One of the biggest selling points for exchange traded funds is lower fees relative to most of the actively managed mutual fund universe. While a low fee has a the potential to get the attention of advisors and investors, a low fee does not always ensure an ETF is “good.”
Likewise, some ETFs can carry what appear to be high expense ratios, but that does not mean all of those are “bad” funds. The First Trust Large Cap Value Opportunities AlphaDEX Fund (NYSEArca: FTA) might just be one of the good ETFs with a slightly pricey expense ratio.
The $847.3 million FTA charges 0.62% per year, or $62 for each $10,000 invested, which is high compared to other large-cap value ETFs.
“The share price performance chart for the First Trust Large Cap Value AlphaDEX ETF indicates a 28.93% advance from its inception date of May 8, 2007, through March 2, 2016. The chart shows a 61.24% decline during the period from Oct. 1, 2007, through the post-financial crisis stock market low on March 6, 2009, compared to a 45.44% decline by the SPDR S&P 500 ETF (NYSEARCA: SPY) during the same period. This suggests more significant down market exposure than the broader market. The First Trust Large Cap Value AlphaDEX ETF chart illustrates a 32.89% advance from Jan. 31, 2011, through Jan 29, 2016, compared to a 50.54% advance by the SPY ETF, explaining the ETF’s alpha of negative 3.80 for that five-year period,” according to Investopedia.[related_stories]
FTA currently allocates 19.4% of its weight to consumer discretionary stocks and 15.7% to industrials. Utilities and financial services stocks each command weights of over 13% in FTA’s weight. However, these sector weights could be subject to change as the ETF is switching to the Nasadaq AlphaDEX Large Cap Value Index next month.
Value stocks typically trade at cheaper prices relative to fundamental measures of value, such as earnings and the book value of assets. In contrast, growth stocks tend to run at higher valuations since investors expect rapid growth in those company measures.
“The First Trust Large Cap Value AlphaDEX ETF has a five-year Sharpe ratio of 0.60. Although this ETF has a 30-day SEC yield of 2.42% as of Jan. 29, 2016, the share price performance chart indicates a 12.91% decline from Jan. 30, 2015, through Jan. 29, 2016. However, a 13.73% advance between Jan. 20, 2016, and March 2, 2016, places this ETF’s share price 5.91% above its 50-day moving average,” adds Investopedia.
First Trust Large Cap Value Opportunities AlphaDEX Fund
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.