and value-added investment solutions and the Advisor’s demonstrated long-term commitment to the Fund and the other funds in the First Trust Fund Complex.
The Board considered performance information for the Fund. The Board noted the process it has established for monitoring the Fund’s performance and portfolio risk on an ongoing basis, which includes quarterly performance reporting from the Advisor and the Sub-Advisor for the Fund. The Board determined that this process continues to be effective for reviewing the Fund’s performance. The Board received and reviewed information comparing the Fund’s performance for the one-year period ended December 31, 2022 to the
Additional Information (Continued)
FT Cboe Vest Gold Strategy Quarterly Buffer ETF (BGLD)
June 30, 2023 (Unaudited)
performance of the funds in the Performance Universe and to that of a benchmark index. The Board noted that the Fund is a target outcome ETF that seeks to provide investors with returns (before fees and expenses) over a defined period of time (typically one quarter of a year) that match the price return of the SPDR Gold Trust (“GLD”), up to a predetermined cap, while providing a buffer against certain losses on the price return of GLD. The Board considered information provided by the Sub-Advisor on the Fund’s performance during its four quarterly target outcome periods for the year ended February 28, 2023 and noted that the Fund delivered on its target outcome objective.
On the basis of all the information provided on the unitary fee and performance of the Fund and the ongoing oversight by the Board, the Board concluded that the unitary fee for the Fund (out of which the Sub-Advisor is compensated) continues to be reasonable and appropriate in light of the nature, extent and quality of the services provided by the Advisor and the Sub-Advisor to the Fund under the Agreements.
The Board considered information and discussed with the Advisor whether there were any economies of scale in connection with providing advisory services to the Fund at current asset levels and whether the Fund may benefit from any economies of scale. The Board noted that the unitary fee rate schedule for the Fund includes breakpoints pursuant to which the unitary fee rate will be reduced as assets of the Fund meet certain thresholds. The Board considered the Advisor’s statement that it believes that its expenses relating to providing advisory services to the Fund will increase during the next twelve months as the Advisor continues to build infrastructure and add new staff. The Board also noted that under the unitary fee structure, any reduction in expenses associated with the management and operations of the Fund would benefit the Advisor, but that the unitary fee structure provides a level of certainty in expenses for shareholders of the Fund. The Board concluded that the unitary fee rate schedule for the Fund reflects an appropriate level of sharing of any economies of scale that may be realized in the management of the Fund at current asset levels. The Board considered the revenues and allocated costs (including the allocation methodology) of the Advisor in serving as investment advisor to the Fund for the twelve months ended December 31, 2022 and the estimated profitability level for the Fund calculated by the Advisor based on such data, as well as complex-wide and product-line profitability data, for the same period. The Board noted the inherent limitations in the profitability analysis and concluded that, based on the information provided, the Advisor’s profitability level for the Fund was not unreasonable. In addition, the Board considered indirect benefits described by the Advisor that may be realized from its relationship with the Fund. The Board considered that the Advisor had identified as an indirect benefit to the Advisor and FTP their exposure to investors and brokers who, absent their exposure to the Fund, may have had no dealings with the Advisor or FTP. The Board also noted that FTCP has a controlling ownership interest in the Sub-Advisor’s parent company and considered potential indirect benefits to the Advisor from such ownership interest. The Board concluded that the character and amount of potential indirect benefits to the Advisor were not unreasonable.
The Board considered the Sub-Advisor’s statement that it believes that the sub-advisory fee for the Fund is appropriate. The Board noted the Sub-Advisor’s statements that it continues to invest in infrastructure, technology and personnel, and that it anticipates that its expenses relating to providing services to the Fund will remain approximately the same for the next twelve months. The Board noted that the Advisor pays the Sub-Advisor from the unitary fee, that the sub-advisory fee will be reduced consistent with the breakpoints in the unitary fee rate schedule and its understanding that the Fund’s sub-advisory fee was the product of an arm’s length negotiation. The Board did not review the profitability of the Sub-Advisor with respect to the Fund. The Board concluded that the profitability analysis for the Advisor was more relevant. The Board considered the potential indirect benefits to the Sub-Advisor from being associated with the Advisor and the Fund, and noted the Sub-Advisor’s statements that it is the Sub-Advisor’s policy currently not to enter into soft-dollar arrangements for the procurement of research services in connection with client securities transactions and that, as a result, there are no foreseen indirect benefits from its relationship with the Fund. The Board also considered the potential indirect benefits to the Sub-Advisor from FTCP’s controlling ownership interest in the Sub-Advisor’s parent company. The Board concluded that the character and amount of potential indirect benefits to the Sub-Advisor were not unreasonable. Based on all of the information considered and the conclusions reached, the Board, including the Independent Trustees, unanimously determined that the terms of the Agreements continue to be fair and reasonable and that the continuation of the Agreements is in the best interests of the Fund. No single factor was determinative in the Board’s analysis.
Liquidity Risk Management Program
In accordance with Rule 22e-4 under the Investment Company Act of 1940, as amended (the “1940 Act”), the Fund and each other fund in the First Trust Fund Complex, other than the closed-end funds, have adopted and implemented a liquidity risk management program (the “Program”) reasonably designed to assess and manage the funds’ liquidity risk, i.e., the risk that a fund could not meet requests to redeem shares issued by the fund without significant dilution of remaining investors’ interests in the fund. The Board of Trustees of the First Trust Funds has appointed First Trust Advisors, L.P. (the “Advisor”) as the person designated to administer the
Additional Information (Continued)
FT Cboe Vest Gold Strategy Quarterly Buffer ETF (BGLD)
June 30, 2023 (Unaudited)
Program, and in this capacity the Advisor performs its duties primarily through the activities and efforts of the First Trust Liquidity Committee (the “Liquidity Committee”).
Pursuant to the Program, the Liquidity Committee classifies the liquidity of each fund’s portfolio investments into one of the four liquidity categories specified by Rule 22e-4: highly liquid investments, moderately liquid investments, less liquid investments and illiquid investments. The Liquidity Committee determines certain of the inputs for this classification process, including reasonably anticipated trade sizes and significant investor dilution thresholds. The Liquidity Committee also determines and periodically reviews a highly liquid investment minimum for certain funds, monitors the funds’ holdings of assets classified as illiquid investments to seek to ensure they do not exceed 15% of a fund’s net assets and establishes policies and procedures regarding redemptions in kind.
At the April 17, 2023 meeting of the Board of Trustees, as required by Rule 22e-4 and the Program, the Advisor provided the Board with a written report prepared by the Advisor that addressed the operation of the Program during the period from March 17, 2022 through the Liquidity Committee’s annual meeting held on March 23, 2023 and assessed the Program’s adequacy and effectiveness of implementation during this period, including the operation of the highly liquid investment minimum for each fund that is required under the Program to have one, and any material changes to the Program. Note that because the Fund primarily holds assets that are highly liquid investments, the Fund has not adopted any highly liquid investment minimum.
As stated in the written report, during the review period, two funds breached the 15% limitation on illiquid investments for one day each, as a result of an unscheduled week-long closure of the stock exchange in Istanbul following devastating earthquakes in February, causing all Turkish equities to be re-classified as “illiquid” for one day. Each fund filed a Form N-RN on the day after the breach occurred, and one day later after the breach was cured. No fund with a highly liquid investment minimum breached that minimum during the reporting period. The Advisor concluded that each fund’s investment strategy is appropriate for an open-end fund; that the Program operated effectively in all material respects during the review period; and that the Program is reasonably designed to assess and manage the liquidity risk of each fund and to maintain compliance with Rule 22e-4.
First Trust Exchange-Traded Fund
INVESTMENT ADVISOR
First Trust Advisors L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
INVESTMENT SUB-ADVISOR
Cboe VestSM Financial LLC
8350 Broad Street, Suite 240
McLean, VA 22102
ADMINISTRATOR, CUSTODIAN,
FUND ACCOUNTANT &
TRANSFER AGENT
The Bank of New York Mellon
240 Greenwich Street
New York, NY 10286
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
111 South Wacker Drive
Chicago, IL 60606
LEGAL COUNSEL
Chapman and Cutler LLP
320 South Canal Street
Chicago, IL 60606
Semi-Annual Report
For the Six Months Ended
June 30, 2023
First Trust Exchange-Traded Fund
FT Cboe Vest Gold Strategy Target Income ETF® (IGLD) |
FT Cboe Vest Gold Strategy Target Income ETF® (IGLD)
Semi-Annual Report
June 30, 2023
Caution Regarding Forward-Looking Statements
This report contains certain forward-looking statements within the meaning of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. Forward-looking statements include statements regarding the goals, beliefs, plans or current expectations of First Trust Advisors L.P. (“First Trust” or the “Advisor”) and/or Cboe VestSM Financial LLC (“Cboe Vest” or the “Sub-Advisor”) and their respective representatives, taking into account the information currently available to them. Forward-looking statements include all statements that do not relate solely to current or historical fact. For example, forward-looking statements include the use of words such as “anticipate,” “estimate,” “intend,” “expect,” “believe,” “plan,” “may,” “should,” “would” or other words that convey uncertainty of future events or outcomes.
Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the series of First Trust Exchange-Traded Fund (the “Trust”) described in this report (FT Cboe Vest Gold Strategy Target Income ETF®; hereinafter referred to as the “Fund”) to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. When evaluating the information included in this report, you are cautioned not to place undue reliance on these forward-looking statements, which reflect the judgment of the Advisor and/or Sub-Advisor and their respective representatives only as of the date hereof. We undertake no obligation to publicly revise or update these forward-looking statements to reflect events and circumstances that arise after the date hereof.
Performance and Risk Disclosure
There is no assurance that the Fund will achieve its investment objective. The Fund is subject to market risk, which is the possibility that the market values of securities owned by the Fund will decline and that the value of the Fund’s shares may therefore be less than what you paid for them. Accordingly, you can lose money investing in the Fund. See “Risk Considerations” in the Additional Information section of this report for a discussion of certain other risks of investing in the Fund.
Performance data quoted represents past performance, which is no guarantee of future results, and current performance may be lower or higher than the figures shown. For the most recent month-end performance figures, please visit www.ftportfolios.com or speak with your financial advisor. Investment returns, net asset value and share price will fluctuate and Fund shares, when sold, may be worth more or less than their original cost.
The Advisor may also periodically provide additional information on Fund performance on the Fund’s webpage at www.ftportfolios.com.
How to Read This Report
This report contains information that may help you evaluate your investment in the Fund. It includes details about the Fund and presents data and analysis that provide insight into the Fund’s performance and investment approach.
The statistical information that follows may help you understand the Fund’s performance compared to that of relevant market benchmarks.
It is important to keep in mind that the opinions expressed by personnel of the Advisor and/or Sub-Advisor are just that:informed opinions. They should not be considered to be promises or advice. The opinions, like the statistics, cover the period through the date on the cover of this report. The material risks of investing in the Fund are spelled out in the prospectus, the statement of additional information, and other Fund regulatory filings.
FT Cboe Vest Gold Strategy Target Income ETF® (IGLD)
Semi-Annual Letter from the Chairman and CEO
June 30, 2023
Dear Shareholders:
First Trust is pleased to provide you with the semi-annual report for the FT Cboe Vest Gold Strategy Target Income ETF® (the “Fund”), which contains detailed information about the Fund for the six months ended June 30, 2023.
One economic topic that continues to dominate headlines is whether the Federal Reserve (the “Fed”) will be able to pull off a “soft landing” for the U.S. economy, raising interest rates just high enough to curb inflation, but not so high that they stunt economic growth and cause a recession. Historically, soft landings are exceedingly rare. Over the past 60 years, the Fed has only been able to orchestrate this phenomenon once. This occurred between February 1994 and February 1995 when the Fed doubled the Federal Funds target rate (upper bound), raising it from 3.0% to 6.0%. For comparative purposes, the Federal Funds target rate (upper bound) stood at 5.25% on June 30, 2023, a full 500 basis points above its most recent low of 0.25% on March 15, 2022. Inflation, as measured by the rate of change in the Consumer Price Index (“CPI”), appears to be declining. The CPI stood at 3.0% on June 30, 2023, substantially lower than its most recent peak of 9.1% on June 30, 2022. Despite the Fed’s tighter monetary policy, the U.S. economy continues to show resilience, with gross domestic product (“GDP”) growing in each of the past three quarters.
I am continually amazed by the efficiencies that technological advances can have on production. Take, for example, the recent interest in artificial intelligence (“AI”). The U.S. Census Bureau reported that construction spending by manufacturers in the U.S. has more than doubled in the past year, reaching an annual rate of nearly $190 billion in April 2023, according to Bloomberg. Manufacturing now accounts for close to 13% of all non-government construction, its highest share on record. A portion of the growth in U.S. manufacturing is due to the CHIPS and Science Act, which provided nearly $280 billion in funding to boost domestic research and manufacturing of semiconductors in the U.S. We have also seen the excitement regarding developments in AI drive the S&P 500® Index (the “Index”) higher this year. Year-to-date through June 30, 2023, the Index posted a total return of 16.89%. When the stock market increases by 20% or more from its most recent low, it is often referred to as a “bull market.” On June 8, 2023, the Index closed at 4,293.93, 20.04% above its most recent low of 3,577.03 (which occurred on October 12, 2022).
The U.S. economy has been resilient, posting positive changes to GDP even as monetary policy tightened significantly. That said, there are also economic indicators that point to the potential for weakness over the coming quarters. The Conference Board, a
non-profit business membership and research group organization, reported that its Leading Economic Index, which is composed of 10 economic indicators whose changes tend to precede changes in the overall economy, fell by 0.7% to a reading of 106.1 in June 2023, according to Reuters. The result represents the fifteenth consecutive monthly decline in the index, the longest streak of
month-over-month decreases since just before the financial crisis in 2007. From our perspective, even if the Fed can pull off a soft landing, it is likely to be a very bumpy ride.
Thank you for giving First Trust the opportunity to play a role in your financial future. We value our relationship with you and will report on the Fund again in six months.
Sincerely,
James A. Bowen
Chairman of the Board of Trustees
Chief Executive Officer of First Trust Advisors L.P.
Fund Performance Overview (Unaudited)
FT Cboe Vest Gold Strategy Target Income ETF® (IGLD)
The FT Cboe Vest Gold Strategy Target Income ETF® (the “Fund”) seeks to deliver participation in the price returns of the SPDR® Gold Trust (the “Underlying ETF”) while providing a consistent level of income. The Fund’s investments principally include
short-term U.S. Treasury securities, cash and cash equivalents, and the shares of a wholly-owned subsidiary (“Subsidiary”) that holds FLexible EXchange® Options (“FLEX Options”) that reference the price performance of the Underlying ETF. In seeking to achieve its objective, the Fund, through the Subsidiary, will generally purchase or sell FLEX Options. FLEX Options are customized equity or index option contracts that trade on an exchange but provide investors with the ability to customize key contract terms like exercise prices, styles and expiration dates. In combination, the purchased call and sold put options generally provide exposure to price returns of the Underlying ETF both on the upside and downside. The Fund’s investment sub-advisor is Cboe Vest Financial LLC. Additionally, as a means to generate income, the Fund will employ a “partial covered call strategy” that seeks to sell call options having a strike price roughly equal to the value of the Underlying ETF at the inception of the Fund or each subsequent roll of the strategy (such options are said to be “at-the-money”) on only a portion of the notional value of the call options purchased by the Fund. To execute this strategy, the Fund will sell call options with an expiration date less than or equal to approximately one month in the future (the “Target Income Period”). The amount of call options sold by the Fund is based on a calculation designed to result in the Fund generating income over the Target Income Period on the average assets of the Fund from premiums from writing call options that is approximately 3.85% higher annually than the annual yield from one-month U.S. Treasury securities, before Fund fees and expenses. The Fund is classified as “non-diversified” under the Investment Company Act of 1940, as amended. Shares of the Fund are listed on the Cboe BZX Exchange, Inc. under the ticker symbol “IGLD.”
|
| | | Average Annual Total Returns | |
| | | Inception
(3/2/21)
to 6/30/23 | Inception
(3/2/21)
to 6/30/23 |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
S&P 500® Index - Price Return | | | | |
Total returns for the period since inception are calculated from the inception date of the Fund. “Average Annual Total Returns” represent the average annual change in value of an investment over the period indicated. “Cumulative Total Returns” represent the total change in value of an investment over the period indicated.
The Fund’s per share net asset value (“NAV”) is the value of one share of the Fund and is computed by dividing the value of all assets of the Fund (including accrued interest and dividends), less all liabilities (including accrued expenses and dividends declared but unpaid), by the total number of outstanding shares. The price used to calculate market return (“Market Price”) is determined by using the midpoint of the national best bid and offer price (“NBBO”) as of the time that the Fund’s NAV is calculated. Under SEC rules, the NBBO consists of the highest displayed buy and lowest sell prices among the various exchanges trading the Fund at the time the Fund’s NAV is calculated. Since shares of the Fund did not trade in the secondary market until after the Fund’s inception, for the period from inception to the first day of secondary market trading in shares of the Fund, the NAV of the Fund is used as a proxy for the secondary market trading price to calculate market returns. NAV and market returns assume that all distributions have been reinvested in the Fund at NAV and Market Price, respectively.
An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The total returns presented reflect the reinvestment of dividends on securities in the indices. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. The investment return and principal value of shares of the Fund will vary with changes in market conditions. Shares of the Fund may be worth more or less than their original cost when they are redeemed or sold in the market. The Fund’s past performance is no guarantee of future performance.
Fund Performance Overview (Unaudited) (Continued)
FT Cboe Vest Gold Strategy Target Income ETF® (IGLD)
| |
| |
| |
| |
| |
Net Other Assets and Liabilities | |
| |
| Performance figures assume reinvestment of all distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund’s past performance does not predict future performance. |
Frequency Distribution of Discounts and Premiums
Information showing the number of days the market price of the Fund’s shares was greater (at a premium) and less (at a discount) than the Fund’s net asset value for the most recently completed year, and the most recently completed calendar quarters since that year (or life of the Fund, if shorter) is available at https://www.ftportfolios.com/Retail/etf/home.aspx.
FT Cboe Vest Gold Strategy Target Income ETF® (IGLD)
Semi-Annual Report
June 30, 2023 (Unaudited)
Advisor
First Trust Advisors L.P. (“First Trust” or the “Advisor”) is the investment advisor to FT Cboe Vest Gold Strategy Target Income ETF® (“IGLD” or the “Fund”). First Trust is responsible for the ongoing monitoring of the Fund’s investment portfolio, managing the Fund’s business affairs and providing certain administrative services necessary for the management of the Fund.
Sub-Advisor
Cboe VestSM Financial LLC (“Cboe Vest” or the “Sub-Advisor”) serves as the investment sub-advisor to the Fund. In this capacity, Cboe Vest is responsible for the selection and ongoing monitoring of the securities in the Fund’s investment portfolio. Cboe Vest, with principal offices at 8350 Broad Street, Suite 240, McLean, Virginia 22102, was founded in 2012. Cboe Vest had approximately $14.1 billion under management or committed to management as of June 30, 2023.
Portfolio Management Team
Karan Sood, Managing Director of Cboe Vest
Howard Rubin, Managing Director of Cboe Vest
The portfolio managers are primarily and jointly responsible for the day-to-day management of the Fund. Each portfolio manager has served as a part of the portfolio management team of the Fund since 2021.
FT Cboe Vest Gold Strategy Target Income ETF® (IGLD)
Understanding Your Fund Expenses
June 30, 2023 (Unaudited)
As a shareholder of FT Cboe Vest Gold Strategy Target Income ETF® (the “Fund”), you incur two types of costs: (1) transaction costs; and (2) ongoing costs, including management fees, distribution and/or service (12b-1) fees, if any, and other Fund expenses. This Example is intended to help you understand your ongoing costs of investing in the Fund and to compare these costs with the ongoing costs of investing in other funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held through the six-month period ended June 30, 2023.
Actual Expenses
The first line in the following table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During the Six-Month Period” to estimate the expenses you paid on your account during this six-month period.
Hypothetical Example for Comparison Purposes
The second line in the following table provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs such as brokerage commissions. Therefore, the second line in the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
| Beginning
Account Value
January 1, 2023 | Ending
Account Value
June 30, 2023 | Annualized
Expense Ratio
Based on the
Six-Month
Period | Expenses Paid
During the
Six-Month
Period (a) |
FT Cboe Vest Gold Strategy Target Income ETF® (IGLD) |
| | | | |
Hypothetical (5% return before expenses) | | | | |
| Expenses are equal to the annualized expense ratio as indicated in the table multiplied by the average account value over the period (January 1, 2023 through June 30, 2023), multiplied by 181/365 (to reflect the six-month period). |
FT Cboe Vest Gold Strategy Target Income ETF® (IGLD)
Consolidated Portfolio of Investments
June 30, 2023 (Unaudited)
| | | | |
U.S. TREASURY BILLS — 130.9% |
| | | | |
| | | | |
| | |
MONEY MARKET FUNDS — 2.1% |
| Dreyfus Government Cash Management Fund, Institutional Shares - 5.00% (c) | |
| | |
| Total Investments — 133.0% | |
| | |
| | | | | |
|
| Call Options Purchased — 0.1% | |
| | | | | |
| | | | | |
WRITTEN OPTIONS — (34.8)% |
| Call Options Written — (0.7)% | |
| | | | | |
| (Premiums received $545,452) | | | | |
| Put Options Written — (34.1)% | |
| | | | | |
| (Premiums received $25,482,275) | | | | |
| | |
| (Premiums received $26,027,727) | |
| Net Other Assets and Liabilities — 1.7% | |
| | |
| All or a portion of this security is segregated as collateral for the options written. At June 30, 2023, the segregated value of this security amounts to $37,981,287. |
| |
| Rate shown reflects yield as of June 30, 2023. |
See Notes to Consolidated Financial Statements
FT Cboe Vest Gold Strategy Target Income ETF® (IGLD)
Consolidated Portfolio of Investments (Continued)
June 30, 2023 (Unaudited)
Valuation InputsA summary of the inputs used to value the Fund’s investments as of June 30, 2023 is as follows (see Note 2A - Portfolio Valuation in the Notes to Consolidated Financial Statements):
|
| | | Level 2
Significant
Observable
Inputs | Level 3
Significant
Unobservable
Inputs |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
|
| | | Level 2
Significant
Observable
Inputs | Level 3
Significant
Unobservable
Inputs |
| | | | |
See Notes to Consolidated Financial Statements
FT Cboe Vest Gold Strategy Target Income ETF® (IGLD)
Consolidated Statement of Assets and Liabilities
June 30, 2023 (Unaudited)
| |
| |
Options contracts purchased, at value | |
| |
| |
Investment securities sold | |
| |
| |
|
| |
Options contracts written, at value | |
Investment advisory fees payable | |
| |
| |
|
| |
| |
| |
Accumulated distributable earnings (loss) | |
| |
NET ASSET VALUE, per share | |
Number of shares outstanding (unlimited number of shares authorized, par value $0.01 per share) | |
| |
Premiums paid on options contracts purchased | |
Premiums received on options contracts written | |
See Notes to Consolidated Financial Statements
FT Cboe Vest Gold Strategy Target Income ETF® (IGLD)
Consolidated Statement of Operations
For the Six Months Ended June 30, 2023 (Unaudited)
| |
| |
| |
| |
|
| |
| |
| |
NET INVESTMENT INCOME (LOSS) | |
|
NET REALIZED AND UNREALIZED GAIN (LOSS): | |
Net realized gain (loss) on: | |
| |
Purchased options contracts | |
Written options contracts | |
| |
Net change in unrealized appreciation (depreciation) on: | |
| |
Purchased options contracts | |
Written options contracts | |
Net change in unrealized appreciation (depreciation) | |
NET REALIZED AND UNREALIZED GAIN (LOSS) | |
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | |
See Notes to Consolidated Financial Statements
FT Cboe Vest Gold Strategy Target Income ETF® (IGLD)
Consolidated Statements of Changes in Net Assets
| Six Months
Ended
6/30/2023 (Unaudited) | |
| | |
Net investment income (loss) | | |
| | |
Net change in unrealized appreciation (depreciation) | | |
Net increase (decrease) in net assets resulting from operations | | |
|
DISTRIBUTIONS TO SHAREHOLDERS FROM: | | |
| | |
| | |
Total distributions to shareholders | | |
|
SHAREHOLDER TRANSACTIONS: | | |
Proceeds from shares sold | | |
| | |
Net increase (decrease) in net assets resulting from shareholder transactions | | |
Total increase (decrease) in net assets | | |
|
| | |
| | |
| | |
|
CHANGES IN SHARES OUTSTANDING: | | |
Shares outstanding, beginning of period | | |
| | |
| | |
Shares outstanding, end of period | | |
See Notes to Consolidated Financial Statements
FT Cboe Vest Gold Strategy Target Income ETF® (IGLD)
Consolidated Financial Highlights
For a share outstanding throughout each period
| Six Months
Ended
6/30/2023
(Unaudited) | | Period
Ended
12/31/2021 (a) |
|
Net asset value, beginning of period | | | |
Income from investment operations: | | | |
Net investment income (loss) | | | |
Net realized and unrealized gain (loss) | | | |
Total from investment operations | | | |
Distributions paid to shareholders from: | | | |
| | | |
| | | |
| | | |
Net asset value, end of period | | | |
| | | |
|
Ratios to average net assets/supplemental data: | | | |
Net assets, end of period (in 000’s) | | | |
Ratio of total expenses to average net assets | | | |
Ratio of net investment income (loss) to average net assets | | | |
Portfolio turnover rate (f) | | | |
| Inception date is March 02, 2021, which is consistent with the commencement of investment operations and is the date the initial creation units were established. |
| Based on average shares outstanding. |
| The per share amount does not correlate with the aggregate realized and unrealized gain (loss) due to the timing of the Fund share sales and repurchases in relation to market value fluctuation of the underlying investments. |
| Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. |
| |
| Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions, derivatives and in-kind transactions. |
See Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
FT Cboe Vest Gold Strategy Target Income ETF® (IGLD)
June 30, 2023 (Unaudited)
1. Organization
First Trust Exchange-Traded Fund (the “Trust”) is an open-end management investment company organized as a Massachusetts business trust on August 8, 2003, and is registered with the Securities and Exchange Commission under the Investment Company Act of 1940, as amended (the “1940 Act”).
The Trust currently consists of twenty-three exchange-traded funds. This report covers the FT Cboe Vest Gold Strategy Target Income ETF® (the “Fund”), which trades under the ticker “IGLD” on the Cboe BZX Exchange, Inc. The Fund represents a separate series of shares of beneficial interest in the Trust. Unlike conventional mutual funds, the Fund issues and redeems shares on a continuous basis, at net asset value (“NAV”), only in large blocks of shares known as “Creation Units.”
The Fund is an actively managed exchange-traded fund. The Fund’s investment objective is to seek to deliver participation in the price returns of the SPDR® Gold Trust (the “Underlying ETF”) while providing a consistent level of income. The Fund’s investments principally include short-term U.S. Treasury securities, cash and cash equivalents, and the shares of a wholly-owned subsidiary (the “Subsidiary”) that holds FLexible EXchange® Options (“FLEX Options”) that reference the price performance of the Underlying ETF. In seeking to achieve its objective, the Fund, through the Subsidiary, will generally purchase or sell FLEX Options. In combination, the purchased call and sold put options generally provide exposure to price returns of the Underlying ETF both on the upside and downside. The Subsidiary is wholly-owned by the Fund and is organized under the laws of the Cayman Islands. The Fund may invest up to 25% of its total assets in the Subsidiary. As of June 30, 2023, the Fund invested 19.51% of the Fund’s total assets in the Subsidiary. There can be no assurance that the Fund will achieve its investment objective. The Fund may not be appropriate for all investors.
2. Significant Accounting Policies
The Fund is considered an investment company and follows accounting and reporting guidance under Financial Accounting Standards Board Accounting Standards Codification Topic 946, “Financial Services-Investment Companies.” The consolidated financial statements include the accounts on a consolidated basis of the Subsidiary. All intercompany accounts and transactions have been eliminated in consolidation. The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of the consolidated financial statements. The preparation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts and disclosures in the consolidated financial statements. Actual results could differ from those estimates.
A. Portfolio Valuation
The Fund’s NAV is determined daily as of the close of regular trading on the New York Stock Exchange (“NYSE”), normally 4:00 p.m. Eastern time, on each day the NYSE is open for trading. If the NYSE closes early on a valuation day, the NAV is determined as of that time. The Fund’s NAV is calculated by dividing the value of all assets of the Fund (including accrued interest and dividends), less all liabilities (including accrued expenses and dividends declared but unpaid), by the total number of shares outstanding.
The Fund’s investments are valued daily at market value or, in the absence of market value with respect to any portfolio securities, at fair value. Market value prices represent readily available market quotations such as last sale or official closing prices from a national or foreign exchange (i.e., a regulated market) and are primarily obtained from third-party pricing services. Fair value prices represent any prices not considered market value prices and are either obtained from a third-party pricing service or are determined by the Pricing Committee of the Fund’s investment advisor, First Trust Advisors L.P. (“First Trust” or the “Advisor”), in accordance with valuation procedures approved by the Trust’s Board of Trustees, and in accordance with provisions of the 1940 Act and rules thereunder. Investments valued by the Advisor’s Pricing Committee, if any, are footnoted as such in the footnotes to the Consolidated Portfolio of Investments. The Fund’s investments are valued as follows:
Exchange-traded options contracts (other than FLEX Option contracts) are valued at the closing price in the market where such contracts are principally traded. If no closing price is available, exchange-traded options contracts are fair valued at the mean of their most recent bid and ask price, if both are available. Over-the-counter options contracts are valued as follows, depending on the market in which the instrument trades: (1) mean of their most recent bid and ask price, if available; or (2) a price based on the equivalent exchange-traded option. FLEX Option contracts are normally valued using a model-based price provided by a third-party pricing vendor. On days when a trade in a FLEX Option contract occurs, the trade price will be used to value such FLEX Option contracts in lieu of the model price.
Notes to Consolidated Financial Statements (Continued)
FT Cboe Vest Gold Strategy Target Income ETF® (IGLD)
June 30, 2023 (Unaudited)
U.S. Treasuries are valued on the basis of valuations provided by a third-party pricing service approved by the Trust’s Board of Trustees.
Shares of open-end funds are valued based on NAV per share.
If the Fund’s investments are not able to be priced by pre-established pricing methods, such investments may be valued by the Trust’s Board of Trustees or its delegate, the Advisor’s Pricing Committee, at fair value. A variety of factors may be considered in determining the fair value of such investments.
Valuing the Fund’s holdings using fair value pricing will result in using prices for those holdings that may differ from current market valuations. The Subsidiary’s holdings will be valued in the same manner as the Fund’s holdings.
The Fund is subject to fair value accounting standards that define fair value, establish the framework for measuring fair value and provide a three-level hierarchy for fair valuation based upon the inputs to the valuation as of the measurement date. The three levels of the fair value hierarchy are as follows:
• Level 1 – Level 1 inputs are quoted prices in active markets for identical investments. An active market is a market in which transactions for the investment occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
• Level 2 – Level 2 inputs are observable inputs, either directly or indirectly, and include the following:
o Quoted prices for similar investments in active markets.
o Quoted prices for identical or similar investments in markets that are non-active. A non-active market is a market where there are few transactions for the investment, the prices are not current, or price quotations vary substantially either over time or among market makers, or in which little information is released publicly.
o Inputs other than quoted prices that are observable for the investment (for example, interest rates and yield curves observable at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks, and default rates).
o Inputs that are derived principally from or corroborated by observable market data by correlation or other means.
• Level 3 – Level 3 inputs are unobservable inputs. Unobservable inputs may reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the investment.
The inputs or methodologies used for valuing investments are not necessarily an indication of the risk associated with investing in those investments. A summary of the inputs used to value the Fund’s investments as of June 30, 2023, is included with the Fund’s Consolidated Portfolio of Investments.
B. Investment Transactions and Investment Income
Investment transactions are recorded as of the trade date. Realized gains and losses from investment transactions are recorded on the identified cost basis. Dividend income is recorded on the ex-dividend date. Interest income, if any, is recorded daily on the accrual basis. Amortization of premiums and accretion of discounts are recorded using the effective interest method.
C. FLEX Options
FLEX Options are customized equity or index option contracts that trade on an exchange, but provide investors with the ability to customize key contract terms like exercise prices, styles and expiration dates. FLEX Options are guaranteed for settlement by the Options Clearing Corporation.
The Fund, through the Subsidiary, purchases and sells call and put FLEX Options based on the performance of the Underlying ETF. The FLEX Options that the Subsidiary holds that reference the Underlying ETF will give the Subsidiary the right to receive or deliver shares of the Underlying ETF on the option expiration date at a strike price, depending on whether the option is a put or call option and whether the Subsidiary purchases or sells the option. The FLEX Options held by the Subsidiary are European style options, which are exercisable at the strike price only on the FLEX Option expiration date.
When the Subsidiary writes (sells) an option, an amount equal to the premium received by the Subsidiary is included in “Options contracts written, at value” on the Consolidated Statement of Assets and Liabilities. Gain or loss on written options is presented separately as “Net realized gain (loss) on written options contracts” on the Consolidated Statement of Operations. When the Subsidiary purchases a call or put option, the premium paid represents the cost of the call or put option, which is included in “Options
Notes to Consolidated Financial Statements (Continued)
FT Cboe Vest Gold Strategy Target Income ETF® (IGLD)
June 30, 2023 (Unaudited)
contracts purchased, at value” on the Consolidated Statement of Assets and Liabilities. Gain or loss on purchased options is included in “Net realized gain (loss) on purchased options contracts” on the Consolidated Statement of Operations.
D. Dividends and Distributions to Shareholders
Dividends from net investment income of the Fund, if any, are declared and paid monthly, or as the Board of Trustees may determine from time to time. Distributions of net realized gains earned by the Fund, if any, are distributed at least annually. The Fund may also designate a portion of the amount paid to redeeming shareholders as a distribution for tax purposes.
Distributions from net investment income and realized capital gains are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the consolidated financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These permanent differences are primarily due to the varying treatment of income and gain/loss on portfolio securities held by the Fund and have no impact on net assets or NAV per share. Temporary differences, which arise from recognizing certain items of income, expense and gain/loss in different periods for consolidated financial statement and tax purposes, will reverse at some time in the future.
The tax character of distributions paid by the Fund during the fiscal year ended December 31, 2022 was as follows:
As of December 31, 2022, the components of distributable earnings on a tax basis for the Fund were as follows:
Undistributed ordinary income | |
Accumulated capital and other gain (loss) | |
Net unrealized appreciation (depreciation) | |
E. Income Taxes
The Fund intends to continue to qualify as a regulated investment company by complying with the requirements under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), which includes distributing substantially all of its net investment income and net realized gains to shareholders. Accordingly, no provision has been made for federal and state income taxes. However, due to the timing and amount of distributions, the Fund may be subject to an excise tax of 4% of the amount by which approximately 98% of the Fund’s taxable income exceeds the distributions from such taxable income for the calendar year.
The Subsidiary is classified as a controlled foreign corporation under Subchapter N of the Code. Therefore, the Fund is required to increase its taxable income by its share of the Subsidiary’s income, whether or not such earnings are distributed by the Subsidiary to the Fund. Net investment losses of the Subsidiary cannot be deducted by the Fund in the current period nor carried forward to offset taxable income in future periods.
The Fund is subject to accounting standards that establish a minimum threshold for recognizing, and a system for measuring, the benefits of a tax position taken or expected to be taken in a tax return. The taxable years ended 2021 and 2022 remain open to federal and state audit. As of June 30, 2023, management has evaluated the application of these standards to the Fund and has determined that no provision for income tax is required in the Fund’s consolidated financial statements for uncertain tax positions.
The Fund intends to utilize provisions of the federal income tax laws, which allow it to carry a realized capital loss forward indefinitely following the year of the loss and offset such loss against any future realized capital gains. The Fund is subject to certain limitations under U.S. tax rules on the use of capital loss carryforwards and net unrealized built-in losses. These limitations apply when there has been a 50% change in ownership. At December 31, 2022, for federal income tax purposes, the Fund had $24,837 of non-expiring capital loss carryforwards that may be carried forward indefinitely.
Certain losses realized during the current fiscal year may be deferred and treated as occurring on the first day of the following fiscal year for federal income tax purposes. For the fiscal year ended December 31, 2022, the Fund had no net late year ordinary or capital losses.
Notes to Consolidated Financial Statements (Continued)
FT Cboe Vest Gold Strategy Target Income ETF® (IGLD)
June 30, 2023 (Unaudited)
As of June 30, 2023, the aggregate cost, gross unrealized appreciation, gross unrealized depreciation, and net unrealized appreciation/(depreciation) on investments (including short positions and derivatives, if any) for federal income tax purposes were as follows:
| Gross Unrealized
Appreciation | Gross Unrealized
(Depreciation) | Net Unrealized
Appreciation
(Depreciation) |
| | | |
F. Expenses
Expenses, other than the investment advisory fee and other excluded expenses, are paid by the Advisor (see Note 3).
3. Investment Advisory Fee, Affiliated Transactions and Other Fee Arrangements
First Trust, the investment advisor to the Fund, is a limited partnership with one limited partner, Grace Partners of DuPage L.P., and one general partner, The Charger Corporation. The Charger Corporation is an Illinois corporation controlled by James A. Bowen, Chief Executive Officer of First Trust. First Trust is responsible for the ongoing monitoring of the Fund’s and the Subsidiary’s investment portfolios, managing the Fund’s business affairs and providing certain administrative services necessary for the management of the Fund.
First Trust is responsible for the expenses of the Fund and the Subsidiary including the cost of transfer agency, sub-advisory, custody, fund administration, legal, audit and other services, but excluding fee payments under the Investment Management Agreement, interest, taxes, acquired fund fees and expenses, if any, brokerage commissions and other expenses connected with the execution of portfolio transactions, distribution and service fees payable pursuant to a Rule 12b-1 plan, if any, and extraordinary expenses. The annual unitary management fee payable by the Fund to First Trust for these services will be reduced at certain levels of the Fund’s net assets (“breakpoints”) and calculated pursuant to the schedule below:
| |
Fund net assets up to and including $2.5 billion | |
Fund net assets greater than $2.5 billion up to and including $5 billion | |
Fund net assets greater than $5 billion up to and including $7.5 billion | |
Fund net assets greater than $7.5 billion up to and including $10 billion | |
Fund net assets greater than $10 billion | |
The Subsidiary does not pay First Trust a separate management fee.
Cboe VestSM Financial LLC (“Cboe Vest”), an affiliate of First Trust, serves as the Fund’s sub-advisor and manages the Fund’s portfolio subject to First Trust’s supervision. Pursuant to the Investment Management Agreement, between the Trust, on behalf of the Fund, and the Advisor, and the Investment Sub-Advisory Agreement among the Trust, on behalf of the Fund, the Advisor and Cboe Vest, First Trust will supervise Cboe Vest and its management of the investment of the Fund’s assets and will pay Cboe Vest for its services as the Fund’s sub-advisor a sub-advisory fee equal to 50% of any remaining monthly unitary management fee paid to the Advisor after the average Fund’s expenses accrued during the most recent twelve months are subtracted from the unitary management fee for that month.
The Trust has multiple service agreements with The Bank of New York Mellon (“BNYM”). Under the service agreements, BNYM performs custodial, fund accounting, certain administrative services, and transfer agency services for the Fund. As custodian, BNYM is responsible for custody of the Fund’s assets. As fund accountant and administrator, BNYM is responsible for maintaining the books and records of the Fund’s securities and cash. As transfer agent, BNYM is responsible for maintaining shareholder records for the Fund. BNYM is a subsidiary of The Bank of New York Mellon Corporation, a financial holding company.
Each Trustee who is not an officer or employee of First Trust, any sub-advisor or any of their affiliates (“Independent Trustees”) is paid a fixed annual retainer that is allocated equally among each fund in the First Trust Fund Complex. Each Independent Trustee is also paid an annual per fund fee that varies based on whether the fund is a closed-end or other actively managed fund, a target outcome fund or an index fund.
Additionally, the Lead Independent Trustee and the Chairs of the Audit Committee, Nominating and Governance Committee and Valuation Committee are paid annual fees to serve in such capacities, with such compensation allocated pro rata among each fund in
Notes to Consolidated Financial Statements (Continued)
FT Cboe Vest Gold Strategy Target Income ETF® (IGLD)
June 30, 2023 (Unaudited)
the First Trust Fund Complex based on net assets. Independent Trustees are reimbursed for travel and out-of-pocket expenses in connection with all meetings. The Lead Independent Trustee and Committee Chairs rotate every three years. The officers and “Interested” Trustee receive no compensation from the Trust for acting in such capacities.
4. Purchases and Sales of Securities
The cost of purchases and proceeds from sales of securities, excluding short-term investments, derivatives, and in-kind transactions, for the six months ended June 30, 2023, were $0 and $0, respectively.
For the six months ended June 30, 2023, the Fund had no in-kind transactions.
5. Derivative Transactions
The following table presents the types of derivatives held by the Subsidiary at June 30, 2023, the primary underlying risk exposure and the location of these instruments as presented on the Consolidated Statement of Assets and Liabilities.
| | | |
| | Consolidated
Statement of Assets and
Liabilities Location | | Consolidated
Statement of Assets and
Liabilities Location | |
| | Options contracts purchased, at value | | Options contracts written, at value | |
The following table presents the amount of net realized gain (loss) and change in net unrealized appreciation (depreciation) recognized for the six months ended June 30, 2023, on derivative instruments, as well as the primary underlying risk exposure associated with the instruments.
|
Consolidated Statement of Operations Location | |
| |
Net realized gain (loss) on: | |
Purchased options contracts | |
Written options contracts | |
Net change in unrealized appreciation (depreciation) on: | |
Purchased options contracts | |
Written options contracts | |
During the six months ended June 30, 2023, the premiums for purchased options contracts opened were $258,767 and the premiums for purchased options contracts closed, exercised and expired were $51,570.
During the six months ended June 30, 2023, the premiums for written options contracts opened were $13,594,990 and the premiums for written options contracts closed, exercised and expired were $3,851,725.
The Fund does not have the right to offset financial assets and liabilities related to options contracts on the Consolidated Statement of Assets and Liabilities.
6. Creations, Redemptions and Transaction Fees
The Fund generally issues and redeems its shares in primary market transactions through a creation and redemption mechanism and does not sell or redeem individual shares. Instead, financial entities known as “Authorized Participants” have contractual arrangements with the Fund or one of the Fund’s service providers to purchase and redeem Fund shares directly with the Fund in large blocks of shares known as “Creation Units.” Prior to the start of trading on every business day, the Fund publishes through the National Securities Clearing Corporation (“NSCC”) the “basket” of securities, cash or other assets that it will accept in exchange for a Creation Unit of the Fund’s shares. An Authorized Participant that wishes to effectuate a creation of the Fund’s shares deposits with the Fund the “basket” of securities, cash or other assets identified by the Fund that day, and then receives the Creation Unit of the Fund’s shares in return for those assets. After purchasing a Creation Unit, the Authorized Participant may continue to hold the Fund’s shares or sell them in the secondary market. The redemption process is the reverse of the purchase process:the Authorized Participant redeems a
Notes to Consolidated Financial Statements (Continued)
FT Cboe Vest Gold Strategy Target Income ETF® (IGLD)
June 30, 2023 (Unaudited)
Creation Unit of the Fund’s shares for a basket of securities, cash or other assets. The combination of the creation and redemption process with secondary market trading in the Fund’s shares and underlying securities provides arbitrage opportunities that are designed to help keep the market price of the Fund’s shares at or close to the NAV per share of the Fund.
The Fund imposes fees in connection with the purchase of Creation Units. These fees may vary based upon various fact-based circumstances, including, but not limited to, the composition of the securities included in the Creation Unit or the countries in which the transactions are settled. The price for each Creation Unit will equal the daily NAV per share of the Fund times the number of shares in a Creation Unit, plus the fees described above and, if applicable, any operational processing and brokerage costs, transfer fees, stamp taxes and part or all of the spread between the expected bid and offer side of the market related to the securities comprising the creation basket.
The Fund also imposes fees in connection with the redemption of Creation Units. These fees may vary based upon various fact-based circumstances, including, but not limited to, the composition of the securities included in the Creation Unit or the countries in which the transactions are settled. The price received for each Creation Unit will equal the daily NAV per share of the Fund times the number of shares in a Creation Unit, minus the fees described above and, if applicable, any operational processing and brokerage costs, transfer fees, stamp taxes and part or all of the spread between the expected bid and offer side of the market related to the securities comprising the redemption basket. Investors who use the services of a broker or other such intermediary in addition to an Authorized Participant to effect a redemption of a Creation Unit may also be assessed an amount to cover the cost of such services. The redemption fee charged by the Fund will comply with Rule 22c-2 of the 1940 Act which limits redemption fees to no more than 2% of the value of the shares redeemed.
7. Distribution Plan
The Board of Trustees adopted a Distribution and Service Plan pursuant to Rule 12b-1 under the 1940 Act. In accordance with the Rule 12b-1 plan, the Fund is authorized to pay an amount up to 0.25% of its average daily net assets each year to reimburse First Trust Portfolios L.P. (“FTP”), the distributor of the Fund, for amounts expended to finance activities primarily intended to result in the sale of Creation Units or the provision of investor services. FTP may also use this amount to compensate securities dealers or other persons that are Authorized Participants for providing distribution assistance, including broker-dealer and shareholder support and educational and promotional services.
No 12b-1 fees are currently paid by the Fund, and pursuant to a contractual arrangement, no 12b-1 fees will be paid any time before April 30, 2024.
8. Indemnification
The Trust, on behalf of the Fund, has a variety of indemnification obligations under contracts with its service providers. The Trust’s maximum exposure under these arrangements is unknown. However, the Trust has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
9. Subsequent Events
Management has evaluated the impact of all subsequent events on the Fund through the date the consolidated financial statements were issued and has determined that there were no subsequent events requiring recognition or disclosure in the consolidated financial statements that have not already been disclosed.
FT Cboe Vest Gold Strategy Target Income ETF® (IGLD)
June 30, 2023 (Unaudited)
Proxy Voting Policies and Procedures
A description of the policies and procedures that the Trust uses to determine how to vote proxies and information on how the Fund voted proxies relating to its portfolio securities during the most recent 12-month period ended June 30 is available (1) without charge, upon request, by calling (800) 988-5891; (2) on the Fund’s website at www.ftportfolios.com; and (3) on the Securities and Exchange Commission’s (“SEC”) website at www.sec.gov.
Portfolio Holdings
The Fund files portfolio holdings information for each month in a fiscal quarter within 60 days after the end of the relevant fiscal quarter on Form N-PORT. Portfolio holdings information for the third month of each fiscal quarter will be publicly available on the SEC’s website at www.sec.gov. The Fund’s complete schedule of portfolio holdings for the second and fourth quarters of each fiscal year is included in the semi-annual and annual reports to shareholders, respectively, and is filed with the SEC on Form N-CSR. The semi-annual and annual report for the Fund is available to investors within 60 days after the period to which it relates. The Fund’s Forms N-PORT and Forms N-CSR are available on the SEC’s website listed above.
Risk Considerations
Risks are inherent in all investing. Certain general risks that may be applicable to a Fund are identified below, but not all of the material risks relevant to each Fund are included in this report and not all of the risks below apply to each Fund. The material risks of investing in each Fund are spelled out in its prospectus, statement of additional information and other regulatory filings. Before investing, you should consider each Fund’s investment objective, risks, charges and expenses, and read each Fund’s prospectus and statement of additional information carefully. You can download each Fund’s prospectus at www.ftportfolios.com or contact First Trust Portfolios L.P. at (800) 621-1675 to request a prospectus, which contains this and other information about each Fund.
Concentration Risk. To the extent that a fund is able to invest a significant percentage of its assets in a single asset class or the securities of issuers within the same country, state, region, industry or sector, an adverse economic, business or political development may affect the value of the fund’s investments more than if the fund were more broadly diversified. A fund that tracks an index will be concentrated to the extent the fund’s corresponding index is concentrated. A concentration makes a fund more susceptible to any single occurrence and may subject the fund to greater market risk than a fund that is more broadly diversified.
Credit Risk. Credit risk is the risk that an issuer of a security will be unable or unwilling to make dividend, interest and/or principal payments when due and the related risk that the value of a security may decline because of concerns about the issuer’s ability to make such payments.
Cyber Security Risk. The funds are susceptible to potential operational risks through breaches in cyber security. A breach in cyber security refers to both intentional and unintentional events that may cause a fund to lose proprietary information, suffer data corruption or lose operational capacity. Such events could cause a fund to incur regulatory penalties, reputational damage, additional compliance costs associated with corrective measures and/or financial loss. In addition, cyber security breaches of a fund’s third-party service providers, such as its administrator, transfer agent, custodian, or sub-advisor, as applicable, or issuers in which the fund invests, can also subject a fund to many of the same risks associated with direct cyber security breaches.
Defined Outcome Funds Risk. To the extent a fund’s investment strategy is designed to deliver returns tied to the price performance of an underlying ETF, an investor may not realize the returns the fund seeks to achieve if that investor does not hold shares for the entire target outcome period. In the event an investor purchases shares after the first day of the target outcome period or sells shares prior to the end of the target outcome period, the buffer that the fund seeks to provide against a decline in the value of the underlying ETF may not be available, the enhanced returns that the fund seeks to provide (if any) may not be available and the investor may not participate in a gain in the value of the underlying ETF up to the cap for the investor’s investment period. Additionally, the fund will not participate in gains of the underlying ETF above the cap and a shareholder may lose their entire investment. If the fund seeks enhanced returns, there are certain time periods when the value of the fund may fall faster than the value of the underlying ETF, and it is very unlikely that, on any given day during which the underlying ETF share price increases in value, the fund’s share price will increase at the same rate as the enhanced returns sought by the fund, which is designed for an entire target outcome period. Trading flexible exchange options involves risks different from, or possibly greater than, the risks associated with investing directly in securities, such as less liquidity and correlation and valuation risks. A fund may experience substantial downside from specific flexible exchange option positions and certain positions may expire worthless.
Additional Information (Continued)
FT Cboe Vest Gold Strategy Target Income ETF® (IGLD)
June 30, 2023 (Unaudited)
Derivatives Risk. To the extent a fund uses derivative instruments such as futures contracts, options contracts and swaps, the fund may experience losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivative. These risks are heightened when a fund’s portfolio managers use derivatives to enhance the fund’s return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the fund.
Equity Securities Risk. To the extent a fund invests in equity securities, the value of the fund’s shares will fluctuate with changes in the value of the equity securities. Equity securities prices fluctuate for several reasons, including changes in investors’ perceptions of the financial condition of an issuer or the general condition of the relevant stock market, such as market volatility, or when political or economic events affecting the issuers occur. In addition, common stock prices may be particularly sensitive to rising interest rates, as the cost of capital rises and borrowing costs increase. Equity securities may decline significantly in price over short or extended periods of time, and such declines may occur in the equity market as a whole, or they may occur in only a particular country, company, industry or sector of the market.
ETF Risk. The shares of an ETF trade like common stock and represent an interest in a portfolio of securities. The risks of owning an ETF generally reflect the risks of owning the underlying securities, although lack of liquidity in an ETF could result in it being more volatile and ETFs have management fees that increase their costs. Shares of an ETF trade on an exchange at market prices rather than net asset value, which may cause the shares to trade at a price greater than net asset value (premium) or less than net asset value (discount). In times of market stress, decisions by market makers to reduce or step away from their role of providing a market for an ETF’s shares, or decisions by an ETF’s authorized participants that they are unable or unwilling to proceed with creation and/or redemption orders of an ETF’s shares, could result in shares of the ETF trading at a discount to net asset value and in greater than normal intraday bid-ask spreads.
Fixed Income Securities Risk. To the extent a fund invests in fixed income securities, the fund will be subject to credit risk, income risk, interest rate risk, liquidity risk and prepayment risk. Income risk is the risk that income from a fund’s fixed income investments could decline during periods of falling interest rates. Interest rate risk is the risk that the value of a fund’s fixed income securities will decline because of rising interest rates. Liquidity risk is the risk that a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. Prepayment risk is the risk that the securities will be redeemed or prepaid by the issuer, resulting in lower interest payments received by the fund. In addition to these risks, high yield securities, or “junk” bonds, are subject to greater market fluctuations and risk of loss than securities with higher ratings, and the market for high yield securities is generally smaller and less liquid than that for investment grade securities.
Index or Model Constituent Risk. Certain funds may be a constituent of one or more indices or ETF models. As a result, such a fund may be included in one or more index-tracking exchange-traded funds or mutual funds. Being a component security of such a vehicle could greatly affect the trading activity involving a fund, the size of the fund and the market volatility of the fund. Inclusion in an index could increase demand for the fund and removal from an index could result in outsized selling activity in a relatively short period of time. As a result, a fund’s net asset value could be negatively impacted and the fund’s market price may be significantly below its net asset value during certain periods. In addition, index rebalances may potentially result in increased trading activity in a fund’s shares.
Index Provider Risk. To the extent a fund seeks to track an index, it is subject to Index Provider Risk. There is no assurance that the Index Provider will compile the Index accurately, or that the Index will be determined, maintained, constructed, reconstituted, rebalanced, composed, calculated or disseminated accurately. To correct any such error, the Index Provider may carry out an unscheduled rebalance or other modification of the Index constituents or weightings, which may increase the fund’s costs. The Index Provider does not provide any representation or warranty in relation to the quality, accuracy or completeness of data in the Index, and it does not guarantee that the Index will be calculated in accordance with its stated methodology. Losses or costs associated with any Index Provider errors generally will be borne by the fund and its shareholders.
Investment Companies Risk. To the extent a fund invests in the securities of other investment vehicles, the fund will incur additional fees and expenses that would not be present in a direct investment in those investment vehicles. Furthermore, the fund’s investment performance and risks are directly related to the investment performance and risks of the investment vehicles in which the fund invests.
LIBOR Risk. To the extent a fund invests in floating or variable rate obligations that use the London Interbank Offered Rate (“LIBOR”) as a reference interest rate, it is subject to LIBOR Risk. The United Kingdom’s Financial Conduct Authority, which regulates LIBOR, has ceased making LIBOR available as a reference rate over a phase-out period that began December 31, 2021.
Additional Information (Continued)
FT Cboe Vest Gold Strategy Target Income ETF® (IGLD)
June 30, 2023 (Unaudited)
There is no assurance that any alternative reference rate, including the Secured Overnight Financing Rate (“SOFR”) will be similar to or produce the same value or economic equivalence as LIBOR or that instruments using an alternative rate will have the same volume or liquidity. The unavailability or replacement of LIBOR may affect the value, liquidity or return on certain fund investments and may result in costs incurred in connection with closing out positions and entering into new trades. Any potential effects of the transition away from LIBOR on the fund or on certain instruments in which the fund invests can be difficult to ascertain, and they may vary depending on a variety of factors, and they could result in losses to the fund.
Management Risk. To the extent that a fund is actively managed, it is subject to management risk. In managing an actively-managed fund’s investment portfolio, the fund’s portfolio managers will apply investment techniques and risk analyses that may not have the desired result. There can be no guarantee that a fund will meet its investment objective.
Market Risk. Market risk is the risk that a particular security, or shares of a fund in general, may fall in value. Securities held by a fund, as well as shares of a fund itself, are subject to market fluctuations caused by factors such as general economic conditions, political events, regulatory or market developments, changes in interest rates and perceived trends in securities prices. Shares of a fund could decline in value or underperform other investments as a result of the risk of loss associated with these market fluctuations. In addition, local, regional or global events such as war, acts of terrorism, spread of infectious diseases or other public health issues, recessions, or other events could have a significant negative impact on a fund and its investments. Such events may affect certain geographic regions, countries, sectors and industries more significantly than others. In February 2022, Russia invaded Ukraine which has caused and could continue to cause significant market disruptions and volatility within the markets in Russia, Europe, and the United States. The hostilities and sanctions resulting from those hostilities could have a significant impact on certain fund investments as well as fund performance. The COVID-19 global pandemic and the ensuing policies enacted by governments and central banks have caused and may continue to cause significant volatility and uncertainty in global financial markets. While the U.S. has resumed “reasonably” normal business activity, many countries continue to impose lockdown measures. Additionally, there is no guarantee that vaccines will be effective against emerging variants of the disease. These events also adversely affect the prices and liquidity of a fund’s portfolio securities or other instruments and could result in disruptions in the trading markets. Any of such circumstances could have a materially negative impact on the value of a fund’s shares and result in increased market volatility. During any such events, a fund’s shares may trade at increased premiums or discounts to their net asset value and the bid/ask spread on a fund’s shares may widen.
Non-U.S. Securities Risk. To the extent a fund invests in non-U.S. securities, it is subject to additional risks not associated with securities of domestic issuers. Non-U.S. securities are subject to higher volatility than securities of domestic issuers due to:possible adverse political, social or economic developments; restrictions on foreign investment or exchange of securities; capital controls; lack of liquidity; currency exchange rates; excessive taxation; government seizure of assets; the imposition of sanctions by foreign governments; different legal or accounting standards; and less government supervision and regulation of exchanges in foreign countries. Investments in non-U.S. securities may involve higher costs than investments in U.S. securities, including higher transaction and custody costs, as well as additional taxes imposed by non-U.S. governments. These risks may be heightened for securities of companies located, or with significant operations, in emerging market countries.
Operational Risk. Each fund is subject to risks arising from various operational factors, including, but not limited to, human error, processing and communication errors, errors of a fund’s service providers, counterparties or other third-parties, failed or inadequate processes and technology or systems failures. Each fund relies on third-parties for a range of services, including custody. Any delay or failure relating to engaging or maintaining such service providers may affect a fund’s ability to meet its investment objective. Although the funds and the funds’ investment advisor seek to reduce these operational risks through controls and procedures, there is no way to completely protect against such risks.
Passive Investment Risk. To the extent a fund seeks to track an index, the fund will invest in the securities included in, or representative of, the index regardless of their investment merit. A fund generally will not attempt to take defensive positions in declining markets.
Preferred Securities Risk. Preferred securities combine some of the characteristics of both common stocks and bonds. Preferred securities are typically subordinated to bonds and other debt securities in a company’s capital structure in terms of priority to corporate income, subjecting them to greater credit risk than those debt securities. Generally, holders of preferred securities have no voting rights with respect to the issuing company unless preferred dividends have been in arrears for a specified number of periods, at which time the preferred security holders may obtain limited rights. In certain circumstances, an issuer of preferred securities may defer
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payment on the securities and, in some cases, redeem the securities prior to a specified date. Preferred securities may also be substantially less liquid than other securities, including common stock.
Valuation Risk. The valuation of certain securities may carry more risk than that of common stock. Uncertainties in the conditions of the financial markets, unreliable reference data, lack of transparency and inconsistency of valuation models and processes may lead to inaccurate asset pricing. A fund may hold investments in sizes smaller than institutionally sized round lot positions (sometimes referred to as odd lots). However, third-party pricing services generally provide evaluations on the basis of institutionally-sized round lots. If a fund sells certain of its investments in an odd lot transaction, the sale price may be less than the value at which such securities have been held by the fund. Odd lots often trade at lower prices than institutional round lots. There is no assurance that the fund will be able to sell a portfolio security at the price established by the pricing service, which could result in a loss to the fund.
Disclaimer
The Fund is not sponsored, endorsed, sold or promoted by SPDR® Gold Shares, SPDR, or Standard & Poor’s®(together with their affiliates hereinafter referred to as the “Corporations”). The Corporations have not passed on the legality or suitability of, or the accuracy or adequacy of, descriptions and disclosures relating to the Fund or the FLEX Options. The Corporations make no representations or warranties, express or implied, regarding the advisability of investing in the Fund or the FLEX Options or results to be obtained by the Fund or the FLEX Options, shareholders or any other person or entity from use of the SPDR® Gold Shares. The Corporations have no liability in connection with the management, administration, marketing or trading of the Fund or the FLEX Options.
NOT FDIC INSURED NOT BANK GUARANTEED MAY LOSE VALUE
Advisory and Sub-Advisory Agreements
Board Considerations Regarding Approval of Continuation of Investment Management Agreement and Sub-Advisory Agreement
The Board of Trustees of First Trust Exchange-Traded Fund (the “Trust”), including the Independent Trustees, unanimously approved the continuation of the Investment Management Agreement (the “Advisory Agreement”) with First Trust Advisors L.P. (the “Advisor”) on behalf of the FT Cboe Vest Gold Strategy Target Income ETF (the “Fund”) and the Investment Sub-Advisory Agreement (the “Sub-Advisory Agreement” and together with the Advisory Agreement, the “Agreements”) among the Trust, on behalf of the Fund, the Advisor and Cboe Vest Financial LLC (the “Sub-Advisor”). The Board approved the continuation of the Agreements for a one-year period ending June 30, 2024 at a meeting held on June 4–5, 2023. The Board determined that the continuation of the Agreements is in the best interests of the Fund in light of the nature, extent and quality of the services provided and such other matters as the Board considered to be relevant in the exercise of its business judgment.
To reach this determination, the Board considered its duties under the Investment Company Act of 1940, as amended (the “1940 Act”), as well as under the general principles of state law, in reviewing and approving advisory contracts; the requirements of the 1940 Act in such matters; the fiduciary duty of investment advisors with respect to advisory agreements and compensation; the standards used by courts in determining whether investment company boards have fulfilled their duties; and the factors to be considered by the Board in voting on such agreements. At meetings held on April 17, 2023 and June 4–5, 2023, the Board, including the Independent Trustees, reviewed materials provided by the Advisor and the Sub-Advisor responding to requests for information from counsel to the Independent Trustees, submitted on behalf of the Independent Trustees, that, among other things, outlined:the services provided by the Advisor and the Sub-Advisor to the Fund (including the relevant personnel responsible for these services and their experience); the unitary fee rate schedule payable by the Fund as compared to fees charged to a peer group of funds (the “Expense Group”) and a broad peer universe of funds (the “Expense Universe”), each assembled by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent source, and as compared to fees charged to other clients of the Advisor, including other exchange-traded funds (“ETFs”) managed by the Advisor; the sub-advisory fee as compared to fees charged to other clients of the Sub-Advisor; the expense ratio of the Fund as compared to expense ratios of the funds in the Fund’s Expense Group and Expense Universe; performance information for the Fund, including comparisons of the Fund’s performance to that of one or more relevant benchmark indexes and to that of a performance group of funds and a broad performance universe of funds (the “Performance Universe”), each assembled by Broadridge; the nature of expenses incurred in providing services to the Fund and the potential for the Advisor and the Sub-Advisor to realize economies of scale, if any; profitability and other financial data for the Advisor; financial data for the Sub-Advisor; any indirect benefits to the Advisor and its affiliates, First Trust Portfolios L.P. (“FTP”) and First Trust Capital Partners, LLC (“FTCP”), and the Sub-Advisor; and information on the Advisor’s and the Sub-Advisor’s compliance programs. The Board reviewed initial materials with the Advisor at the meeting held on April 17, 2023, prior to which the Independent Trustees and their counsel met separately to
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discuss the information provided by the Advisor and the Sub-Advisor. Following the April meeting, counsel to the Independent Trustees, on behalf of the Independent Trustees, requested certain clarifications and supplements to the materials provided, and the information provided in response to those requests was considered at an executive session of the Independent Trustees and their counsel held prior to the June 4–5, 2023 meeting, as well as at the June meeting. The Board applied its business judgment to determine whether the arrangements between the Trust and the Advisor and among the Trust, the Advisor and the Sub-Advisor continue to be reasonable business arrangements from the Fund’s perspective. The Board determined that, given the totality of the information provided with respect to the Agreements, the Board had received sufficient information to renew the Agreements. The Board considered that shareholders chose to invest or remain invested in the Fund knowing that the Advisor and the Sub-Advisor manage the Fund and knowing the Fund’s unitary fee.
In reviewing the Agreements, the Board considered the nature, extent and quality of the services provided by the Advisor and the Sub-Advisor under the Agreements. With respect to the Advisory Agreement, the Board considered that the Advisor is responsible for the overall management and administration of the Trust and the Fund and reviewed all of the services provided by the Advisor to the Fund, including the oversight of the Sub-Advisor, as well as the background and experience of the persons responsible for such services. The Board noted that the Advisor oversees the Sub-Advisor’s day-to-day management of the Fund’s investments, including portfolio risk monitoring and performance review. In reviewing the services provided, the Board noted the compliance program that had been developed by the Advisor and considered that it includes a robust program for monitoring the Advisor’s, the Sub-Advisor’s and the Fund’s compliance with the 1940 Act, as well as the Fund’s compliance with its investment objective, policies and restrictions. The Board also considered a report from the Advisor with respect to its risk management functions related to the operation of the Fund. Finally, as part of the Board’s consideration of the Advisor’s services, the Advisor, in its written materials and at the April 17, 2023 meeting, described to the Board the scope of its ongoing investment in additional personnel and infrastructure to maintain and improve the quality of services provided to the Fund and the other funds in the First Trust Fund Complex. With respect to the Sub-Advisory Agreement, the Board noted that the Fund is an actively-managed ETF and the Sub-Advisor actively manages the Fund’s investments. The Board reviewed the materials provided by the Sub-Advisor and considered the services that the Sub-Advisor provides to the Fund, including the Sub-Advisor’s day-to-day management of the Fund’s investments. In considering the Sub-Advisor’s management of the Fund, the Board noted the background and experience of the Sub-Advisor’s portfolio management team, including the Board’s prior meetings with members of the portfolio management team. In light of the information presented and the considerations made, the Board concluded that the nature, extent and quality of the services provided to the Trust and the Fund by the Advisor and the Sub-Advisor under the Agreements have been and are expected to remain satisfactory and that the Sub-Advisor, under the oversight of the Advisor, has managed the Fund consistent with its investment objective, policies and restrictions.
The Board considered the unitary fee rate schedule payable by the Fund under the Advisory Agreement for the services provided. The Board noted that the sub-advisory fee is paid by the Advisor from the unitary fee. The Board considered that as part of the unitary fee the Advisor is responsible for the Fund’s expenses, including the cost of sub-advisory, transfer agency, custody, fund administration, legal, audit and other services and license fees, if any, but excluding the fee payment under the Advisory Agreement and interest, taxes, brokerage commissions and other expenses connected with the execution of portfolio transactions, distribution and service fees pursuant to a Rule 12b-1 plan, if any, and extraordinary expenses, if any. The Board received and reviewed information showing the fee rates and expense ratios of the peer funds in the Expense Group, as well as advisory and unitary fee rates charged by the Advisor and the Sub-Advisor to other fund (including ETFs) and non-fund clients, as applicable. Because the Fund pays a unitary fee, the Board determined that expense ratios were the most relevant comparative data point. Based on the information provided, the Board noted that the total (net) expense ratio for the Fund was above the median total (net) expense ratio of the peer funds in the Expense Group. With respect to the Expense Group, the Board, at the April 17, 2023 meeting, discussed with Broadridge its methodology for assembling peer groups and discussed with the Advisor limitations in creating peer groups for actively-managed ETFs, and different business models that may affect the pricing of services among ETF sponsors. The Board also noted that not all peer funds employ an advisor/sub-advisor management structure. The Board took these limitations and differences into account in considering the peer data. With respect to fees charged to other non-ETF clients, the Board considered differences between the Fund and other non-ETF clients that limited their comparability. In considering the unitary fee rate schedule overall, the Board also considered the Advisor’s statement that it seeks to meet investor needs through innovative and value-added investment solutions and the Advisor’s demonstrated long-term commitment to the Fund and the other funds in the First Trust Fund Complex.
The Board considered performance information for the Fund. The Board noted the process it has established for monitoring the Fund’s performance and portfolio risk on an ongoing basis, which includes quarterly performance reporting from the Advisor and the Sub-Advisor for the Fund. The Board determined that this process continues to be effective for reviewing the Fund’s performance. The Board received and reviewed information comparing the Fund’s performance for the one-year period ended December 31, 2022 to the performance of the funds in the Performance Universe and to that of a benchmark index. Based on the information provided, the
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June 30, 2023 (Unaudited)
Board noted that the Fund outperformed the Performance Universe median and underperformed the benchmark index for the one-year period ended December 31, 2022. The Board considered that the Fund follows an options-based strategy that seeks to deliver participation in the price returns of the SPDR Gold Trust while providing a consistent level of income, and took this strategy into account when considering the comparative performance information.
On the basis of all the information provided on the unitary fee and performance of the Fund and the ongoing oversight by the Board, the Board concluded that the unitary fee for the Fund (out of which the Sub-Advisor is compensated) continues to be reasonable and appropriate in light of the nature, extent and quality of the services provided by the Advisor and the Sub-Advisor to the Fund under the Agreements.
The Board considered information and discussed with the Advisor whether there were any economies of scale in connection with providing advisory services to the Fund at current asset levels and whether the Fund may benefit from any economies of scale. The Board noted that the unitary fee rate schedule for the Fund includes breakpoints pursuant to which the unitary fee rate will be reduced as assets of the Fund meet certain thresholds. The Board considered the Advisor’s statement that it believes that its expenses relating to providing advisory services to the Fund will increase during the next twelve months as the Advisor continues to build infrastructure and add new staff. The Board also noted that under the unitary fee structure, any reduction in expenses associated with the management and operations of the Fund would benefit the Advisor, but that the unitary fee structure provides a level of certainty in expenses for shareholders of the Fund. The Board concluded that the unitary fee rate schedule for the Fund reflects an appropriate level of sharing of any economies of scale that may be realized in the management of the Fund at current asset levels. The Board considered the revenues and allocated costs (including the allocation methodology) of the Advisor in serving as investment advisor to the Fund for the twelve months ended December 31, 2022 and the estimated profitability level for the Fund calculated by the Advisor based on such data, as well as complex-wide and product-line profitability data, for the same period. The Board noted the inherent limitations in the profitability analysis and concluded that, based on the information provided, the Advisor’s profitability level for the Fund was not unreasonable. In addition, the Board considered indirect benefits described by the Advisor that may be realized from its relationship with the Fund. The Board considered that the Advisor had identified as an indirect benefit to the Advisor and FTP their exposure to investors and brokers who, absent their exposure to the Fund, may have had no dealings with the Advisor or FTP. The Board also noted that FTCP has a controlling ownership interest in the Sub-Advisor’s parent company and considered potential indirect benefits to the Advisor from such ownership interest. The Board concluded that the character and amount of potential indirect benefits to the Advisor were not unreasonable.
The Board considered the Sub-Advisor’s statement that it believes that the sub-advisory fee for the Fund is appropriate. The Board noted the Sub-Advisor’s statements that it continues to invest in infrastructure, technology and personnel, and that it anticipates that its expenses relating to providing services to the Fund will remain approximately the same for the next twelve months. The Board noted that the Advisor pays the Sub-Advisor from the unitary fee, that the sub-advisory fee will be reduced consistent with the breakpoints in the unitary fee rate schedule and its understanding that the Fund’s sub-advisory fee was the product of an arm’s length negotiation. The Board did not review the profitability of the Sub-Advisor with respect to the Fund. The Board concluded that the profitability analysis for the Advisor was more relevant. The Board considered the potential indirect benefits to the Sub-Advisor from being associated with the Advisor and the Fund, and noted the Sub-Advisor’s statements that it is the Sub-Advisor’s policy currently not to enter into soft-dollar arrangements for the procurement of research services in connection with client securities transactions and that, as a result, there are no foreseen indirect benefits from its relationship with the Fund. The Board also considered the potential indirect benefits to the Sub-Advisor from FTCP’s controlling ownership interest in the Sub-Advisor’s parent company. The Board concluded that the character and amount of potential indirect benefits to the Sub-Advisor were not unreasonable.
Based on all of the information considered and the conclusions reached, the Board, including the Independent Trustees, unanimously determined that the terms of the Agreements continue to be fair and reasonable and that the continuation of the Agreements is in the best interests of the Fund. No single factor was determinative in the Board’s analysis.
Liquidity Risk Management Program
In accordance with Rule 22e-4 under the Investment Company Act of 1940, as amended (the “1940 Act”), the Fund and each other fund in the First Trust Fund Complex, other than the closed-end funds, have adopted and implemented a liquidity risk management program (the “Program”) reasonably designed to assess and manage the funds’ liquidity risk, i.e., the risk that a fund could not meet requests to redeem shares issued by the fund without significant dilution of remaining investors’ interests in the fund. The Board of Trustees of the First Trust Funds has appointed First Trust Advisors, L.P. (the “Advisor”) as the person designated to administer the
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June 30, 2023 (Unaudited)
Program, and in this capacity the Advisor performs its duties primarily through the activities and efforts of the First Trust Liquidity Committee (the “Liquidity Committee”).
Pursuant to the Program, the Liquidity Committee classifies the liquidity of each fund’s portfolio investments into one of the four liquidity categories specified by Rule 22e-4: highly liquid investments, moderately liquid investments, less liquid investments and illiquid investments. The Liquidity Committee determines certain of the inputs for this classification process, including reasonably anticipated trade sizes and significant investor dilution thresholds. The Liquidity Committee also determines and periodically reviews a highly liquid investment minimum for certain funds, monitors the funds’ holdings of assets classified as illiquid investments to seek to ensure they do not exceed 15% of a fund’s net assets and establishes policies and procedures regarding redemptions in kind.
At the April 17, 2023 meeting of the Board of Trustees, as required by Rule 22e-4 and the Program, the Advisor provided the Board with a written report prepared by the Advisor that addressed the operation of the Program during the period from March 17, 2022 through the Liquidity Committee’s annual meeting held on March 23, 2023 and assessed the Program’s adequacy and effectiveness of implementation during this period, including the operation of the highly liquid investment minimum for each fund that is required under the Program to have one, and any material changes to the Program. Note that because the Fund primarily holds assets that are highly liquid investments, the Fund has not adopted any highly liquid investment minimum.
As stated in the written report, during the review period, two funds breached the 15% limitation on illiquid investments for one day each, as a result of an unscheduled week-long closure of the stock exchange in Istanbul following devastating earthquakes in February, causing all Turkish equities to be re-classified as “illiquid” for one day. Each fund filed a Form N-RN on the day after the breach occurred, and one day later after the breach was cured. No fund with a highly liquid investment minimum breached that minimum during the reporting period. The Advisor concluded that each fund’s investment strategy is appropriate for an open-end fund; that the Program operated effectively in all material respects during the review period; and that the Program is reasonably designed to assess and manage the liquidity risk of each fund and to maintain compliance with Rule 22e-4.
First Trust Exchange-Traded Fund
INVESTMENT ADVISOR
First Trust Advisors L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
INVESTMENT SUB-ADVISOR
Cboe VestSM Financial LLC
8350 Broad Street, Suite 240
McLean, VA 22102
ADMINISTRATOR, CUSTODIAN,
FUND ACCOUNTANT &
TRANSFER AGENT
The Bank of New York Mellon
240 Greenwich Street
New York, NY 10286
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
111 South Wacker Drive
Chicago, IL 60606
LEGAL COUNSEL
Chapman and Cutler LLP
320 South Canal Street
Chicago, IL 60606
Item 2. Code of Ethics.
Not applicable.
Item 3. Audit Committee Financial Expert.
Not applicable.
Item 4. Principal Accountant Fees and Services.
Not applicable.
Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. Investments.
| (a) | | Schedules of Investments in securities of unaffiliated issuers as of the close of the reporting period are included as part of the report to shareholders filed under Item 1 of this form. |
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders.
There have been no material changes to the procedures by which the shareholders may recommend nominees to the registrant's board of directors, where those changes were implemented after the registrant last provided disclosure in response to the requirements of Item 407(c)(2)(iv) of Regulation S-K (17 CFR 229.407) (as required by Item 22(b)(15) of Schedule 14A (17 CFR 240.14a-101)), or this Item.
Item 11. Controls and Procedures.
| (a) | | The registrant's principal executive and principal financial officers, or persons performing similar functions, have concluded that the registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the "1940 Act") (17 CFR 270.30a-3 (c))) are effective, as of a date within 90 days of the filing date of the report that includes the disclosure required by this paragraph, based on their evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or 240.15d-15 (b)). |
| (b) | | There were no changes in the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR 270.30a-3(d)) that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the registrant's internal control over financial reporting. |
Item 12. Disclosure of Securities Lending Activities for Closed-End Management Investment Companies.
Not applicable.
Item 13. Exhibits.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| (registrant) | | First Trust Exchange-Traded Fund |
| By (Signature and Title)* | | /s/ James M. Dykas |
| | | James M. Dykas, President and Chief Executive Officer
(principal executive officer) |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| By (Signature and Title)* | | /s/ James M. Dykas |
| | | James M. Dykas, President and Chief Executive Officer
(principal executive officer) |
| By (Signature and Title)* | | /s/ Derek D. Maltbie |
| | | Derek D. Maltbie, Treasurer, Chief Financial Officer
and Chief Accounting Officer
(principal financial officer) |
* Print the name and title of each signing officer under his or her signature.
