Late last week we noted substantial creation activity in several fundamentally based “core” index ETFs from First Trust, which may be an example of institutional rebalancing at the end of the first quarter of the year.
First Trust Large Core AlphaDEX (NYSEArca: FEX), First Trust Mid Cap Core AlphaDEX (NYSEArca: FNX) and First Trust Large Growth AlphaDEX (NYSEArca: FTC) took in $64 million, $45 million, and $42 million respectively last week, which ranged from 14 to 30% of the existing asset bases in these funds at the time of the inflows.
The AlphaDEX methodology relies on a proprietary screening that isolates equity names from S&P indices and ranks them according to metrics including price to book value, price to cash flow, price to sales, and return of assets.
The end result is that the AlphaDEX ETFs own a subset of the market cap weighted benchmark index that they draw from, with the goal of providing higher returns over time than the cap weighted benchmarks. This is achieved by owning a select list of equities in proportionate weightings, and ranking the companies according to fundamental attractiveness as opposed simply to their “market capitalization,” which is equivalent to stock price multiplied by shares outstanding.
From a comparative standpoint, the AlphaDEX funds have displayed very encouraging results over their lifetimes, which may be the impetus behind recent asset inflows.
FEX is down 1.50% since its inception in May of 2007 versus its benchmark, the S&P 500 Index which has fallen 8.36%. FNX has rallied an impressive 19.73% since May of 2007 with the S&P 400 Midcap Index up only 8.78%.