First Trust has retired four, essentially subscale, single-country AlphaDEX ETFs and merged their assets into its developed markets international equity ETF.

First Trust has folded four single-country AlphaDEX ETFs into its Nasdaq-listed First Trust Developed Markets ex-US AlphaDEX Fund. (file image)

The First Trust Australia AlphaDEX Fund (FAUS US), First Trust Canada AlphaDEX Fund (FCAN US), First Trust Hong Kong AlphaDEX Fund (FHK US), and First Trust South Korea AlphaDEX Fund (FKO US) – none of which commanded any material level of assets – have folded into the First Trust Developed Markets ex-US AlphaDEX Fund (FDT US).

The reorganization, which became effective 2 November, was approved by shareholders during a special meeting held in mid-September.

FDT is listed on Nasdaq Exchange and now houses some $340 million in assets under management. It comes with an expense ratio of 0.80%.

Methodology

FDT’s underlying index, the Nasdaq AlphaDEX Developed Markets Ex-US Index, provides exposure to stocks with growth and value characteristics in a bid to outperform traditional market-cap-weighted benchmarks.

It is composed of small, mid, and large-cap companies listed in developed markets outside of the United States.

Index provider Nasdaq ranks eligible stocks on growth factors, including three, six and twelve-month price appreciation, sales growth, and sales-to-price ratio growth, and, separately, on value factors including book value-to-price, cash flow-to-price, and return on assets. Each stock receives the best style rank from the previous step as its final rank.

The 300 highest-ranked securities are selected to form the final index. These constituents are divided into quintiles based on their factor ranks with the higher quintiles receiving a larger share of the index weight compared to lower quintiles. Within each quintile, stocks are equally weighted.

Finally, a risk management overlay redistributes weights as needed to ensure that no country or sector deviates by more than 15% from its weight in the parent, market-cap-weighted NASDAQ Developed Markets Ex-US Index benchmark. The index is reconstituted and rebalanced semi-annually.

Stocks from Japan make up a quarter (24.6%) of the index weight with the next largest country exposures being South Korea (14.1%), Germany (8.9%), the UK (7.4%), and Canada (6.5%).

Industrials (18.7%), consumer discretionary (16.6%), and materials (14.9%) account for the largest sector exposures with lesser exposure to communication services (10.2%) and information technology (8.6%) stocks.