First Trust launched two more international AlphaDEX ETFs this week, on the heels of the debut of seven country-specific funds that employ the proprietary stock selection methodology [see AlphaDEX ETFdb Portfolio]. The new ETFs will offer broad exposure to emerging and developed markets outside the U.S., focusing specifically on small cap stocks in those segments:
- Emerging Markets Small Cap AlphaDEX Fund (FEMS)
- Developed Markets ex-U.S. Small Cap AlphaDEX Fund (FDTS)
Last year, First Trust debuted ETFs targeting these same markets that generally focus on larger companies. The First Trust Emerging Markets AlphaDEX (FEM) has assets of about $43 million, while the Developed Markets ex-U.S. AlphaDEX Fund (FDT) has about $33 million. Both of those ETFs started trading in April 2011.
Under The Hood
FEMS is linked to the Defined Emerging Markets Small Cap Index, a benchmark that selects small cap emerging markets stocks based on their score on a variety of value and growth metrics. Currently, the underlying index has a tilt towards emerging Asian economies; China (28%) and Taiwan (25%) make up the largest individual country allocations. Also receiving allocations of more than 5% in the portfolio are Thailand, Turkey, Indonesia, and Malaysia [see FEMS Fact Sheet].
From a sector perspective, FEMS maintains a nice balance. Five sectors–consumer discretionary, financials, industrials, technology, and materials–receive an allocation between 15% and 20% in the underlying index. The smallest weights are afforded to telecoms and health care; those two sectors make up less than 3% of assets.
FDTS is linked to the Defined Developed Markets Ex-US Small Cap Index, a benchmark that includes almost 400 small cap stocks from a number of developed markets outside the U.S. (but including Canada). The median market cap for the index underlying this ETF is just $600 million; by comparison, FDT has a median market cap of about $4.5 billion.
This ETF also has an Asian tilt; FDTS makes its largest country allocations to Japan (26%), Hong Kong (13%), and South Korea (13%). Other countries afforded weights of 5% or more include Canada, the UK, and France. FDTS gives the largest sector allocation to financials (22%), followed by industrials (16%) and consumer discretionaries (15%). Towards the underweight end of the spectrum are health care (2%) and telecom (3%) [see FDTS Fact Sheet].
Both of the new ETFs will charge an expense ratio of 0.80%. By comparison, the SPDR S&P Emerging Markets Small Cap ETF (EWX) charges 0.65%. The Schwab International Small Cap Equity ETF (SCHC) charges just 0.35%.
Disclosure: No positions at time of writing.
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