First Trust Global Portfolios (FTGP) has launched the First Trust US Small Cap Core AlphaDEX UCITS ETF (FYX) on the London Stock Exchange, providing exposure to small cap US firms while employing a multi-factor smart beta weighting methodology.
The First Trust US Small Cap Core AlphaDEX UCITS ETF tracks US small cap equities which have been selected and weighted according to fundamental valuation factors.
The ETF tracks the NASDAQ AlphaDEX Small Cap Core Index, selecting stocks from within the NASDAQ US 700 Small Cap Index using First Trust’s rules-based AlphaDEX methodology.
The AlphaDEX methodology uses fundamental valuation factors to seek better potential risk-adjusted returns relative to traditional market cap-weighted benchmarks. It uses two pillars, fundamental value and growth factors, to select stocks based on their potential for long-term capital gains.
The value pillar analyses firms based on a combination of their price-to-book ratio, price-to-cash flow ratio, and return on assets, effectively determining whether the stock may be considered cheap relative to fundamental factors, and also providing an indication of the quality of assets on the balance sheet.
The growth pillar scores stocks on five separate metrics: three-month price appreciation, six-month price appreciation, twelve-month price appreciation, one-year sales growth, and the price-to-sales ratio. The aim is to rank stocks according to their price momentum factor as well as provide a measure of fundamental growth.
A modified equal-weighting scheme is used to prevent over concentration in individual firms while tilting in favour of companies that scored impressively according to the AlphaDEX methodology.
The ETF has a total expense ratio (TER) of 0.75%.
“We are delighted to launch the First Trust US Small Cap Core AlphaDEX UCITS ETF,” said Derek Fulton, CEO of FTGP. “With this launch on the London Stock Exchange, we are bringing our proven AlphaDEX merit-based stock selection methodology to small cap US equities.”
Eric Anderson, Senior Vice President for Europe at First Trust Advisors, added: “We are very excited to bring our 23rd listing in Europe. The London Stock Exchange is one of the most important trading venues in Europe, and is a critical exchange for providing access to ETFs across Europe. We are excited to be bringing this listing to Europe, offering investors exposure to one of the most attractive asset classes in the world – small cap stocks in the US – while also selecting and weighting these companies based on fundamental investment merit as opposed to size.”
The fund offers significantly diversified exposure to the US small cap segment, with over 500 constituents and its top constituent accounting for just 0.5% of the total portfolio’s value.
As of 16 March 2017, the largest sector exposures were industrials (22.2%), consumer discretionary (19.5%), financials (19.3%), information technology (13.6%) and health care (8.5%).
Despite the sound principles underpinning the strategy, however, the index is currently underperforming the parent NASDAQ US 700 Small Cap Index. As of 28 February 2017 the fund’s index was up 34.5% over one year and 12.0% per annum over the past five years, compared to 37.5% and 13.5% for the parent index over the same time periods.
First Trust now offers a total of eight AlphaDEX UCITS ETFs – six single country funds (US large cap, US small cap, Japan, UK, Germany and Switzerland) and two broad/regional funds (Eurozone and emerging markets).
A US-listed version of the First Trust US Small Cap Core AlphaDEX UCITS ETF is available to trade on the NASDAQ Exchange under the same ticker – FYX. The fund has $530m in assets under management and a TER of 0.64%.