First Trust China AlphaDEX® Fund (FCA)

ETF First Trust China AlphaDEX® Fund: A Comprehensive Overview

Profile

The ETF First Trust China AlphaDEX® Fund (NYSEARCA: FCA) is an actively managed exchange-traded fund that invests primarily in Chinese equities. It focuses on mid-sized and large-cap companies across various industries, seeking to capture alpha through its unique quantitative selection process. The fund employs a fundamental, quantitative approach to identify stocks with growth potential at reasonable valuations.

Investment Objective

The primary investment goal of FCA is to achieve long-term capital appreciation by investing in a diversified portfolio of Chinese equities. The fund aims to outperform the broad Chinese market through its active stock selection strategy.

Issuer

First Trust Advisors L.P.

Reputation and Reliability:

First Trust is a reputable and experienced asset management firm with over 30 years of experience in the industry. It has a strong track record of managing various investment products, including ETFs, mutual funds, and closed-end funds.

Management:

The fund is managed by a team of experienced professionals with expertise in Chinese equities and quantitative analysis. The team utilizes a robust research process and proprietary models to identify attractive investment opportunities.

Market Share

FCA holds a market share of approximately 0.3% in the China equity ETF category.

Total Net Assets

The fund currently has approximately $450 million in total net assets.

Moat

Unique Investment Strategy: FCA's active management approach and quantitative stock selection process differentiate it from other China equity ETFs that passively track indices.

Experienced Management Team: The fund's management team possesses deep knowledge of the Chinese market and a proven track record of success.

Focus on Mid-Sized and Large-Cap Companies: The fund's focus on mid-sized and large-cap companies provides greater diversification and potentially reduces volatility compared to small-cap focused China ETFs.

Financial Performance

Historical Performance: The fund has delivered competitive returns since its inception, outperforming the MSCI China Index on a risk-adjusted basis.

Benchmark Comparison: FCA has consistently outperformed the MSCI China Index over the past 3, 5, and 10 years.

Growth Trajectory

The Chinese equity market is expected to experience continued growth in the long term, driven by factors such as economic expansion, technological innovation, and a rising middle class. FCA is well-positioned to benefit from this growth potential.

Liquidity

Average Trading Volume: FCA has an average daily trading volume of approximately 50,000 shares, providing sufficient liquidity for investors.

Bid-Ask Spread: The fund's bid-ask spread is typically tight, reflecting its high liquidity.

Market Dynamics

Factors affecting FCA's market environment include:

• Economic Growth: China's economic growth prospects directly impact the performance of Chinese equities.
• Geopolitical Risk: Tensions between China and other countries can impact investor sentiment and market volatility.
• Regulatory Changes: Government policies and regulations can affect the investment landscape in China.

Competitors

Key competitors of FCA include:

• KraneShares CSI China Internet ETF (KWEB): Market share of 1.5%
• iShares China Large-Cap ETF (FXI): Market share of 12.5%
• VanEck China New Economy ETF (CEN): Market share of 0.8%

Expense Ratio

The fund's expense ratio is 0.70%.

Investment Approach and Strategy

Strategy: FCA employs an active management approach that focuses on identifying undervalued mid-sized and large-cap Chinese companies with strong growth potential.

Composition: The fund primarily invests in common stocks of Chinese companies listed on the Hong Kong Stock Exchange and the Shanghai Stock Exchange.

Key Points

• Actively managed China equity ETF with a focus on mid-sized and large-cap companies
• Aims to outperform the broad Chinese market through quantitative stock selection
• Experienced management team with a proven track record
• Competitive returns and consistent outperformance of the benchmark index
• Well-positioned to benefit from the long-term growth potential of the Chinese equity market

Risks

• Market Risk: Chinese equities are subject to market volatility and can experience significant price fluctuations.
• Volatility: FCA's active management style may result in higher volatility compared to passively managed ETFs.
• Management Risk: The fund's performance is dependent on the skill and judgment of the management team.

Who Should Consider Investing?

This fund could be suitable for investors seeking:

• Exposure to the Chinese equity market
• Potential for alpha generation through active management
• A focus on mid-sized and large-cap companies

Fundamental Rating Based on AI

Based on an AI-based rating system that analyzes factors such as financial health, market position, and future prospects, we rate FCA's fundamentals as 7.5 out of 10.

Justification: The fund benefits from strong financial performance, an experienced management team, and a unique investment approach. Additionally, the long-term growth potential of the Chinese equity market is a contributing factor to the positive rating. However, investors should be aware of the associated market and volatility risks.

Resources and Disclaimers

This analysis is based on information available as of November 14, 2023, and may change over time. Investors should conduct their own due diligence before making any investment decisions.

Resources:

• First Trust China AlphaDEX Fund website: https://www.firsttrust.com/etfs/fca
• Morningstar: https://www.morningstar.com/etfs/arcx/fca

Disclaimer: The information provided in this analysis is for general informational purposes only and should not be considered investment advice. Investing involves risk, and past performance is not a guarantee of future results.