First Trust Adds 13 AlphaDEX ETFs to Lineup

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 |  Includes: FBZ, FCA, FDT, FEM, FEP, FJP, FKO, FLN, FNK, FNY, FPA, FYC, FYT
by: Ron Rowland

First Trust Advisors added 13 new funds to its quantitative, fundamental-weighted AlphaDEX ETF family last week. Nine new international ETFs began trading on April 19 and four domestic ETFs came out the following day. These are not the firm’s first international offerings; First Trust has seven existing international ETFs. The new ones are the first to carry the AlphaDEX designation. The four new domestic ETFs round out the AlphaDEX brand’s style-box offerings.

First Trust AlphaDEX funds are designed to track the performance of a group of custom enhanced indexes with a proprietary, rules-based fundamental stock selection methodology. The AlphaDEX methodology (pdf) is relatively simple, using only three growth factors and three value factors. Growth factors are three-, six-, and 12-month price appreciation, sales to price, and one-year sales growth. The value factors are book value to price, cash flow to price, and return on assets.

Standard & Poor’s creates and maintains the underlying indexes by using the AlphaDEX methodology to select stocks from various designated universes.

AlphaDEX International ETFs

Each underlying index ranks a designated universe of stocks on the above growth and value factors. The top stocks (quantity for each listed below) based on the selection score then comprise the “selected stocks." The selected stocks are divided into quintiles and the top-ranked quintiles receive a higher weighting. Stocks are equally-weighted within each quintile. Additional country and sector weighting constraints help ensure proper diversification.

One prospectus (pdf) covers the nine new AlphaDEX International ETFs, all of which have expense ratios of 0.80%. The fund summary and fact sheet links for each fund provide additional details on methodology, top holdings, sector allocations, and country allocations (where appropriate).

  1. First Trust Asia Pacific Ex-Japan AlphaDEX Fund (NYSEARCA:FPA) attempts to track the Defined Asia Pacific Ex-Japan Index, which selects 100 stocks from the S&P Asia Pacific Ex-Japan BMI universe: FPA summary, FPA fact sheet (pdf).
  2. First Trust Brazil AlphaDEX Fund (NASDAQ:FBZ) attempts to track the Defined Brazil Index, which selects 50 stocks from the S&P Brazil BMI universe: FBZ summary, FBZ fact sheet (pdf).
  3. First Trust China AlphaDEX Fund (NASDAQ:FCA) attempts to track the Defined China Index, which selects 50 stocks from S&P China BMI universe: FCA summary, FCA fact sheet (pdf).
  4. First Trust Developed Markets Ex-US AlphaDEX Fund (NYSEARCA:FDT) attempts to track the Defined Developed Markets Ex-US Index, which selects 300 stocks from S&P Developed Markets Ex-US BMI universe: FDT summary, FDT fact sheet (pdf).
  5. First Trust Emerging Markets AlphaDEX Fund (NYSEARCA:FEM) attempts to track the Defined Emerging Markets Index, which selects 150 stocks from S&P Emerging Markets BMI universe: FEM summary, FEM fact sheet (pdf).
  6. First Trust Europe AlphaDEX Fund (NYSEARCA:FEP) attempts to track the Defined Europe Index, which selects 200 stocks from S&P Europe BMI universe: FEP summary, FEP fact sheet (pdf).
  7. First Trust Japan AlphaDEX Fund (NASDAQ:FJP) attempts to track the Defined Japan Index, which selects 100 stocks from S&P Japan BMI universe: FJP summary, FJP fact sheet (pdf).
  8. First Trust Latin America AlphaDEX Fund (NYSEARCA:FLN) attempts to track the Defined Latin America Index, which selects 50 stocks from S&P Latin America BMI universe: FLN summary, FLN fact sheet (pdf).
  9. First Trust South Korea AlphaDEX Fund (NASDAQ:FKO) attempts to track the Defined South Korea Index, which selects 50 stocks from S&P South Korea BMI universe: FKO summary, FKO fact sheet (pdf).

AlphaDEX Domestic Style-Box ETFs

Each index ranks a designated universe of stocks on the growth and value factors. The bottom 25% is eliminated and the top 75% become the “selected stocks.” These are then divided into quintiles and the top-ranked quintiles receive a higher weight within the index. Stocks are equally-weighted within each quintile.

The four new AlphaDEX Domestic ETFs are covered by a single prospectus (pdf), and each has an expense ratio of 0.70%. The fund summary and fact sheet links for each fund provide additional details on methodology, top holdings, and sector allocations.

  1. First Trust Mid Cap Growth AlphaDEX Fund (NASDAQ:FNY) attempts to track the Defined Mid Cap Growth Index, which currently consists of 140 stocks selected from the S&P MidCap 400 Growth Index: FNY summary, FNY fact sheet (pdf).
  2. First Trust Mid Cap Value AlphaDEX Fund (NASDAQ:FNK) attempts to track the Defined Mid Cap Value Index, which currently consists of 160 stocks selected from the S&P MidCap 400 Value Index: FNK summary, FNK fact sheet (pdf).
  3. First Trust Small Cap Growth AlphaDEX Fund (NASDAQ:FYC) attempts to track the Defined Small Cap Growth Index, which currently consists of 202 stocks selected from the S&P SmallCap 600 Growth Index: FYC summary, FYC fact sheet (pdf).
  4. First Trust Small Cap Value AlphaDEX Fund (NASDAQ:FYT) attempts to track the Defined Small Cap Growth Index, which currently consists of 247 stocks selected from the S&P SmallCap 600 Growth Index: FYT summary, FYT fact sheet (pdf).

Conclusion

These 13 new funds are a welcome addition to the growing ETF universe. The AlphaDEX selection methodology and its quantitative, fundamental weighting process provide investors with a unique choice. They are a legitimate alternative in an often-redundant selection of capitalization weighted ETFs.

Disclosure: No positions in any of the securities mentioned. No positions in any of the companies or ETF sponsors mentioned. No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.