First Trust launches three AlphaDEX ETFs on LSE

Apr 11th, 2013 | By | Category: Equities

First Trust Advisors, a leading US provider of exchange-traded funds (ETFs), has entered the European ETF market with the launch of three “AlphaDEX” UCITS ETFs on the London Stock Exchange (LSE). The initial three European-domiciled AlphaDEX ETFs will focus on UK, US and emerging market equities. Further launches are expected as demand grows.

First Trust launches three AlphaDEX ETFs on LSE

Eric Anderson, Vice President at First Trust.

This marks the first time First Trust’s highly successful AlphaDEX strategy is available as an investment product outside of the United States.

First Trust is one of the fastest growing ETF managers in the US; from launching its first ETF in 2005 it now manages $10.6 billion in ETF assets.

The provider’s AlphaDEX ETFs have seen strong growth over the last three years and make up a significant proportion of First Trust’s ETF assets under management. This growth has been driven by increasing investor demand for innovative alpha-seeking and so-called ‘smart beta’ ETFs.

Smart beta ETFs typically follow alternatively-weighted indices, as opposed to traditional market capitalisation-weighted indices, and tend to target a certain risk factor, such as, for example, growth, value or momentum, and/or seek to deliver enhanced risk-adjusted returns, as is the case with AlphaDEX ETFs.

First Trust’s initial three LSE-listed funds are:

First Trust United Kingdom AlphaDEX UCITS ETF (FKU)

First Trust US Large Cap Core AlphaDEX UCITS ETF (FEX)

First Trust Emerging Markets AlphaDEX UCITS ETF (FEM)

Commenting on the launch, Dan Lindquist, Managing Director of First Trust, said: “We believe this is the optimal time to expand the AlphaDEX family of ETFs outside of the United States because of the strong opportunities that AlphaDEX provides for investors that typically have only had access to market-cap-weighted ETFs in Europe. We are committed to providing investors with opportunities to capitalise on companies with stronger investment merit through ETFs using our AlphaDEX methodology.”

The patented AlphaDEX methodology, which is built in to the ETFs’ underlying indices, seeks to generate alpha over a stated benchmark. The indices start with a broad-based index and are enhanced through a proprietary process that ranks the stocks using several factors. The goal of the methodology is to identify the stocks within the index that exhibit the fundamental characteristics, including value and growth attributes, to enable them to provide the greatest potential for capital appreciation.

An examination of First Trust’s US-based funds demonstrates that the methodology works well, at least it has historically. For example, the NYSE Arca-listed First Trust United Kingdom AlphaDEX ETF (FKU) has posted a return of 15.07% over the past 12 months (as of 28/3/2013) compared to the MSCI United Kingdom Index, which has returned 9.75%.

Eric Anderson, Vice President for First Trust, said: “We want to provide the European market with the same advantages that the patented AlphaDEX system has brought to US investors. The stocks are ranked according to value and growth factors, rather than market cap. These new ETFs are designed to provide investors with targeted equity market exposure whilst seeking to generate positive alpha relative to the broad-based passive index from which it selects its stocks. Every step in the process is driven by a transparent, repeatable quantitative process.”

First Trust becomes the latest US ETF provider to issue funds on the London Stock Exchange. Other US-based providers with ETFs listed on the exchange include Vanguard, SPDR, iShares and Pimco (in conjunction with Source).

Gillian Walmsley, Head of Listed Products at the London Stock Exchange, said: “We are delighted that First Trust has chosen London to make its entry onto the European ETF market. London Stock Exchange remains the pre-eminent European destination for ETF issuers and investors and we expect to see continued growth in the number of issuers and products available in 2013.”

There are over 1,000 exchange-traded products (ETPs) listed on the LSE including all of the top ten European ETPs ranked by 2012 inflows. Last month, the exchange recorded a 28% market share of all ETF & ETP trading in Europe with the combined London Stock Exchange Group, which includes Milan’s Borsa Italiana, reaching a market share of 45%.

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2 Comments to “First Trust launches three AlphaDEX ETFs on LSE”

  1. craig rollason says:

    Hello, can i hold FKU in an ISA?

    Thanks, Craig.

    • Simon Smith, CFA says:

      Hi Craig,

      I have confirmed with Derek Fulton, the chief executive of First Trust Global Portfolios, and yes, the fund is eligible for ISAs. It is also eligible for SIPPs and has UK Reporting Status. The TER is 0.80%.

      Thanks,

      Simon Smith.

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