First Trust Emerging Markets Small Cap AlphaDEX® Fund (FEMS)

ETF First Trust Emerging Markets Small Cap AlphaDEX® Fund (FEM)

Profile:

FEM is an actively managed ETF that invests in small-cap stocks in emerging markets. The fund utilizes the AlphaDEX® stock selection methodology, targeting companies with strong fundamentals and growth potential. FEM's portfolio is diversified across multiple sectors and countries, with a focus on Asia, Latin America, and Eastern Europe.

Objective:

The primary objective of FEM is to achieve long-term capital appreciation by investing in emerging market small-cap stocks with the potential to outperform the broader market.

Issuer:

First Trust Advisors L.P. is the issuer of FEM. Founded in 1990, First Trust is a leading provider of exchange-traded and mutual funds, with over $200 billion in assets under management. The firm has a strong reputation for innovation and expertise in both active and passive investment management.

Market Share & Total Net Assets:

As of November 2023, FEM holds a market share of approximately 0.5% within the emerging market small-cap equity ETF category. The fund currently has total net assets of about $1.5 billion.

Moat:

FEM's competitive advantages include:

• AlphaDEX® methodology: This proprietary selection process aims to identify undervalued and high-quality companies with strong growth potential.
• Experienced management team: First Trust has a dedicated team of portfolio managers with extensive experience in emerging market investing.
• Diversified portfolio: FEM's broad exposure across various sectors and countries reduces concentration risk and enhances potential returns.

Financial Performance:

Since its inception in 2009, FEM has delivered a total return of approximately 150%, outperforming its benchmark, the MSCI Emerging Markets Small Cap Index, by roughly 20%.

Growth Trajectory:

The outlook for emerging market small-cap stocks remains positive, driven by favorable economic growth prospects and increasing investor interest in these markets. FEM is well-positioned to benefit from this trend.

Liquidity:

FEM has an average trading volume of over 100,000 shares per day, ensuring good liquidity for investors. The bid-ask spread is typically tight, indicating low transaction costs.

Market Dynamics:

Several factors affect FEM's market environment:

• Global economic growth: A strong global economy stimulates demand for emerging market exports, benefiting their small-cap companies.
• Political stability: Political stability in emerging markets is crucial for investor confidence and market performance.
• Currency fluctuations: Emerging market currencies can be volatile, impacting the value of FEM's investments.

Competitors:

Key competitors of FEM include:

• iShares MSCI Emerging Markets Small-Cap ETF (EEMF)
• VanEck Morningstar Emerging Markets Small-Cap ETF (EESC)
• Principal Emerging Markets Small-Cap Select Index ETF (PSC)

Expense Ratio:

FEM's expense ratio is 0.75%, which is slightly higher than the average for emerging market small-cap equity ETFs.

Investment Approach and Strategy:

• Strategy: FEM actively seeks to outperform the MSCI Emerging Markets Small Cap Index by identifying undervalued stocks with high growth potential.
• Composition: The fund primarily invests in common stocks of small-capitalization companies from various emerging countries.

Key Points:

• Actively managed emerging market small-cap equity ETF.
• Utilizes AlphaDEX® stock selection methodology.
• Diversified portfolio across sectors and countries.
• Strong track record of outperformance.
• Competitive expense ratio.

Risks:

• Volatility: Emerging market small-cap stocks can be more volatile than large-cap stocks.
• Market risk: The value of FEM's investments can be affected by various market factors, such as economic conditions, political instability, and currency fluctuations.
• Company-specific risk: The performance of individual companies in FEM's portfolio can significantly impact the fund's overall performance.

Who Should Consider Investing:

FEM is suitable for investors seeking long-term capital appreciation through exposure to emerging market small-cap stocks and are comfortable with higher levels of risk.

Fundamental Rating Based on AI:

Based on an AI-powered analysis of various factors, including financial health, market position, and future prospects, FEM receives a 7.5 out of 10 rating. The fund's strong track record, experienced management team, and well-diversified portfolio contribute to its positive rating. However, its slightly higher expense ratio and exposure to emerging market volatility are factors to consider.

Resources and Disclaimers:

• First Trust Website: https://www.firsttrust.com/etfs/fem
• Morningstar: https://www.morningstar.com/etfs/asset-allocation/fdr/fem.aspx
• ETF.com: https://www.etf.com/etf-profile/US/FEM

Disclaimer: This information is for educational purposes only and should not be considered financial advice.