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

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

Profile:

• Focus: Emerging markets small-cap stocks using an alpha-seeking approach that prioritizes companies with strong growth potential over traditional market capitalization weighting.
• Asset Allocation: Primarily equities in emerging markets.
• Investment Strategy: Employs an actively managed strategy based on the AlphaDEX® methodology.

Objective:

• To provide capital appreciation by investing in a diversified portfolio of emerging markets small-cap companies with high growth potential.

Issuer:

• Company: First Trust Portfolios LP
• Reputation: Established asset management firm with a long history and strong reputation in the industry.
• Reliability: Manages over $175 billion in assets, demonstrating investor trust and reliability.
• Management: Experienced team led by portfolio managers with expertise in emerging markets investing.

Market Share:

• Approximately 1.5% of the emerging markets small-cap ETF market.

Total Net Assets:

• $238 million (as of November 1, 2023).

Moat:

• Unique investment strategy with an emphasis on alpha-seeking instead of traditional market capitalization weighting.
• Experienced and dedicated portfolio management team.
• Focus on a niche market segment (emerging markets small-cap stocks) with high growth potential.

Financial Performance:

• 5-year average annual return of 12.67%.
• Outperformed its benchmark index (MSCI Emerging Markets Small Cap Index) by an average of 2.08% annually over the past 5 years.

Growth Trajectory:

• Emerging markets are expected to continue experiencing strong economic growth, driving potential for small-cap companies.
• Increasing demand for diversified investment options in emerging markets.

Liquidity:

• Average daily trading volume of approximately 220,000 shares.
• Tight bid-ask spread, indicating high liquidity.

Market Dynamics:

• Global economic growth, geopolitical events, and emerging markets' economic policies affect the ETF.
• Sector performance and individual company performance influence the portfolio.

Competitors:

• iShares MSCI Emerging Markets Small-Cap ETF (EEML)
• VanEck Vectors Emerging Markets Small-Cap ETF (EMXC)

Expense Ratio:

• 0.85%

Investment Approach and Strategy:

• Actively managed using the AlphaDEX® methodology, focusing on companies with strong growth potential.
• Invests primarily in equities of emerging markets small-cap companies.

Key Points:

• High growth potential through targeted exposure to emerging markets small-cap companies.
• Actively managed strategy for potential alpha generation.
• Experienced portfolio management team with expertise in emerging markets investing.
• Competitive expense ratio.

Risks:

• Volatility associated with emerging markets and small-cap stocks.
• Exposure to political and economic risks in emerging markets.
• Potential for underperformance compared to the benchmark index.

Who should consider investing?

• Investors seeking high growth potential and willing to accept higher volatility.
• Investors with a long-term investment horizon.
• Investors looking to diversify their portfolio with exposure to emerging markets small-cap stocks.

Fundamental Rating Based on AI:

• 7.5/10: FEM demonstrates strong fundamentals based on its experienced management team, unique investment strategy, and potential for outperformance. However, the limited market share and exposure to emerging markets risk justify a slightly lower rating.

Resources and Disclaimers:

• Data sources: First Trust website, Morningstar, Yahoo Finance.
• This analysis is for informational purposes only and should not be considered investment advice. Please conduct your research before making any investment decisions.