The First Trust Dorsey Wright Focus 5 ETF (NasdaqGM: FV) is an ETF of ETFs backed by a momentum-based strategy. As such, FV can and does make occasional changes to its roster of sector and industry ETFs.
Recently, FV dumped the First Trust Utilities AlphaDEX Fund (NYSEArca: FXU) to add the First Trust Technology AlphaDEX Fund (NYSEARCA: FXL).
First Trust’s 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
“The First Trust Dorsey Wright Focus 5 ETF, which uses a computer algorithm to choose stocks that are likely to outperform, recently ramped up its holdings of tech shares in a big way. The fund-of-funds dumped its position in the First Trust Utilities AlphaDex fund in favor of the First Trust Technology AlphaDex ETF — giving it a 60 percent weighting in technology,” reports Bloomberg.
FXL is now FV’s largest holding with a weight of 20.3%, just ahead of the 20.1% allocated to the First Trust Dow Jones Internet Index Fund (NYSEArca: FDN).
Related: ETFs to Tap into the Outperforming Quality Factor
The First Trust Dorsey Wright Focus 5 ETF follows DWA’s relative strength ranking system where sector ETFs are compared to each other to measure price momentum relative to other ETFs in the universe and the top five ranking ETFs are included in the underlying index. The momentum strategy basically bets that hot movers will continue to rise, so investors would essentially be buying high and selling even higher. The relative strength analysis is conducted on a weekly basis.
“Funds that buy momentum stocks had their best month in more than a year in October. The strategies advanced 4.9 percent, the most since June 2016, leaving hedge funds that follow other automated strategies in the dust. As this year’s best performing sector, technology contains a large amount of momentum stocks,” according to Bloomberg.
FV debuted in March 2014 with an original roster of the First Trust NYSE Arca Biotechnology Index Fund (NYSEArca: FBT), First Trust Consumer Staples AlphaDEX Fund (NYSEArca: FXG), First Trust Health Care AlphaDEX Fund (NYSEArca: FXH), First Trust Consumer Discretionary AlphaDEX Fund (NYSEArca: FXD) and FDN.
Today, FDN is the only original holding remaining in FV, but FV’s overall technology exposure of about 60% is as high as it has been in FV’s lifetime.
For more information on alternative index-based strategies, visit our Smart Beta Channel.