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Focus 5 ETF Makes Another Change

ETF Professor

The First Trust Dorsey Wright Focus 5 ETF (NASDAQ: FV), one of the most popular funds using the ETF of ETFs strategy, recently made another change among its five holdings.

FV's holdings page shows the First Trust Energy AlphaDEX Fund (NYSE: FXN) as FV's fifth-largest holding at a weight of 19.8 percent. That means FV has sent the First Trust Health Care AlphaDEX Fund (NYSE: FXH) packing. 

Flows data confirm as much. From March 23 through March 29, FXN added $680.1 million in new assets, more than any other ETF over that period, according to ETF.com data. Conversely, FXH lost $562.3 million in assets during that stretch, more than all but one ETF. 

FV turned two earlier this month and had not changed its lineup until last month when it dumped the First Trust NYSE Arca Biotechnology Index Fund (NYSE: FBT) for the First Trust Utilities AlphaDEX Fund (NYSE: FXU). That move came after a massive decline for FBT.

A similar though not as drastic scenario is seen with FV's healthcare-for-energy swap with FXN replacing FXH. FXH, the healthcare ETF, has long had a significant portion of its lineup in biotech stocks. Like more traditional, diversified healthcare ETFs, FXH was not immune to the biotech sector's tumble that started last year. Even with a 4.6 percent gain over the past month, FXH is down nearly 19 percent over the past year.

That means the ETF is still close to meeting the definition of a bear market. While FV is not a market timing ETF, it is not unreasonable to assume of the fund's devotees, of which there are plenty given its $3.4 billion in assets, are wondering why it takes so long to part with losing positions like FBT and FXH. Frankly, those positions got worse and worse before FV moved out of them.

Those are just two examples and here is another. From its 2015 peak to its 2016 trough, the First Trust Dow Jones Internet Index Fund (NYSE: FDN), FV's largest holding, lost more than 28 percent but the Internet fund was not removed from FV.

In fact, since FV debuted, FDN has experienced multiple corrections (defined as a drop of 10 percent or more) and at least one bear market (albeit temporary) and the Internet fund has never left FV.

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