The First Trust Emerging Markets Small Cap AlphaDEX Fund (NASDAQ:FEMS) is an exchange-traded fund that seeks to replicate the performance of the NASDAQ AlphaDEX Emerging Markets Small Cap Index by using full replication techniques. This index is a fundamentally weighted index that consists of dividend-paying small-cap stocks from emerging markets. FEMS is a high-risk fund due to its investment in both emerging market and small-cap funds. It comprises more than 200 equity stocks and generates a decent yield. However, over the long run, FEMS’s total return is not impressive. It has an AUM of $291 million and an expense ratio of 0.8 percent. Currently, the fund is trading almost at par with its Net Asset Value.
FEMS invests in growth and value stocks of small-cap companies operating across diversified sectors. The fund typically invests at least 90 percent of its net assets, including borrowings, in the common stocks, depositary receipts, real estate investment trusts, and preferred shares included in the NASDAQ AlphaDEX Emerging Markets Small Cap Index. AlphaDEX is a proprietary, rules-based methodology that aims to produce similar risk characteristics as that of broader market indices while attempting to outperform those indices in terms of total returns. The stock selection process is geared towards generating positive alpha or risk-adjusted returns.
The top holdings of FEMS’s current portfolio are spread across a range of sectors, including information technology, financials, and consumer discretionary. The top three holdings are Yihai International Holding Ltd, a producer and distributor of edible oil and related products; Vitasoy International Holdings Ltd, a manufacturer and distributor of plant-based food and beverages; and Haitong Securities Co Ltd, a financial services company. The top ten holdings account for approximately 15.44% of the fund’s total net assets.
In conclusion, while FEMS ETF pays a quarterly dividend with a decent yield, its inconsistent and unimpressive total return over the long run has failed to generate much interest. FEMS invests in high-risk emerging market and small-cap funds, and the top holdings of its current portfolio are spread across various sectors, including information technology, financials, and consumer discretionary.
The First Trust Emerging Markets Small Cap AlphaDEX Fund (NASDAQ:FEMS) invests mainly in four emerging markets: Turkey, Taiwan, Brazil, and China. These markets have significant growth potential, with more than 70% of FEMS’s assets invested in them. Nearly 28% of the fund is also invested in basic materials and energy stocks, which are abundant in these economies. About 37% of FEMS’s assets are invested in industrial and technology stocks, with China and Taiwan being well-known for their growing base of small-cap technological and industrial companies. Although Turkey and Brazil’s economic prospects are not very strong at present, none of these four economies are facing any major geopolitical or existential challenges.
FEMS’s major holdings from these emerging markets are mostly Turkish stocks, including companies such as Pegasus Hava Tasimaciligi ADR, Cimsa Cimento Sanayi Ve Ticaret A.S., DOGAN SIRKETLER GR, IS Yatirim Menkul Degerler AS, Enerjisa Enerji AS, Haci Omer Sabanci Holding AS, Anadolu Efes Biracilik ve Malt Sanayii Anonim Sirketi, Migros Turk TAS, Hektas Ticaret AS, Turk Traktor ve Ziraat Makineleri AS, Vestel Elektronik Sanayi ve Ticaret AS, and Sok Marketler Ticaret AS.
The First Trust Emerging Markets Small Cap AlphaDEX Fund (NASDAQ:FEMS) has invested in several notable stocks over the years, such as Mexican grocery and department store chain Grupo Comercial Chedraui S.A.B. de C.V., Polish coal manufacturer Jastrzebska Spolka Weglowa SA, Polish telecommunications giant Orange Polska S.A., and Taiwanese integrated circuits manufacturer Fitipower Integrated Technology Inc. These stocks have recorded high positive price growth in the past five years, with all ten Turkish stocks generating strong price growth in the past twelve months.
However, the fund invested only about 1 percent of its assets in each of these stocks, and together, these 16 stocks accounted for only 18 percent of FEMS’s portfolio. Chinese, Taiwanese, and Brazilian stocks did not perform as well during the same period, resulting in the small-cap EM fund failing to impress. Its price return stood low at 0.55 percent during the past 12 months and 18.4 percent during the past five years, with an average yield that was inconsistent, resulting in an unimpressive total return of 3.9 percent.
Investing in emerging market (EM) small-cap funds may have growth potential, but they possess higher risk. FEMS invests in public equity markets of global emerging regions, with a favorable investment outlook for EM stocks compared to other equity markets. However, obtaining data related to small-cap emerging market indices can be difficult, and EM stocks are considered riskier than US or other developed markets. Small-caps are considered riskier than both large-cap and mid-cap stocks. Therefore, investing in the right sectors and the right markets is crucial.
In conclusion, FEMS has invested in several notable stocks that have recorded high positive price growth in the past five years, but due to the small percentage of assets invested in each stock, the fund’s total return is unimpressive. Investing in EM small-cap funds may have growth potential, but investors should be aware of the higher risk involved and choose their investments wisely.
First Trust Emerging Markets Small Cap AlphaDEX Fund: An Overview
First Trust Emerging Markets Small Cap AlphaDEX Fund (FEMS) is an exchange-traded fund that primarily invests in small-cap equities from diversified sectors in emerging markets. FEMS aims to track the performance of the NASDAQ AlphaDEX Emerging Markets Small Cap Index by using full replication techniques.
FEMS’s Portfolio Composition
More than 70% of FEMS’s assets are invested in emerging markets like Turkey, Taiwan, Brazil, and China. Among the sectors, FEMS has 65% of its assets in the basic materials, energy, industrial, and information & communication technology sectors. These four economies are rich in basic materials and some energy resources, while China and Taiwan are home to many small-cap technology and industrial companies.
Risks and Returns of FEMS
FEMS is a risky fund, despite having a well-diversified portfolio. The fund is trading at almost the same value as its net asset value. Although FEMS pays a quarterly dividend with a decent yield, the yield has been inconsistent over the past ten years, ranging from 1.9% to 6.5%. The fund’s total return has also been weak, with an average total return of less than 4% between 2018 and 2022. Therefore, it is challenging to rely on FEMS for consistent quarterly earnings or attract growth-seeking investors.
Investment Outlook for Emerging Markets
Many investors have a favorable investment outlook for emerging market stocks compared to other equity markets. Emerging markets have the potential to deliver higher growth when interest rates and inflation stabilize, and the Chinese economy opens up. However, small-cap emerging market indices are challenging to track and are riskier than US or other developed markets. Therefore, investing in the right sectors and markets is crucial.
Total Pharma Tracker
For investors seeking support, the Total Pharma Tracker offers a set of tools, including a work-in-progress software where investors can enter any ticker and get extensive curated research material. Additionally, in-house experts go through the tools and find the best investible stocks, complete with buy/sell strategies and alerts. Investors can sign up for a free trial to access these tools and find out what Total Pharma Tracker can do for them.
Don’t miss interesting posts on Famousbio
