FIRST TRUST
First Trust Exchange-Traded Fund VIII
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EquityCompass Risk Manager ETF (ERM)
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Annual Report
For the Year Ended
August 31, 2022
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TABLE OF CONTENTS
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EQUITYCOMPASS RISK MANAGER ETF (ERM)
ANNUAL REPORT
AUGUST 31, 2022
Shareholder Letter........................................................... 1
Fund Performance Overview.................................................... 2
Portfolio Commentary......................................................... 4
Understanding Your Fund Expenses............................................. 7
Portfolio of Investments..................................................... 8
Statement of Assets and Liabilities.......................................... 11
Statement of Operations...................................................... 12
Statements of Changes in Net Assets.......................................... 13
Financial Highlights......................................................... 14
Notes to Financial Statements................................................ 15
Report of Independent Registered Public Accounting Firm ..................... 21
Additional Information....................................................... 22
Board of Trustees and Officers............................................... 28
Privacy Policy............................................................... 30
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 EquityCompass Investment Management, LLC (the
"Sub-Advisor") and their 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 VIII (the "Trust") described in
this report (EquityCompass Risk Manager 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 objectives. 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. It
includes details about the Fund and presents data and analysis that provide
insight into the Fund's performance and investment approach.
By reading the portfolio commentary from the portfolio management team of the
Fund, you may obtain an understanding of how the market environment affected the
Fund's performance. 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 its prospectus, statement of additional
information, and other Fund regulatory filings.
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SHAREHOLDER LETTER
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EQUITYCOMPASS RISK MANAGER ETF (ERM)
ANNUAL LETTER FROM THE CHAIRMAN AND CEO
AUGUST 31, 2022
Dear Shareholders:
First Trust is pleased to provide you with the annual report for the
EquityCompass Risk Manager ETF (the "Fund"), which contains detailed information
about the Fund for the twelve months ended August 31, 2022.
At their most recent meeting (September 20-21, 2022), the Federal Open Market
Committee announced a 75 basis point interest rate hike, the third rate hike in
as many meetings. Overall, the Federal Reserve (the "Fed") has raised its
benchmark Federal Funds target rate (upper bound) from 0.25% this past March to
3.25% as of September 30, 2022, the fastest pace for rate hikes since 1994. The
Fed is hiking interest rates aggressively to combat the surge in inflation that
commenced in the second quarter of 2021. Perhaps the most common measure of
inflation is the Consumer Price Index ("CPI"). The CPI has averaged 3.0% per
year since 1926 but stood at an eye-popping 8.3% on a trailing 12-month basis in
August 2022. Its recent high point was 9.1% in June 2022. For borrowers, these
rate hikes will raise the cost of capital, making it tougher to secure loans for
consumers and businesses. The goal is to raise interest rates high enough to
cool some of the demand for goods and services so that inflation can begin to
moderate. The Fed would eventually like to see the CPI back near the 2.0% level.
It will take some time to play out. Guidance from Fed Chairman Jerome Powell
indicates that more rate hikes are coming, perhaps as much as another 100 basis
points by year-end. We'll see.
One of the areas that has yet to cool off is the housing market, in my opinion.
We have seen a substantial selloff this year in the stock and bond markets, but
not housing. Prices appreciated markedly across the U.S. during the coronavirus
("COVID-19") pandemic. Demand was high and inventories were uncharacteristically
low. Simply put, housing affordability has become a huge challenge for many
prospective buyers. The S&P CoreLogic Case-Shiller U.S. National Home Price
Index, which tracks the value of single-family homes, soared 45.2% from the end
of 2019 through June 2022. Keep in mind, historically, home prices tend to rise
with inflation over time. They are not supposed to increase 45% over 30 months.
The rapid increase in short-term lending rates has caused the rate on a 30-year
fixed-rate mortgage to nearly double from 3.27% at the end of 2021 to 6.43% as
of September 21, 2022, according to Bankrate. The sharp rise in mortgage rates
is just beginning to have a slight effect on demand. Redfin reported that close
to 63,000 deals on existing homes fell through in July 2022, or around 16% of
homes under contract that month, according to CNBC.
Fed Chairman Powell is trying to engineer a soft landing for the economy via
monetary policy. In other words, the Fed is trying to avoid a deep and lengthy
recession. That is why the relative resilience of the real estate markets, both
residential and commercial, is so critical at this juncture. One other plus
going for the U.S. economy today is the strong labor market. As of this report,
companies are still hiring. If these sources of strength eventually succumb to
the economic headwinds and turn weaker, the odds of achieving a soft landing
drop dramatically, in my opinion. For those investors who like to follow the
news closely, in addition to monitoring the state of the economy, keep an eye on
the war between Russia and Ukraine as well as the COVID-19-induced lockdowns of
cities in China. Any good news on those two fronts could be a net positive for
the markets moving forward. As I previously noted, it is going to take some time
to remedy this situation. As always, we encourage investors to be diversified
and stay the course.
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,
/s/ James A. Bowen
James A. Bowen
Chairman of the Board of Trustees
Chief Executive Officer of First Trust Advisors L.P.
Page 1
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FUND PERFORMANCE OVERVIEW (UNAUDITED)
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EQUITYCOMPASS RISK MANAGER ETF (ERM)
The EquityCompass Risk Manager ETF (the "Fund") seeks to provide long term
capital appreciation with capital preservation as a secondary objective. Under
normal market conditions, the Fund seeks to achieve its investment objectives by
investing in equity securities of companies domiciled in the U.S. or listed on a
U.S. exchange. During periods when the U.S. equity market is determined to be
unfavorable by the Fund's Sub-Advisor, the Fund may invest all or a portion of
its assets in cash, cash equivalents, money market funds and/or short-term fixed
income exchange-traded funds ("ETFs"), or the Fund may invest all or a portion
of its assets in a single short-term fixed income ETF, the First Trust Enhanced
Short Maturity ETF (FTSM). Certain of the ETFs in which the Fund invests may be
advised by First Trust. The Fund is classified as "diversified" under the
Investment Company Act of 1940, as amended. The shares of the Fund are listed
and traded on the NYSE Arca, Inc., under the ticker symbol "ERM."
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PERFORMANCE
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AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS
1 Year Ended 5 Years Ended Inception (4/10/17) 5 Years Ended Inception (4/10/17)
8/31/22 8/31/22 to 8/31/22 8/31/22 to 8/31/22
FUND PERFORMANCE
NAV -13.39% 2.90% 3.15% 15.38% 18.20%
Market Price -13.42% 2.90% 3.16% 15.37% 18.25%
INDEX PERFORMANCE
S&P 500(R) Index -11.23% 11.82% 12.07% 74.86% 84.84%
Hedge Fund Research HFRI Equity
Hedge Index(1) -10.14% 31.12% 5.57% 35.44% 5.85%
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(1) Cumulative total return for the period April 30, 2017 through August 31,
2022. Performance data is not available for the entire period shown in the
table for the index because performance data for the index is only
available on a month-end basis. Performance data for the index may be
updated on an ongoing basis and is subject to change.
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 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 by the advisor.
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. 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 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 return does
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.
Page 2
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FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
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EQUITYCOMPASS RISK MANAGER ETF (ERM) (CONTINUED)
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% OF TOTAL
LONG-TERM
SECTOR CLASSIFICATION INVESTMENTS
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Information Technology 21.2%
Consumer Discretionary 12.8
Health Care 12.7
Financials 11.4
Communication Services 10.9
Industrials 9.6
Consumer Staples 8.0
Energy 4.6
Utilities 3.5
Materials 2.7
Real Estate 2.6
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Total 100.0%
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% OF TOTAL
LONG-TERM
TOP TEN HOLDINGS INVESTMENTS
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TechnipFMC PLC 0.9%
ConocoPhillips 0.8
Ford Motor Co. 0.8
PayPal Holdings, Inc. 0.8
CF Industries Holdings, Inc. 0.8
Gartner, Inc. 0.8
Arista Networks, Inc. 0.8
Unum Group 0.8
Broadridge Financial Solutions, Inc. 0.8
Walt Disney (The) Co. 0.8
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Total 8.1%
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PERFORMANCE OF A $10,000 INITIAL INVESTMENT
APRIL 10, 2017 - AUGUST 31, 2022
EquityCompass S&P 500(R)
Risk Manager ETF Index
4/10/17 $10,000 $10,000
8/31/17 10,244 10,571
2/28/18 11,107 11,716
8/31/18 11,804 12,649
2/28/19 10,382 12,264
8/31/19 10,190 13,019
2/29/19 10,171 13,269
8/31/20 9,644 15,875
2/28/21 11,883 17,421
8/31/21 13,647 20,822
2/28/22 13,377 20,275
8/31/22 11,820 18,484
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.
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PORTFOLIO COMMENTARY
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EQUITYCOMPASS RISK MANAGER ETF (ERM)
ANNUAL REPORT
AUGUST 31, 2022 (UNAUDITED)
INVESTMENT ADVISOR
First Trust Advisors L.P. ("First Trust" or the "Advisor") is the investment
advisor to EquityCompass Risk Manager ETF ("ERM" or the "Fund"). First Trust is
responsible for the selection and ongoing monitoring of the securities in the
Fund's portfolio and certain other services necessary for the management of the
portfolio.
SUB-ADVISOR
EquityCompass Investment Management, LLC ("EquityCompass Investment Management"
or the "Sub-Advisor") serves as the investment sub-advisor to the Fund.
PORTFOLIO MANAGEMENT
ADVISOR'S INVESTMENT COMMITTEE
The Advisor's Investment Committee (the "Investment Committee"), which manages
the Fund's investments, consists of:
DANIEL J. LINDQUIST, MANAGING DIRECTOR OF FIRST TRUST
JON C. ERICKSON, SENIOR VICE PRESIDENT OF FIRST TRUST
DAVID G. MCGAREL, CHIEF INVESTMENT OFFICER, CHIEF OPERATING OFFICER AND MANAGING
DIRECTOR OF FIRST TRUST
ROGER F. TESTIN, SENIOR VICE PRESIDENT OF FIRST TRUST
TODD LARSON, CFA, VICE PRESIDENT OF FIRST TRUST
CHRIS A. PETERSON, CFA, SENIOR VICE PRESIDENT OF FIRST TRUST
JOHN GAMBLA, SENIOR PORTFOLIO MANAGER, CO-HEAD OF THE ALTERNATIVES INVESTMENT
TEAM OF FIRST TRUST
ROB A. GUTTSCHOW, CFA, SENIOR PORTFOLIO MANAGER, CO-HEAD ALTERNATIVES INVESTMENT
TEAM OF FIRST TRUST
SUB-ADVISOR PORTFOLIO MANAGERS
The Sub-Advisor portfolio managers, as set forth below, provide
non-discretionary investment advice to the Investment Committee:
TIMOTHY M. MCCANN, SENIOR PORTFOLIO MANAGER, EQUITYCOMPASS INVESTMENT
MANAGEMENT, LLC
CHRISTOPHER M. MUTASCIO, SENIOR MANAGING DIRECTOR AND PORTFOLIO MANAGER,
EQUITYCOMPASS INVESTMENT MANAGEMENT, LLC
The Investment Committee members are primarily and jointly responsible for the
day-to-day management of the Fund, while the Sub-Advisor portfolio managers
provide non-discretionary investment advice to the Investment Committee. Each
portfolio manager has served as part of the portfolio management team of the
Fund since 2017 and Christopher M. Mutascio has served as part of the portfolio
management team of the Fund since 2020.
COMMENTARY
MARKET RECAP
Our EquityCompass Market Outlook 2022, published at the beginning of the year,
suggested the biggest risk to the economy, and subsequently the stock market,
would be the ability of the Federal Reserve (the "Fed") to raise interest rates
in an environment where economic growth would be decelerating. For over 40
years, the Fed raised interest rates while the economy was growing--not slowing.
We noted this year would be different--threading the economic needle would be
tricky in 2022. Looking back "tricky" was an understatement and perhaps
"extremely challenging" would have been a better description.
Not only is it extremely challenging to raise interest rates in a slowing
economy, but it is occurring against a backdrop of stubbornly high inflation,
coupled with a major regional war in Eastern Europe--a conflict that is
amplifying inflation as it relates to food and energy. In turn, this has caused
additional uncertainty as to how high interest rates should go up to help squash
the rise in inflation. If interest rates keep rising, what will be the
consequence to the economy? Is a recession inevitable? The combination of all
three complex and intertwined events currently unfolding have left investors
shaken and befuddled. In all, the last twelve months have been unlike any period
in recent history dating back over 50 years.
This year, the stock market narrative has been rising interest rates making
long-duration assets--such as long-term bonds and growth stocks--less
attractive. This is mathematically correct. The greatest amount of intrinsic
value among growth stocks lies in their long-term earnings growth and, with
interest rates rising, the discounted present value of future earnings growth is
worth less--but not worthless. What is confusing is the selloff in growth stocks
has been particularly brutal in light of a two-percentage point increase in the
discount rate for determining intrinsic value. Today, we are valuing growth
stocks at discount rates that were similar to Treasury yields between 2010 and
Page 4
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PORTFOLIO COMMENTARY (CONTINUED)
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EQUITYCOMPASS RISK MANAGER ETF (ERM)
ANNUAL REPORT
AUGUST 31, 2022 (UNAUDITED)
2019 when growth stocks handsomely outperformed the broader markets--including
value stocks. During that period, the total return of the Russell 1000(R) Value
Index was 205%, the S&P 500(R) Index gained 257%, while the Russell 1000(R)
Growth Index returned 312%.
The question then becomes, what resets the stock market back on a pathway of
rational thinking? We believe the answer is new information--incoming
macroeconomic data and microeconomic financial results--new facts that work to
formulate a new story to replace the old story. And it appears, based on the
most recent economic data, the narrative is beginning to change.
For the 12-month period ended August 31, 2022, large cap stocks, as represented
by the S&P 500(R) Index, declined 11.23%. Mid-cap stocks, represented by the S&P
MidCap 400(R) Index, declined 10.37% and small-cap stocks, represented by the
S&P SmallCap 600(R) Index, declined 12.12%, for the same period. The disparity
between the Russell 1000(R) Growth Index and the Russell 1000(R) Value Index was
12.80%, with growth stocks losing 19.06% and the value counterpart losing 6.26%
over the 12-month period ended August 31, 2022. The Energy, Utilities and
Consumer Staples sectors were the only advancing sectors while the Communication
Services, Consumer Discretionary and Information Technology sectors were the
worst performing sectors during the period. Bonds, as represented by the
Bloomberg U.S. Aggregate Bond Total Return Index, fell 11.58% for the period.
The Forward 12-month earnings estimate for the S&P 500(R) Index was $235.11 on
August 31, 2022.
ALLOCATION CHANGES
The Fund was defensive approximately 30% of the time for the 12-month period
ended August 31, 2022. The Fund held a partially defensive position (25% cash)
during the periods:
o November 30, 2021 through December 14, 2021
o March 2, 2022 through March 24, 2022
o June 20, 2022 through July 19, 2022
On each of these occasions, the criteria used to trigger the positioning was a
sudden and significant single-day widening in credit spreads. The actions in the
credit markets appeared to be limited to just single daily events. Credit market
conditions on each of these occasions stabilized fairly quickly after each of
these signals. Therefore, the duration of the defensive positions through June
2022 were minimal.
However, on July 19, 2022, our fundamental signal was triggered just as our
technical signal rolled positive, which resulted in a more defensive position
(50% cash) than the three prior periods. From July 19, 2022 through the end of
the 12-month period ended August 31, 2022 (into present day), we have maintained
a defensive position in the fundamental indicator.
PERFORMANCE REVIEW
For the 12-month period ended August 31, 2022, the Fund posted a net asset value
("NAV") return of -13.39%. The market price return for the Fund was -13.42%. The
primary benchmark for the Fund is the S&P 500(R) Index (the "Benchmark"). For
the period specified above, the Benchmark was down 11.23% on a total return
basis, while its equal weight counterpart was down 8.35% on a total return
basis. The Fund underperformed the Benchmark for the period.
The greatest contributor to the active return for the Fund relative to the
Benchmark was its exposure to equally weighted positions. Market breadth was
wide for the period, particularly during the ascent in inflationary pressure
that took the U.S. Consumer Price Index year-over-year from 5.25% (August 2021)
to 8.26% (August 2022). The Fund's disproportionate exposure to smaller
companies did not provide any meaningful contribution relative to the Benchmark,
with the S&P 100(R) Index declining 12.23% and the S&P SmallCap 600(R) Index
declining 12.12%. Three sectors provided positive contribution to active returns
for the period. The sectors with the greatest contribution to the Fund's active
return were Consumer Staples, Energy and Utilities.
Our selection process for the underlying 150 names--representing the long
component--tends to result in two distinct biases relative to the equal weight
S&P 500(R) Index. Roughly one-third of the portfolio will generally be comprised
of the smallest names in the S&P 500(R) Index across all major sectors. As a
result, they tend to have smaller capitalizations and value-like
characteristics.
Only three of the eleven Benchmark sectors produced positive returns during the
period. The Energy sector (+75.77%), the Utilities sector (+11.72%), and the
Consumer Staples sector (+4.08%) provided some cushion to the rest of the
Benchmark. The Communication Services sector, the Consumer Discretionary sector,
and the Information Technology sector were the three worst performing sectors
for the period, declining 35.19%, 16.16%, and 14.35%, respectively.
Page 5
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PORTFOLIO COMMENTARY (CONTINUED)
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EQUITYCOMPASS RISK MANAGER ETF (ERM)
ANNUAL REPORT
AUGUST 31, 2022 (UNAUDITED)
MARKET AND FUND OUTLOOK
Earnings expectations for the S&P 500(R) Index have largely risen during the
12-month period ended August 31, 2022, with nine straight months of strong
earnings per share growth followed by three challenging months. The last three
months have seen a challenging environment for earnings as calls for a recession
become louder. The Fed has been more vocal recently about how serious their
commitment is to restoring price stability and bringing inflation back to
target. For the 12-month period ended August 31, 2022, earnings estimates have
expanded at a rate of 10 cents per day from a low of $211.75 to a high of
$239.49 intra period. The forward earnings signal did end the period lower than
the high watermark, however, at $235.10.
The growth in corporate profitability has seen a mostly intact trend to the
upside that is broadly in line with the direction of the Benchmark. Earnings
multiples on the Benchmark have declined from 21.4X in August of 2021 to 16.8X
in August of 2022. This multiple compression comes as investors are looking to
buy cheaper businesses and shift away from growth and into value/defensives.
Looking forward, it is clear the U.S. economy is in the midst of a crossroads
between the "end of easy money" and the "risk of Fed-induced recession." There
is much disagreement around the nature of the Fed's ability to manufacture a
"soft landing" where a recession is avoided yet inflationary pressures start to
ease.
The Equity Risk Management Strategy ("ERMS") is designed to remove emotional
decision making and react to, not anticipate, changes in fundamental and
technical conditions to adjust equity exposure accordingly. Currently, the ERMS
is defensive with a 50% cash position due to the fundamental model being
negative. Should earnings recover, the strategy will move to a fully long
position. However, if both signals deteriorate concurrently the strategy will
move to a more significant defensive position.
Page 6
EQUITYCOMPASS RISK MANAGER ETF (ERM)
UNDERSTANDING YOUR FUND EXPENSES
AUGUST 31, 2022 (UNAUDITED)
As a shareholder of EquityCompass Risk Manager 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 August 31, 2022.
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.
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ANNUALIZED
EXPENSE RATIO EXPENSES PAID
BEGINNING ENDING BASED ON THE DURING THE
ACCOUNT VALUE ACCOUNT VALUE SIX MONTH SIX MONTH
MARCH 1, 2022 AUGUST 31, 2022 PERIOD (a) PERIOD (a) (b)
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EQUITYCOMPASS RISK MANAGER ETF (ERM)
Actual $1,000.00 $ 883.50 0.65% $3.09
Hypothetical (5% return before expenses) $1,000.00 $1,021.93 0.65% $3.31
(a) Annualized expense ratio and expenses paid during the six-month period do
not include fees and expenses of the underlying funds in which the Fund
may invest.
(b) Expenses are equal to the annualized expense ratio as indicated in the
table multiplied by the average account value over the period (March 1,
2022 through August 31, 2022), multiplied by 184/365 (to reflect the
six-month period).
Page 7
EQUITYCOMPASS RISK MANAGER ETF (ERM)
PORTFOLIO OF INVESTMENTS
AUGUST 31, 2022
SHARES DESCRIPTION VALUE
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COMMON STOCKS -- 49.8%
AEROSPACE & DEFENSE -- 1.4%
415 Boeing (The) Co. (a) $ 66,504
300 General Dynamics Corp. 68,679
166 Lockheed Martin Corp. 69,738
688 Raytheon Technologies Corp. 61,748
-------------
266,669
-------------
AIR FREIGHT & LOGISTICS -- 0.7%
285 FedEx Corp. 60,081
347 United Parcel Service, Inc.,
Class B 67,495
-------------
127,576
-------------
AUTOMOBILES -- 1.1%
5,099 Ford Motor Co. 77,709
1,865 General Motors Co. 71,262
261 Tesla, Inc. (a) 71,934
-------------
220,905
-------------
BANKS -- 1.6%
1,914 Bank of America Corp. 64,329
1,233 Citigroup, Inc. 60,183
559 JPMorgan Chase & Co. 63,575
1,348 U.S. Bancorp 61,482
1,491 Wells Fargo & Co. 65,172
-------------
314,741
-------------
BEVERAGES -- 1.0%
1,026 Coca-Cola (The) Co. 63,314
1,097 Molson Coors Beverage Co.,
Class B 56,682
378 PepsiCo, Inc. 65,118
-------------
185,114
-------------
BIOTECHNOLOGY -- 1.3%
427 AbbVie, Inc. 57,414
259 Amgen, Inc. 62,238
290 Biogen, Inc. (a) 56,660
1,031 Gilead Sciences, Inc. 65,438
-------------
241,750
-------------
CAPITAL MARKETS -- 1.4%
1,468 Bank of New York Mellon (The)
Corp. 60,966
102 BlackRock, Inc. 67,972
202 Goldman Sachs Group (The), Inc. 67,199
785 Morgan Stanley 66,898
-------------
263,035
-------------
CHEMICALS -- 1.0%
738 CF Industries Holdings, Inc. 76,353
1,219 Dow, Inc. 62,169
1,137 DuPont de Nemours, Inc. 63,263
-------------
201,785
-------------
COMMUNICATIONS EQUIPMENT
-- 1.4%
615 Arista Networks, Inc. (a) 73,726
1,462 Cisco Systems, Inc. 65,381
SHARES DESCRIPTION VALUE
---------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT
(CONTINUED)
424 F5, Inc. (a) $ 66,593
2,204 Juniper Networks, Inc. 62,638
-------------
268,338
-------------
CONSUMER FINANCE -- 0.7%
435 American Express Co. 66,120
566 Capital One Financial Corp. 59,894
-------------
126,014
-------------
CONTAINERS & PACKAGING -- 0.3%
1,111 Sealed Air Corp. 59,783
-------------
DIVERSIFIED FINANCIAL SERVICES
-- 0.3%
226 Berkshire Hathaway, Inc.,
Class B (a) 63,461
-------------
DIVERSIFIED TELECOMMUNICATION
SERVICES -- 0.9%
3,076 AT&T, Inc. 53,953
5,767 Lumen Technologies, Inc. 57,439
1,271 Verizon Communications, Inc. 53,141
-------------
164,533
-------------
ELECTRIC UTILITIES -- 1.7%
604 Duke Energy Corp. 64,574
1,461 Exelon Corp. 64,153
811 NextEra Energy, Inc. 68,984
910 Pinnacle West Capital Corp. 68,568
891 Southern (The) Co. 68,669
-------------
334,948
-------------
ELECTRICAL EQUIPMENT -- 0.3%
782 Emerson Electric Co. 63,921
-------------
ELECTRONIC EQUIPMENT, INSTRUMENTS
& COMPONENTS -- 0.3%
651 IPG Photonics Corp. (a) 58,974
-------------
ENERGY EQUIPMENT & SERVICES
-- 0.8%
1,890 Schlumberger N.V. 72,103
10,031 TechnipFMC PLC (a) 82,054
-------------
154,157
-------------
ENTERTAINMENT -- 1.7%
507 Electronic Arts, Inc. 64,323
708 Live Nation Entertainment,
Inc. (a) 63,975
319 Netflix, Inc. (a) 71,316
645 Walt Disney (The) Co. (a) 72,292
4,489 Warner Bros Discovery, Inc. (a) 59,434
-------------
331,340
-------------
EQUITY REAL ESTATE INVESTMENT
TRUSTS -- 1.3%
250 American Tower Corp. 63,513
635 Federal Realty Investment Trust 64,306
626 Simon Property Group, Inc. 63,839
1,317 SL Green Realty Corp. 58,172
-------------
249,830
-------------
Page 8 See Notes to Financial Statements
EQUITYCOMPASS RISK MANAGER ETF (ERM)
PORTFOLIO OF INVESTMENTS (CONTINUED)
AUGUST 31, 2022
SHARES DESCRIPTION VALUE
---------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
FOOD & STAPLES RETAILING -- 1.0%
124 Costco Wholesale Corp. $ 64,740
1,655 Walgreens Boots Alliance, Inc. 58,024
494 Walmart, Inc. 65,480
-------------
188,244
-------------
FOOD PRODUCTS -- 0.7%
1,655 Kraft Heinz (The) Co. 61,897
1,046 Mondelez International, Inc.,
Class A 64,706
-------------
126,603
-------------
HEALTH CARE EQUIPMENT & SUPPLIES
-- 0.9%
583 Abbott Laboratories 59,845
1,801 DENTSPLY SIRONA, Inc. 59,019
711 Medtronic PLC 62,511
-------------
181,375
-------------
HEALTH CARE PROVIDERS & SERVICES
-- 1.6%
661 CVS Health Corp. 64,877
732 DaVita, Inc. (a) 62,432
819 Henry Schein, Inc. (a) 60,123
121 UnitedHealth Group, Inc. 62,839
596 Universal Health Services, Inc.,
Class B 58,313
-------------
308,584
-------------
HOTELS, RESTAURANTS & LEISURE
-- 1.4%
35 Booking Holdings, Inc. (a) 65,653
251 McDonald's Corp. 63,322
4,969 Norwegian Cruise Line Holdings
Ltd. (a) 64,995
780 Starbucks Corp. 65,575
-------------
259,545
-------------
HOUSEHOLD DURABLES -- 0.6%
1,685 Leggett & Platt, Inc. 64,400
3,248 Newell Brands, Inc. 57,977
-------------
122,377
-------------
HOUSEHOLD PRODUCTS -- 0.7%
828 Colgate-Palmolive Co. 64,758
444 Procter & Gamble (The) Co. 61,245
-------------
126,003
-------------
INDUSTRIAL CONGLOMERATES -- 1.0%
485 3M Co. 60,310
964 General Electric Co. 70,796
363 Honeywell International, Inc. 68,734
-------------
199,840
-------------
INSURANCE -- 1.7%
524 Allstate (The) Corp. 63,142
1,235 American International Group,
Inc. 63,911
381 Assurant, Inc. 60,385
SHARES DESCRIPTION VALUE
---------------------------------------------------------------------
INSURANCE (CONTINUED)
1,055 MetLife, Inc. $ 67,868
1,929 Unum Group 73,013
-------------
328,319
-------------
INTERACTIVE MEDIA & SERVICES
-- 0.6%
568 Alphabet, Inc., Class A (a) 61,469
365 Meta Platforms, Inc., Class A (a) 59,469
-------------
120,938
-------------
INTERNET & DIRECT MARKETING RETAIL
-- 0.4%
543 Amazon.com, Inc. (a) 68,836
-------------
IT SERVICES -- 3.4%
229 Accenture PLC, Class A 66,057
717 Akamai Technologies, Inc. (a) 64,731
425 Broadridge Financial Solutions,
Inc. 72,747
260 Gartner, Inc. (a) 74,183
493 International Business Machines
Corp. 63,326
329 Jack Henry & Associates, Inc. 63,234
188 Mastercard, Inc., Class A 60,982
828 PayPal Holdings, Inc. (a) 77,368
300 Visa, Inc., Class A 59,613
3,789 Western Union (The) Co. 56,153
-------------
658,394
-------------
LIFE SCIENCES TOOLS & SERVICES
-- 0.7%
251 Danaher Corp. 67,748
120 Thermo Fisher Scientific, Inc. 65,438
-------------
133,186
-------------
MACHINERY -- 0.7%
359 Caterpillar, Inc. 66,311
2,187 Flowserve Corp. 66,638
-------------
132,949
-------------
MEDIA -- 2.2%
133 Charter Communications, Inc.,
Class A (a) 54,880
1,551 Comcast Corp., Class A 56,131
3,508 DISH Network Corp., Class A (a) 60,864
1,875 Fox Corp., Class A 64,087
2,170 Interpublic Group of Cos. (The),
Inc. 59,979
3,873 News Corp., Class B 66,770
948 Omnicom Group, Inc. 63,421
-------------
426,132
-------------
MULTILINE RETAIL -- 0.4%
419 Target Corp. 67,182
-------------
OIL, GAS & CONSUMABLE FUELS
-- 1.5%
447 Chevron Corp. 70,653
732 ConocoPhillips 80,117
729 Exxon Mobil Corp. 69,685
See Notes to Financial Statements Page 9
EQUITYCOMPASS RISK MANAGER ETF (ERM)
PORTFOLIO OF INVESTMENTS (CONTINUED)
AUGUST 31, 2022
SHARES DESCRIPTION VALUE
---------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
OIL, GAS & CONSUMABLE FUELS
(CONTINUED)
3,718 Kinder Morgan, Inc. $ 68,114
-------------
288,569
-------------
PHARMACEUTICALS -- 1.8%
874 Bristol-Myers Squibb Co. 58,916
196 Eli Lilly & Co. 59,041
373 Johnson & Johnson 60,180
693 Merck & Co., Inc. 59,154
1,537 Perrigo Co. PLC 57,515
1,251 Pfizer, Inc. 56,583
-------------
351,389
-------------
PROFESSIONAL SERVICES -- 0.3%
642 Leidos Holdings, Inc. 61,022
-------------
ROAD & RAIL -- 0.3%
296 Union Pacific Corp. 66,455
-------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT -- 1.5%
1,609 Intel Corp. 51,359
379 NVIDIA Corp. 57,206
628 Qorvo, Inc. (a) 56,382
435 QUALCOMM, Inc. 57,538
389 Texas Instruments, Inc. 64,267
-------------
286,752
-------------
SOFTWARE -- 2.0%
166 Adobe, Inc. (a) 61,991
627 Citrix Systems, Inc. 64,437
248 Microsoft Corp. 64,844
893 Oracle Corp. 66,216
369 Salesforce, Inc. (a) 57,608
182 Tyler Technologies, Inc. (a) 67,615
-------------
382,711
-------------
SPECIALTY RETAIL -- 1.0%
6,822 Gap (The), Inc. 62,353
214 Home Depot (The), Inc. 61,722
339 Lowe's Cos., Inc. 65,813
-------------
189,888
-------------
SHARES DESCRIPTION VALUE
---------------------------------------------------------------------
TECHNOLOGY HARDWARE, STORAGE
& PERIPHERALS -- 2.0%
425 Apple, Inc. $ 66,819
4,667 Hewlett Packard Enterprise Co. 63,471
941 NetApp, Inc. 67,874
800 Seagate Technology Holdings
PLC 53,568
1,323 Western Digital Corp. (a) 55,910
4,081 Xerox Holdings Corp. 67,826
-------------
375,468
-------------
TEXTILES, APPAREL & LUXURY GOODS
-- 1.5%
5,677 Hanesbrands, Inc. 49,447
585 NIKE, Inc., Class B 62,273
1,032 PVH Corp. 58,050
661 Ralph Lauren Corp. 60,369
7,380 Under Armour, Inc., Class A (a) 62,140
-------------
292,279
-------------
TOBACCO -- 0.7%
1,497 Altria Group, Inc. 67,545
705 Philip Morris International, Inc. 67,320
-------------
134,865
-------------
TOTAL COMMON STOCKS -- 49.8% 9,574,779
(Cost $8,638,278) -------------
MONEY MARKET FUNDS -- 50.0%
9,629,372 Morgan Stanley Institutional Liquidity
Funds - Treasury Portfolio -
Institutional Class - 2.06% (b) 9,629,372
(Cost $9,629,372) -------------
TOTAL INVESTMENTS -- 99.8% 19,204,151
(Cost $18,267,650)
NET OTHER ASSETS AND
LIABILITIES -- 0.2% 29,383
-------------
NET ASSETS -- 100.0% $ 19,233,534
=============
(a) Non-income producing security.
(b) Rate shown reflects yield as of August 31, 2022.
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of August 31,
2022 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
8/31/2022 PRICES INPUTS INPUTS
---------------------------------------------------------------
Common Stocks*.................................. $ 9,574,779 $ 9,574,779 $ -- $ --
Money Market Funds.............................. 9,629,372 9,629,372 -- --
---------------------------------------------------------------
Total Investments............................... $ 19,204,151 $ 19,204,151 $ -- $ --
===============================================================
* See Portfolio of Investments for industry breakout.
Page 10 See Notes to Financial Statements
EQUITYCOMPASS RISK MANAGER ETF (ERM)
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 2022
ASSETS:
Investments, at value.................................................. $ 19,204,151
Dividends receivable................................................... 40,286
----------------
Total Assets........................................................ 19,244,437
----------------
LIABILITIES:
Investment advisory fees payable....................................... 10,903
----------------
Total Liabilities................................................... 10,903
----------------
NET ASSETS............................................................. $ 19,233,534
================
NET ASSETS CONSIST OF:
Paid-in capital........................................................ $ 40,492,538
Par value.............................................................. 8,789
Accumulated distributable earnings (loss).............................. (21,267,793)
----------------
NET ASSETS............................................................. $ 19,233,534
================
NET ASSET VALUE, per share............................................. $ 21.88
================
Number of shares outstanding (unlimited number of shares
authorized, par value $0.01 per share).............................. 878,888
----------------
Investments, at cost................................................... $ 18,267,650
================
See Notes to Financial Statements Page 11
EQUITYCOMPASS RISK MANAGER ETF (ERM)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 2022
INVESTMENT INCOME:
Dividends.............................................................. $ 407,996
----------------
Total investment income............................................. 407,996
----------------
EXPENSES:
Investment advisory fees............................................... 133,677
----------------
Total expenses...................................................... 133,677
----------------
NET INVESTMENT INCOME (LOSS)........................................... 274,319
----------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments......................................................... (1,123,519)
In-kind redemptions................................................. 767,985
----------------
Net realized gain (loss)............................................... (355,534)
----------------
Net change in unrealized appreciation (depreciation) on investments.... (2,883,922)
----------------
NET REALIZED AND UNREALIZED GAIN (LOSS)................................ (3,239,456)
----------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS..................................................... $ (2,965,137)
================
Page 12 See Notes to Financial Statements
EQUITYCOMPASS RISK MANAGER ETF (ERM)
STATEMENTS OF CHANGES IN NET ASSETS
YEAR YEAR
ENDED ENDED
8/31/2022 8/31/2021
--------------- ---------------
OPERATIONS:
Net investment income (loss).............................. $ 274,319 $ 144,464
Net realized gain (loss).................................. (355,534) 2,152,268
Net change in unrealized appreciation (depreciation)...... (2,883,922) 1,638,311
--------------- ---------------
Net increase (decrease) in net assets resulting
from operations........................................ (2,965,137) 3,935,043
--------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Investment operations..................................... (236,186) (142,476)
--------------- ---------------
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold................................. 2,337,928 --
Proceeds from shares acquired through reorganization...... 12,184,043 --
Cost of shares redeemed................................... (3,574,090) (4,180,754)
--------------- ---------------
Net increase (decrease) in net assets resulting
from shareholder transactions.......................... 10,947,881 (4,180,754)
--------------- ---------------
Total increase (decrease) in net assets................... 7,746,558 (388,187)
NET ASSETS:
Beginning of period....................................... 11,486,976 11,875,163
--------------- ---------------
End of period............................................. $ 19,233,534 $ 11,486,976
=============== ===============
CHANGES IN SHARES OUTSTANDING:
Shares outstanding, beginning of period................... 450,002 650,002
Shares sold............................................... 100,000 --
Shares issued through reorganization...................... 478,886 --
Shares redeemed........................................... (150,000) (200,000)
--------------- ---------------
Shares outstanding, end of period......................... 878,888 450,002
=============== ===============
See Notes to Financial Statements Page 13
EQUITYCOMPASS RISK MANAGER ETF (ERM)
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED AUGUST 31,
----------------------------------------------------------
2022 2021 2020 2019 2018
---------- ---------- ---------- ---------- ----------
Net asset value, beginning of period..................... $ 25.53 $ 18.27 $ 19.69 $ 23.32 $ 20.50
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)............................. 0.27 0.29 0.33 0.39 0.30
Net realized and unrealized gain (loss).................. (3.66) 7.24 (1.36) (3.56) 2.80
-------- -------- -------- -------- --------
Total from investment operations......................... (3.39) 7.53 (1.03) (3.17) 3.10
-------- -------- -------- -------- --------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income.................................... (0.26) (0.27) (0.39) (0.46) (0.28)
Net realized gain........................................ -- -- -- (0.00)(a) --
-------- -------- -------- -------- --------
Total distributions...................................... (0.26) (0.27) (0.39) (0.46) (0.28)
-------- -------- -------- -------- --------
Net asset value, end of period........................... $ 21.88 $ 25.53 $ 18.27 $ 19.69 $ 23.32
======== ======== ======== ======== ========
TOTAL RETURN (b)......................................... (13.39)% 41.52% (5.36)% (13.68)% 15.23%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)..................... $ 19,234 $ 11,487 $ 11,875 $ 20,669 $ 27,988
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets (c)........ 0.65% 0.65% 0.65% 0.65% 0.65%
Ratio of net expenses to average net assets (c).......... 0.65% 0.65% 0.65% 0.59% 0.64%
Ratio of net investment income (loss) to average net
assets................................................ 1.33% 1.27% 1.61% 1.89% 1.52%
Portfolio turnover rate (d).............................. 120% 79% 81% 207% 121%
(a) Amount is less than $0.01.
(b) 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 by the Advisor.
(c) The Fund indirectly bears its proportionate share of fees and expenses
incurred by the underlying funds in which the Fund invests. This ratio
does not include these indirect fees and expenses.
(d) 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.
Page 14 See Notes to Financial Statements
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
EQUITYCOMPASS RISK MANAGER ETF (ERM)
AUGUST 31, 2022
1. ORGANIZATION
First Trust Exchange-Traded Fund VIII (the "Trust") is an open-end management
investment company organized as a Massachusetts business trust on February 22,
2016, and is registered with the Securities and Exchange Commission ("SEC")
under the Investment Company Act of 1940, as amended (the "1940 Act").
The Trust currently consists of fifty-six funds that are offering shares. This
report covers EquityCompass Risk Manager ETF (the "Fund"), which trades under
the ticker "ERM" on the NYSE Arca, Inc. ("NYSE Arca"). 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 primary
investment objective is to seek to provide long term capital appreciation with
capital preservation as a secondary objective. The Fund seeks to achieve its
investment objectives by investing, under normal market conditions, in equity
securities of companies domiciled in the U.S. or listed on a U.S. exchange.
During periods when the U.S. equity market is determined to be unfavorable by
the Fund's sub-advisor, EquityCompass Investment Management, LLC (the
"Sub-Advisor"), the Fund may invest all or a portion of its assets in cash, cash
equivalents, money market funds and/or short-term fixed income exchange-traded
funds ("ETFs"), or the Fund may invest all or a portion of its assets in a
single short-term fixed income ETF, the First Trust Enhanced Short Maturity ETF
("FTSM"). Certain of the ETFs in which the Fund invests may be advised by First
Trust Advisors L.P. ("First Trust" or the "Advisor").
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
following is a summary of significant accounting policies consistently followed
by the Fund 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
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 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, in accordance with valuation procedures adopted
by the Trust's Board of Trustees, and in accordance with provisions of the 1940
Act. Investments valued by the Advisor's Pricing Committee, if any, are
footnoted as such in the footnotes to the Portfolio of Investments. The Fund's
investments are valued as follows:
Common stocks and other equity securities listed on any national or
foreign exchange (excluding The Nasdaq Stock Market LLC ("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 principal market for such securities.
Securities traded in an over-the-counter market are fair valued at the
mean of their most recent bid and asked price, if available, and otherwise
at their closing bid price.
Shares of open-end funds are valued at fair value which is based on NAV
per share.
Certain securities may not be able to be priced by pre-established pricing
methods. Such securities may be valued by the Trust's Board of Trustees or its
delegate, 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
Page 15
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
EQUITYCOMPASS RISK MANAGER ETF (ERM)
AUGUST 31, 2022
before the calculation of the 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 type of security;
2) the size of the holding;
3) the initial cost of the security;
4) transactions in comparable securities;
5) price quotes from dealers and/or third-party pricing services;
6) relationships among various securities;
7) information obtained by contacting the issuer, analysts, or the
appropriate stock exchange;
8) an analysis of the issuer's financial statements; and
9) the existence of merger proposals or tender offers that might affect
the value of the security.
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:
o 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.
o 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.
o 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 August 31, 2022, is
included with the Fund's Portfolio of Investments.
In December 2020, the SEC adopted Rule 2a-5 under the 1940 Act, establishing
requirements to determine fair value in good faith for purposes of the 1940 Act.
The rule permits fund boards to designate a fund's investment adviser to perform
fair value determinations, subject to board oversight and certain other
conditions. The rule also defines when market quotations are "readily available"
for purposes of the 1940 Act and requires a fund to fair value a portfolio
investment when a market quotation is not readily available. The SEC also
adopted new Rule 31a-4 under the 1940 Act, which sets forth recordkeeping
requirements associated with fair value determinations. The compliance date for
Rule 2a-5 and Rule 31a-4 is September 8, 2022.
Effective September 8, 2022 and pursuant to the requirements of Rule 2a-5, the
Trust's Board of Trustees designated the Advisor as its valuation designee to
perform fair value determinations and approved new Advisor Valuation Procedures
for the Trust.
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.
C. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income, if any, are declared and paid quarterly by
the Fund, 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.
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
Page 16
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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EQUITYCOMPASS RISK MANAGER ETF (ERM)
AUGUST 31, 2022
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 financial statement and tax purposes, will reverse at some
time in the future.
The tax character of distributions paid during the fiscal years ended August 31,
2022 and 2021 was as follows:
Distributions paid from: 2022 2021
Ordinary income $ 236,186 $ 142,476
Capital gains -- --
Return of capital -- --
As of August 31, 2022, the components of distributable earnings on a tax basis
for the Fund were as follows:
Undistributed ordinary income $ 65,881
Accumulated capital and other gain (loss) (19,839,891)
Net unrealized appreciation (depreciation) (1,493,783)
D. 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, 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 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 2019,
2020, 2021, and 2022 remain open to federal and state audit. As of August 31,
2022, 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
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. As of August 31, 2022, the
Fund had non-expiring capital loss carryforwards available for federal income
tax purposes of $19,839,891. Of these losses, $4,689,721 is subject to loss
limitation resulting from reorganization activity. This limitation generally
reduces the utilization of these losses to a maximum of $164,868 per year.
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 August 31, 2022, the Fund had no
net late year ordinary or capital losses.
In order to present paid-in capital and accumulated distributable earnings
(loss) (which consists of accumulated net investment income (loss), accumulated
net realized gain (loss) on investments and net unrealized appreciation
(depreciation) on investments) on the Statement of Assets and Liabilities that
more closely represent their tax character, certain adjustments have been made
to paid-in capital, accumulated net investment income (loss) and accumulated net
realized gain (loss) on investments. These adjustments are primarily due to the
difference between book and tax treatments of income and gains on various
investment securities held by the Fund and in-kind transactions. The results of
operations and net assets were not affected by these adjustments. For the fiscal
year ended August 31, 2022, the adjustments for the Fund were as follows:
Accumulated
Accumulated Net Realized
Net Investment Gain (Loss) Paid-in
Income (Loss) on Investments Capital
--------------------- --------------------- ---------------------
$ -- $ (15,165,462) $ 15,165,462
Page 17
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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EQUITYCOMPASS RISK MANAGER ETF (ERM)
AUGUST 31, 2022
As of August 31, 2022, 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 Gross Net Unrealized
Unrealized Unrealized Appreciation
Tax Cost Appreciation (Depreciation) (Depreciation)
--------------------- --------------------- --------------------- ---------------------
$ 18,776,428 $ 1,652,584 $ (1,224,861) $ 427,723
E. 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 supervising the selection and ongoing monitoring of the
securities in the Fund's portfolio, managing the Fund's business affairs and
providing certain administrative services necessary for the management of the
Fund.
Pursuant to the Investment Management Agreement between the Trust and the
Advisor, First Trust manages the investment of the Fund's assets and is
responsible for the expenses of the Fund including the cost of transfer agency,
sub-advisory, custody, fund administration, legal, audit, other services and
license fees, but excluding fee payments under the Investment Management
Agreement, interest, taxes, pro rata share of fees and expenses attributable to
investments in other investment companies ("acquired fund fees and expenses"),
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 Fund has agreed to pay First
Trust an annual unitary management fee equal to 0.65% of its average daily net
assets. In addition, the Fund incurs acquired fund fees and expenses. The total
of unitary management fee and acquired fund fees and expenses represents the
Fund's total annual operating expenses.
The Fund and First Trust have retained the Sub-Advisor to provide
recommendations to the Advisor regarding the selection and allocation of the
securities in the Fund's investment portfolio. Pursuant to the Sub-Advisory
Agreement, the Advisor has agreed to pay for the services and facilities
provided by the Sub-Advisor through sub-advisory fees. The Sub-Advisor's fees
are paid by the Advisor out of the Advisor's management fee. For the Fund, the
Sub-Advisor receives a sub-advisory fee equal to 0.25% of the Fund's average
daily net assets.
Pursuant to a contractual agreement between the Trust, on behalf of the Fund,
and First Trust, the management fees paid to First Trust will be reduced by the
proportional amount of the acquired fund fees and expenses of the shares of
investment companies held by the Fund so that the Fund would not bear the
indirect costs of holding them, provided that the investment companies are
advised by First Trust. This contractual agreement shall continue until the
earlier of (i) its termination at the direction of the Trust's Board of Trustees
or (ii) the termination of the Fund's management agreement with First Trust.
First Trust does not have the right to recover the waived fees on the shares of
investment companies advised by First Trust.
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 defined-outcome fund or an index fund.
Page 18
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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EQUITYCOMPASS RISK MANAGER ETF (ERM)
AUGUST 31, 2022
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. REORGANIZATION
On December 7, 2020, the Board of Trustees of EquityCompass Tactical Risk
Manager ETF ("TERM") and ERM approved a reorganization of ERM with TERM. The
reorganization was completed on October 18, 2021. ERM was the surviving fund.
Under the terms of the reorganization, which was tax-free, the assets of TERM
were transferred to, and the liabilities of TERM were assumed by ERM in exchange
for shares of ERM. The cost of the investments received from TERM was carried
forward to ERM for U.S. GAAP and tax purposes. The ERM shares were then
distributed to TERM shareholders and the separate existence of TERM ceased. The
reorganization was subject to certain conditions, including that the
reorganization was approved on September 13, 2021, by the shareholders of TERM.
When the reorganization occurred, the transactions were based on the relative
NAVs of TERM and ERM.
The following table summarizes the asset transfers and conversion ratios for the
reorganization.
Net Assets on Unrealized Accumulated Shares Acquiring Net Assets on
Acquired Shares October 15, Appreciation Net Realized Conversion (Surviving) Shares October 15,
Fund Redeemed 2021 (Depreciation) Gain (Loss) Ratio Fund Issued* 2021**
------------------------------------------------------------------------------------------------------------------------------------
TERM 550,002 $ 12,184,063 $ 1,921,506 $(14,628,719) 0.870700 ERM 478,887 $ 11,449,161
* Amount includes 1 share that was distributed in lieu of cash.
** Amount reflects net assets of ERM prior to the reorganization.
The following table summarizes the operations of the Acquired Fund for the
period September 1, 2021 to October 15, 2021, and the operations of ERM, the
Acquiring (Surviving) Fund, for the fiscal year ended August 31, 2022, as
presented in the Statement of Operations and the combined Acquired and Acquiring
(Surviving) Funds' pro-forma results of operations for the fiscal year ended
August 31, 2022, assuming the acquisition had been completed on September 1,
2021.
Because the combined investment portfolios have been managed as a single
integrated portfolio since the reorganization was completed, it is not
practicable to separate the amounts of revenue and earnings of TERM that have
been included in ERM's Statement of Operations since October 15, 2021.
Net Realized
and Change in Net Increase
Net Unrealized (Decrease)
Investment Gain (Loss) from
Income on Investments Operations
-------------- -------------- --------------
Acquired Fund for the period September 1, 2021 to
October 15, 2021
TERM $ 17,515 $ (55,285) $ (37,770)
Acquiring Fund for the fiscal year ended
August 31, 2022
ERM 274,319 (3,239,456) (2,965,137)
------------ ------------ ------------
Combined Total $ 291,834 $ (3,294,741) $ (3,002,907)
============ ============ ============
5. PURCHASES AND SALES OF SECURITIES
For the fiscal year ended August 31, 2022, the cost of purchases and proceeds
from sales of investments, excluding short-term investments and in-kind
transactions, were $21,890,648 and $21,444,081, respectively.
For the fiscal year ended August 31, 2022, the cost of in-kind purchases and
proceeds from in-kind sales were $2,013,249 and $2,989,905, respectively.
Page 19
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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EQUITYCOMPASS RISK MANAGER ETF (ERM)
AUGUST 31, 2022
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 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 December 31, 2023.
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 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.
Page 20
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
--------------------------------------------------------------------------------
TO THE SHAREHOLDERS AND THE BOARD OF TRUSTEES OF FIRST TRUST EXCHANGE-TRADED
FUND VIII:
OPINION ON THE FINANCIAL STATEMENTS AND FINANCIAL HIGHLIGHTS
We have audited the accompanying statement of assets and liabilities of
EquityCompass Risk Manager ETF (the "Fund"), a series of the First Trust
Exchange-Traded Fund VIII, including the portfolio of investments, as of August
31, 2022, the related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended, the financial highlights for each of the five years in the period then
ended, and the related notes. In our opinion, the financial statements and
financial highlights present fairly, in all material respects, the financial
position of the Fund as of August 31, 2022, and the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended, and the financial highlights for each of the five
years in the period then ended in conformity with accounting principles
generally accepted in the United States of America.
BASIS FOR OPINION
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on the Fund's
financial statements and financial highlights based on our audits. We are a
public accounting firm registered with the Public Company Accounting Oversight
Board (United States) (PCAOB) and are required to be independent with respect to
the Fund in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement, whether due to error or fraud. The Fund is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. As part of our audits, we are required to
obtain an understanding of internal control over financial reporting but not for
the purpose of expressing an opinion on the effectiveness of the Fund's internal
control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material
misstatement of the financial statements and financial highlights, whether due
to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts
and disclosures in the financial statements and financial highlights. Our audits
also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of August 31, 2022, by correspondence with
the custodian and brokers; when replies were not received from brokers, we
performed other auditing procedures. We believe that our audits provide a
reasonable basis for our opinion.
/s/ Deloitte & Touche LLP
Chicago, Illinois
October 21, 2022
We have served as the auditor of one or more First Trust investment companies
since 2001.
Page 21
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ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
EQUITYCOMPASS RISK MANAGER ETF (ERM)
AUGUST 31, 2022 (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.
FEDERAL TAX INFORMATION
For the taxable year ended August 31, 2022, the following percentages of income
dividend paid by the Fund qualify for the dividends received deduction available
to corporations and are hereby designated as qualified dividend income:
Dividends Received Deduction Qualified Dividend Income
---------------------------- -------------------------
100.00% 100.00%
A portion of the Fund's 2022 ordinary dividends (including short-term capital
gains) paid to its shareholders during the fiscal year ended August 31, 2022,
may be eligible for the Qualified Business Income Deduction (QBI) under Internal
Revenue Code Section 199A for the aggregate dividends the Fund received from the
underlying Real Estate Investment Trusts (REITs) it invests in.
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
Page 22
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
EQUITYCOMPASS RISK MANAGER ETF (ERM)
AUGUST 31, 2022 (UNAUDITED)
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.
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
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ADDITIONAL INFORMATION (CONTINUED)
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EQUITYCOMPASS RISK MANAGER ETF (ERM)
AUGUST 31, 2022 (UNAUDITED)
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. 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 the 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 the
Fund's shares and result in increased market volatility. During any such events,
the Fund's shares may trade at increased premiums or discounts to their net
asset value and the bid/ask spread on the 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.
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ADDITIONAL INFORMATION (CONTINUED)
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EQUITYCOMPASS RISK MANAGER ETF (ERM)
AUGUST 31, 2022 (UNAUDITED)
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.
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 AND SUB-ADVISORY AGREEMENTS
BOARD CONSIDERATIONS REGARDING CONTINUATION OF INVESTMENT MANAGEMENT AND
SUB-ADVISORY AGREEMENTS
The Board of Trustees of First Trust Exchange-Traded Fund VIII (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 EquityCompass Risk Manager 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 EquityCompass Investment
Management, LLC (the "Sub-Advisor"). The Board approved the continuation of the
Agreements for a one-year period ending June 30, 2023 at a meeting held on June
12-13, 2022. 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 18, 2022 and June 12-13, 2022, 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 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 rate
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
affiliate, First Trust Portfolios L.P. ("FTP"), 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
18, 2022, prior to which the Independent Trustees and their counsel met
separately to 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 12-13, 2022 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.
Page 25
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ADDITIONAL INFORMATION (CONTINUED)
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EQUITYCOMPASS RISK MANAGER ETF (ERM)
AUGUST 31, 2022 (UNAUDITED)
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. The
Board considered that the Sub-Advisor is responsible for the selection and
ongoing monitoring of the securities in the Fund's investment portfolio, but
that the Advisor executes the Fund's portfolio trades. 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 18, 2022 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 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 noted that the
Advisor had previously agreed to waive its unitary fee to the extent of acquired
fund fees and expenses of shares of investment companies advised by the Advisor
that are held by the Fund. 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 unitary fee rate for the Fund was equal to 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 18, 2022 meeting, discussed with
Broadridge its methodology for assembling peer groups and discussed with the
Advisor limitations in creating peer groups for actively-managed ETFs, including
that the Expense Group contained both actively-managed ETFs and open-end mutual
funds, 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 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
periods ended December 31, 2021 to the performance of the funds in the
Performance Universe and to that of a benchmark index. Based on the information
provided, the Board noted that the Fund underperformed the Performance Universe
median and the benchmark index for the one- and three-year periods ended
December 31, 2021.
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.
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ADDITIONAL INFORMATION (CONTINUED)
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EQUITYCOMPASS RISK MANAGER ETF (ERM)
AUGUST 31, 2022 (UNAUDITED)
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 and noted the Advisor's statement that it believes that its expenses
relating to providing advisory services to the Fund will likely increase during
the next twelve months as the Advisor continues to build infrastructure and add
new staff. The Board noted that any reduction in fixed costs associated with the
management of the Fund would benefit the Advisor, but that the unitary fee
structure provides a level of certainty in expenses for the Fund. 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, 2021 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, and noted that the
Advisor does 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.
The Board considered the Sub-Advisor's statements to the effect that it does not
believe there are any economies of scale to be achieved in connection with
providing sub-advisory services to the Fund and that the Sub-Advisor does not
expect that its expenses relating to providing services to the Fund to change in
the next twelve months. The Board did not review the profitability of the
Sub-Advisor with respect to the Fund. The Board noted that the Advisor pays the
Sub-Advisor from its unitary fee and its understanding that the Fund's
sub-advisory fee rate was the product of an arm's length negotiation. 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
to the effect that it does not believe there will be any indirect benefits to
the Sub-Advisor from its relationship with the Advisor and the Fund. 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 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 18, 2022 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 16, 2021 through the Liquidity Committee's annual meeting held
on March 17, 2022 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, no fund breached the
15% limitation on illiquid investments, no fund with a highly liquid investment
minimum breached that minimum and no fund filed a Form N-LIQUID. 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.
Page 27
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BOARD OF TRUSTEES AND OFFICERS
--------------------------------------------------------------------------------
EQUITYCOMPASS RISK MANAGER ETF (ERM)
AUGUST 31, 2022 (UNAUDITED)
The following tables identify the Trustees and Officers of the Trust. Unless
otherwise indicated, the address of all persons is 120 East Liberty Drive, Suite
400, Wheaton, IL 60187.
The Trust's statement of additional information includes additional information
about the Trustees and is available, without charge, upon request, by calling
(800) 988-5891.
NUMBER OF OTHER
PORTFOLIOS IN TRUSTEESHIPS OR
TERM OF OFFICE THE FIRST TRUST DIRECTORSHIPS
NAME, AND YEAR FIRST FUND COMPLEX HELD BY TRUSTEE
YEAR OF BIRTH AND ELECTED OR PRINCIPAL OCCUPATIONS OVERSEEN BY DURING PAST
POSITION WITH THE TRUST APPOINTED DURING PAST 5 YEARS TRUSTEE 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
------------------------------------------------------------------------------------------------------------------------------------
Richard E. Erickson, Trustee o Indefinite Term Physician, Edward-Elmhurst Medical 220 None
(1951) Group; Physician and Officer,
o Since Inception Wheaton Orthopedics (1990 to 2021)
Thomas R. Kadlec, Trustee o Indefinite Term Retired; President, ADM Investors 220 Director, National Futures
(1957) Services, Inc. (Futures Commission Association and ADMIS
o Since Inception Merchant) (2010 to July 2022) Singapore Ltd.; Formerly,
Director of ADM Investor
Services, Inc., ADM
Investor Services
International, ADMISHong
Kong Ltd., and
Futures Industry
Association
Denise M. Keefe, Trustee o Indefinite Term Executive Vice President, Advocate 220 Director and Board Chair
(1964) Aurora Health and President, of Advocate Home Health
o Since 2021 Advocate Aurora Continuing Health Services, Advocate Home
Division (Integrated Healthcare Care Products and
System) Advocate Hospice;
Director and Board Chair
of Aurora At Home (since
2018); Director of
Advocate Physician
Partners Accountable Care
Organization; Director and
Board Chair of RML Long
Term Acute Care
Hospitals; and Director of
Senior Helpers (since
2021)
Robert F. Keith, Trustee o Indefinite Term President, Hibs Enterprises 220 Formerly, Director of
(1956) (Financial and Management Trust Company of Illinois
o Since Inception Consulting)
Niel B. Nielson, Trustee o Indefinite Term Senior Advisor (2018 to Present), 220 None
(1954) Managing Director and Chief
o Since Inception Operating Officer (2015 to 2018),
Pelita Harapan Educational
Foundation (Educational
Products and Services)
------------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE
------------------------------------------------------------------------------------------------------------------------------------
James A. Bowen(1), Trustee, o Indefinite Term Chief Executive Officer, First 220 None
Chairman of the Board Trust Advisors L.P. and First Trust
(1955) o Since Inception Portfolios L.P., Chairman of the
Board of Directors, BondWave LLC
(Software Development Company) and
Stonebridge Advisors LLC
(Investment Advisor)
-----------------------------
(1) Mr. Bowen is deemed an "interested person" of the Trust due to his
position as Chief Executive Officer of First Trust Advisors L.P.,
investment advisor of the Trust.
Page 28
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BOARD OF TRUSTEES AND OFFICERS (CONTINUED)
--------------------------------------------------------------------------------
EQUITYCOMPASS RISK MANAGER ETF (ERM)
AUGUST 31, 2022 (UNAUDITED)
POSITION AND TERM OF OFFICE
NAME AND OFFICES AND LENGTH OF PRINCIPAL OCCUPATIONS
YEAR OF BIRTH WITH TRUST SERVICE DURING PAST 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
OFFICERS(2)
------------------------------------------------------------------------------------------------------------------------------------
James M. Dykas President and Chief o Indefinite Term Managing Director and Chief Financial Officer, First
(1966) Executive Officer Trust Advisors L.P. and First Trust Portfolios L.P.;
o Since Inception Chief Financial Officer, BondWave LLC (Software
Development Company) and Stonebridge Advisors
LLC (Investment Advisor)
Donald P. Swade Treasurer, Chief Financial o Indefinite Term Senior Vice President, First Trust Advisors L.P. and
(1972) Officer and Chief First Trust Portfolios L.P.
Accounting Officer o Since Inception
W. Scott Jardine Secretary and Chief Legal o Indefinite Term General Counsel, First Trust Advisors L.P. and First
(1960) Officer Trust Portfolios L.P.; Secretary and General Counsel,
o Since Inception BondWave LLC; Secretary, Stonebridge Advisors LLC
Daniel J. Lindquist Vice President o Indefinite Term Managing Director, First Trust Advisors L.P. and First
(1970) Trust Portfolios L.P.
o Since Inception
Kristi A. Maher Chief Compliance Officer o Indefinite Term Deputy General Counsel, First Trust Advisors L.P. and
(1966) and Assistant Secretary First Trust Portfolios L.P.
o Since Inception
Roger F. Testin Vice President o Indefinite Term Senior Vice President, First Trust Advisors L.P. and
(1966) First Trust Portfolios L.P.
o Since Inception
Stan Ueland Vice President o Indefinite Term Senior Vice President, First Trust Advisors L.P. and
(1970) First Trust Portfolios L.P.
o Since Inception
-----------------------------
(2) The term "officer" means the president, vice president, secretary,
treasurer, controller or any other officer who performs a policy making
function.
Page 29
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PRIVACY POLICY
--------------------------------------------------------------------------------
EQUITYCOMPASS RISK MANAGER ETF (ERM)
AUGUST 31, 2022 (UNAUDITED)
PRIVACY POLICY
First Trust values our relationship with you and considers your privacy an
important priority in maintaining that relationship. We are committed to
protecting the security and confidentiality of your personal information.
SOURCES OF INFORMATION
We collect nonpublic personal information about you from the following sources:
o Information we receive from you and your broker-dealer, investment
professional or financial representative through interviews,
applications, agreements or other forms;
o Information about your transactions with us, our affiliates or
others;
o Information we receive from your inquiries by mail, e-mail or
telephone; and
o Information we collect on our website through the use of "cookies."
For example, we may identify the pages on our website that your
browser requests or visits.
INFORMATION COLLECTED
The type of data we collect may include your name, address, social security
number, age, financial status, assets, income, tax information, retirement and
estate plan information, transaction history, account balance, payment history,
investment objectives, marital status, family relationships and other personal
information.
DISCLOSURE OF INFORMATION
We do not disclose any nonpublic personal information about our customers or
former customers to anyone, except as permitted by law. In addition to using
this information to verify your identity (as required under law), the permitted
uses may also include the disclosure of such information to unaffiliated
companies for the following reasons:
o In order to provide you with products and services and to effect
transactions that you request or authorize, we may disclose your
personal information as described above to unaffiliated financial
service providers and other companies that perform administrative or
other services on our behalf, such as transfer agents, custodians
and trustees, or that assist us in the distribution of investor
materials such as trustees, banks, financial representatives, proxy
services, solicitors and printers.
o We may release information we have about you if you direct us to do
so, if we are compelled by law to do so, or in other legally limited
circumstances (for example to protect your account from fraud).
In addition, in order to alert you to our other financial products and services,
we may share your personal information within First Trust.
USE OF WEBSITE ANALYTICS
We currently use third party analytics tools, Google Analytics and AddThis, to
gather information for purposes of improving First Trust's website and marketing
our products and services to you. These tools employ cookies, which are small
pieces of text stored in a file by your web browser and sent to websites that
you visit, to collect information, track website usage and viewing trends such
as the number of hits, pages visited, videos and PDFs viewed and the length of
user sessions in order to evaluate website performance and enhance navigation of
the website. We may also collect other anonymous information, which is generally
limited to technical and web navigation information such as the IP address of
your device, internet browser type and operating system for purposes of
analyzing the data to make First Trust's website better and more useful to our
users. The information collected does not include any personal identifiable
information such as your name, address, phone number or email address unless you
provide that information through the website for us to contact you in order to
answer your questions or respond to your requests. To find out how to opt-out of
these services click on: Google Analytics and AddThis.
CONFIDENTIALITY AND SECURITY
With regard to our internal security procedures, First Trust restricts access to
your nonpublic personal information to those First Trust employees who need to
know that information to provide products or services to you. We maintain
physical, electronic and procedural safeguards to protect your nonpublic
personal information.
POLICY UPDATES AND INQUIRIES
As required by federal law, we will notify you of our privacy policy annually.
We reserve the right to modify this policy at any time, however, if we do change
it, we will tell you promptly. For questions about our policy, or for additional
copies of this notice, please go to www.ftportfolios.com, or contact us at
1-800-621-1675 (First Trust Portfolios) or 1-800-222-6822 (First Trust
Advisors).
March 2022
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FIRST TRUST
First Trust Exchange-Traded Fund VIII
INVESTMENT ADVISOR
First Trust Advisors L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
INVESTMENT SUB-ADVISOR
EquityCompass Investment Management, LLC
1 South Street, 16th Floor
Baltimore, Maryland 21202
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 S. Wacker Drive
Chicago, IL 60606
LEGAL COUNSEL
Chapman and Cutler LLP
320 South Canal Street
Chicago, IL 60606
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