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First Trust Canada, a Toronto-based provider of exchange-traded funds, has unveiled Canada’s first ETF to offer dedicated exposure to Europe.
Listed on the Toronto Stock Exchange, the First Trust AlphaDEX European Dividend Index ETF (CAD-Hedged) (EUR) provides currency-hedged access to European dividend-paying companies while also exploiting possible mispricings and potential drawbacks of market capitalisation-weighted benchmarks.
Fraser Howell, CEO and President of First Trust Canada, said: “First Trust Canada is pleased to offer Canadians the first European equity ETF to be listed on the TSX. Europe is home to some of the most iconic and recognizable global brands in the world and despite the recent recession, dozens of best-in-class companies in Europe have done well and could continue to do well”.
Karl Cheong, Senior Vice President Head of ETF Product Development at First Trust Canada, added: “Relative to the US, European stocks are trading at very attractive valuations based on low price to book ratios and high dividend yields. European corporate earnings are still 35% below peak levels obtained in 2007, so there is significant potential for them to grow”.
The ETF is linked to the AlphaDEX European Dividend Index, which employs First Trust’s proprietary AlphaDEX stock selection process to identify European dividend-paying companies that offer the greatest potential for capital appreciation.
Starting with a universe of dividend-paying ADRs of European companies, the process ranks ADRs on growth factors including 3-month, 6-month and 12-month price appreciation, sales to price and one year sales growth, and then separately on value factors, including, book value to price, cash flow to price and return on assets.
All ADRs are ranked on the sum of ranks for the growth factors, and separately all ADRs are ranked on the sum of ranks for the value factors. The top 75% of the ADRs are then selected based on the better of their growth or value rank and divided into quintiles. The top ranked quintile receives a top weight of 5/15 (33.3%) of the portfolio with successive quintiles receiving 4/15 (26.7%), 3/15 (20.0%), 2/15 (13.3%) and 1/15 (6.7%). The ADRs are equally-weighted within each quintile, with index rebalanced semi-annually.
The ETF will generally seek to hedge substantially all of its US dollar, British pounds sterling, euros and Swiss francs currency exposure associated with its portfolio investments back to the Canadian dollar. It has a management fee of 0.60%.
First Trust Canada is an affiliate of First Trust, a US-based asset manager and ETF provider. As at December 31, 2013, First Trust, which also has ETF operations in Europe, had approximately US $20 billion in ETF assets under management and more than US $85 billion total assets under supervision or management.