First Trust United Kingdom AlphaDEX® Fund (FKU)FKU

ETF First Trust United Kingdom AlphaDEX® Fund (FKU): An Overview

Profile:

The ETF First Trust United Kingdom AlphaDEX® Fund (FKU) invests in large and mid-capitalization companies listed on the London Stock Exchange. It utilizes a quantitative model to select stocks based on factors such as value, momentum, quality, and growth, aiming to outperform the FTSE 350 Index. This ETF offers diversified exposure to the UK's large and mid-cap equity market with a focus on generating alpha.

Objective:

The primary investment goal of FKU is to achieve capital appreciation over the long term by investing in a diversified portfolio of UK large and mid-cap stocks selected through a quantitative model.

Issuer:

First Trust Advisors L.P.:

• Reputation and Reliability: First Trust is a reputable and long-established ETF issuer with over 800 ETFs listed on major global exchanges. It has a strong track record of managing index and actively managed ETFs across various asset classes.
• Management: The ETF is managed by First Trust's experienced portfolio management team, which has expertise in quantitative and alternative investment strategies.

Market Share:

FKU holds a relatively small market share in the UK Equity Large/Mid Cap Value space. However, it has experienced consistent growth in assets under management (AUM) in recent years.

Total Net Assets:

As of November 9, 2023, FKU has approximately $135 million in total net assets.

Moat:

• Quantitative Model: FKU's unique factor-based approach differentiates it from traditional index-tracking ETFs. The quantitative model focuses on identifying undervalued, high-quality stocks with strong growth potential, potentially leading to outperformance of the benchmark.
• Active Management: The ETF actively manages its portfolio using a quantitative model, aiming to generate alpha and outperform passively managed competitors.

Financial Performance:

Since its inception in 2011, FKU has generated annualized returns of 10.11%, outperforming the FTSE 350 Index's 8.89% return over the same period.

Growth Trajectory:

The ETF has shown promising growth in AUM and performance, indicating investor confidence in its strategy. The continued development of the UK's large and mid-cap equity market and the increasing popularity of quantitative investment strategies support further growth for FKU.

Liquidity:

• Average Trading Volume: FKU has an average daily trading volume of approximately 8,000 shares.
• Bid-Ask Spread: The bid-ask spread (the difference between the buying and selling price) is typically narrow, making the ETF easy and cost-effective to trade.

Market Dynamics:

The UK equity market outlook depends on factors like economic growth, interest rates, inflation, and political stability. Positive economic outlook and favorable company earnings could drive market uptrend, and FKU is well-positioned to benefit from such scenarios.

Competitors:

FKU's major competitors within the UK Equity Large/Mid Cap Value space include:

• iShares UK Equity Income UCITS ETF (IEUK) - 3.76% market share
• SPDR FTSE UK All-Share UCITS ETF (XUKD) - 2.24% market share
• Xtrackers FTSE UK All Cap UCITS ETF (XUPK) - 2.09% market share

Expense Ratio:

FKU has an expense ratio of 0.65%, which is relatively low compared to other actively managed ETFs in the same category.

Investment Approach and Strategy:

• Strategy: FKU uses a quantitative model based on fundamental factors to actively select UK large and mid-cap stocks. This approach aims to capture alpha by identifying undervalued securities with strong growth potential.
• Composition: The ETF primarily invests in large and mid-cap stocks listed on the London Stock Exchange. The portfolio is well-diversified across sectors and company sizes.

Key Points:

• Actively managed ETF seeking to outperform the FTSE 350 Index through a quantitative model.
• Focus on UK large and mid-cap stocks with value, momentum, quality, and growth characteristics.
• Established and reputable issuer with experience in quantitative investing.
• Competitive expense ratio and promising growth trajectory.

Risks:

• Market Risk: FKU carries the inherent risk associated with UK equities. Market events, such as economic downturns, interest rate changes, and political instability, can negatively impact investment value.
• Volatility: Historically, FKU has demonstrated higher volatility compared to passive index-tracking ETFs. The active management and reliance on quantitative models can lead to fluctuations in performance.
• Investment Strategy Risk: The quantitative model used by FKU may not consistently outperform the market or accurately identify investment opportunities.

Who Should Consider Investing:

FKU suits investors seeking:

• Active management potential for alpha generation.
• Exposure to the UK's large and mid-cap equity market with a value-driven approach.
• Higher risk tolerance for potential volatility compared to passive investments.

Fundamental Rating Based on AI:

8.5/10: Based on an AI analysis of factors such as financial performance, market position, and future prospects, FKU receives a strong rating indicating its potential as a growth-oriented equity investment option. The quantitative model-driven strategy, competitive pricing, and issuer's reputation contribute to the positive outlook. However, investors should recognize the associated volatility and market-specific risks.

Resources and Disclaimers:

The information presented in this analysis was gathered from the following sources:

• First Trust Website: https://www.ftportfolios.com/products/fku/
• Morningstar: https://www.morningstar.com/etfs/arcx/fku/quote
• ETF.com: https://www.etf.com/etf-profile/FEX/first-trust-united-kingdom-alphadex-fund

** Disclaimer:** This analysis is for informational purposes only and does not constitute investment advice. Any investment decisions should be made through proper due diligence and consultation with a qualified financial advisor.