One of the hottest themes in the exchange traded funds space this year has been investors favoring ex-US developed markets in search of value opportunities. In fact, some of the top asset-gathering ETFs this year are funds tracking stocks in developed markets outside the U.S.
More importantly, some of these ETFs are delivering impressive returns. For example, the First Trust Developed Markets ex-US AlphaDEX Fund (NASDAQ: FDT) is up more than 15% year-to-date and hit an all-time high on Monday. As a fundamentally-weighted fund, FDT can be used as an alternative or complement to traditional EAFE strategies, which are usually cap-weighted.
AlphaDEX ETFs are based “on growth factors including three, six and 12-month price appreciation, sales to price and one year sales growth, and, separately, on value factors including book value to price, cash flow to price and return on assets,” according to First Trust.
FDT, which just turned six years old, tracks the NASDAQ AlphaDEX® Developed Markets Ex-US Index.
“To construct the Index, Nasdaq ranks the eligible stocks on growth factors including 3-, 6- and 12- month price appreciation, sales to price and one year sales growth, and separately on value factors including book value to price, cash flow to price and return on assets. All stocks are ranked on the sum of ranks for the growth factors and, separately, all stocks are ranked on the sum of ranks for the value factors. A stock must have data for all growth and/or value factors to receive a rank for that style,” notes First Trust.
FDT allocates over a quarter of its weight to Japanese stocks. South Korea, Asia’s fourth-largest economy, accounts for nearly 13% of the ETF’s weight. European countries represent just four of FDT’s top 10 geographic weights with that quartet combining for about 27 of the fund’s roster.
FDT holds 301 stocks with 21.4% of those components hailing from the consumer discretionary sector. Industrial and materials names combine for almost a third of FDT’s lineup. Over the past five years, FDT has outpaced the MSCI World ex USA Index by nearly 100 basis points with a slightly lower standard deviation.
For more on Smart Beta ETFs, visit the Smart Beta Channel home page.
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.