First Trust Reports Key Details of Performance, Compliance, and Transactions

The annual report offers a comprehensive breakdown of the fund's structure, legal proceedings, and governance practices.

October 15, 2024

Overview of Reporting Period and General Registrant Information

The annual report filed by First Trust Exchange-Traded Fund IV highlights significant details about the registrant's operations, covering a reporting period that ended on July 31, 2024. This report includes various disclosures about the investment company’s structure, governance, and fund management strategies. First Trust, a major player in the exchange-traded fund (ETF) market, continues to operate across multiple series and classes, indicating a diverse investment portfolio aimed at delivering targeted results for investors.

The registrant reported that it is part of the "First Trust Advisors L.P." family of investment companies, and its administrative and book-keeping functions are managed from its headquarters in Wheaton, Illinois. Additionally, the Bank of New York Mellon remains a central custodian of its records and accounting services. These details offer insight into the operational infrastructure supporting the registrant's funds.

Key Governance and Compliance Details

The report provides detailed information about the governance structure of First Trust’s ETFs, including the directors and key officers responsible for overseeing fund operations. Names like Robert F. Keith, Richard E. Erickson, and James A. Bowen were highlighted as key members, with backgrounds spanning across multiple registered investment companies.

Chief Compliance Officer Kristi A. Maher is highlighted as playing a pivotal role in ensuring compliance across the board. The report confirms there were no substantial legal proceedings during the reporting period, reflecting a stable operational environment. Similarly, there were no changes in the company's valuation methods or accounting principles, signaling consistency in financial practices.

Significant Fund Transactions and Broker Activity

The report delves into specific financial transactions carried out by the fund during the period. Notably, a substantial portion of brokerage commissions was directed to J.P. Morgan Securities LLC, along with RBC Capital Markets LLC and CitiGroup Global Markets. These brokers received payments from the fund for handling various purchase and sales transactions across its portfolio.

The value of the largest principal transactions during the reporting period, especially those conducted with major firms like Wells Fargo Securities and Goldman Sachs & Co., reflected the significant scale of financial activity within the portfolio. The aggregate value of principal purchase and sale transactions reached over $58 million, underscoring the registrant's robust market presence.

Fund Structures and Regulatory Reliance

First Trust’s diverse array of funds includes investment products such as First Trust Structured Credit Income Opportunities ETF and First Trust Core Investment Grade ETF. These funds are registered under various ticker symbols on the NYSE ARCA exchange, ensuring broad accessibility to investors.

The report provides an exhaustive breakdown of each fund’s structure, indicating that the majority operate as diversified funds under the 1940 Investment Company Act. Additionally, the registrant relies on several SEC exemptions and rules to streamline its operations, such as Rule 17a-7, which governs transactions between affiliates.

Financial Support and Securities Lending

While no substantial changes to fund valuation or accounting practices were noted, the report did confirm the absence of financial support from affiliates. This suggests that the fund’s value remained stable without the need for extraordinary financial backing during the reporting period. Additionally, the registrant did not engage in securities lending activities, which often involves lending securities to third parties to earn additional revenue.

Expense Limitation Agreements and Investment Advisory Fees

In line with standard practices, First Trust has implemented several expense limitation arrangements to reduce the cost burden on shareholders. These agreements ensure that certain fund expenses are capped, with the investment adviser absorbing costs beyond this threshold. However, the report noted that no fees waived under these agreements were recouped during the reporting period.

First Trust Advisors L.P. continues to act as the primary investment adviser for the funds under management. The firm is responsible for making key investment decisions and ensuring that the funds are aligned with their stated objectives. No new investment advisers were hired or terminated during the reporting period, indicating operational continuity in this area.

ETF-Specific Disclosures and Market Operations

As an ETF issuer, First Trust has multiple obligations related to share creation and redemption activities. During the reporting period, the registrant worked closely with authorized participants such as UBS Securities and J.P. Morgan Securities to facilitate share transactions. These participants play a critical role in maintaining liquidity and ensuring efficient market operations for the ETF.

The creation of fund shares involves a systematic process where participants either purchase or redeem shares directly from the fund in large blocks, known as creation units. Throughout the reporting period, First Trust's ETFs continued to be an "in-kind" exchange-traded fund, meaning that participants could either purchase or redeem shares using securities instead of cash. This method is advantageous for managing taxes and liquidity within the fund’s portfolio.

Looking Ahead: Operational Stability and Strategic Focus

The report concludes with an outlook for the upcoming period, reaffirming First Trust's commitment to its investment strategy. By maintaining stability in its operational practices, governance, and compliance frameworks, the registrant positions itself to continue offering attractive investment opportunities to both institutional and retail investors.

As market conditions evolve, First Trust’s ETFs are likely to remain adaptive, focusing on balancing risk and reward through diversified holdings and disciplined fund management. Investors and stakeholders will be closely watching any potential shifts in regulatory policies or market trends that could impact the registrant’s performance in the coming quarters.