Skip to main content

AlphaDEX ETFs - performing as promised?

I mentioned last week that I was seeing a group of AlphaDEX ETFs on the TradeRadar Trend Leaders list. I was not at all familiar with the name but since they were performing so well I felt they deserved a look. It turns out they are managed by First Trust and they are intended to provide superior performance by taking fundamentals into account when selecting the stocks that make up each style or sector portfolio.

Index Universe first wrote about these ETFs way back in 2007 (here's the link from Seeking Alpha).

Here's how Index Universe described the mechanics:
The methodology for enhancing those indexes is transparent, but complicated. The stocks in each index are divided into growth, core and value buckets. The growth stocks are evaluated by five metrics and given a score:
  • three-, six- and 12-month price appreciation (i.e., momentum)
  • one-year sales growth
  • sales-to-price ratio.
The value stocks are evaluated by three metrics and given a score:
  • book value-to-price
  • cash flow-to-price
  • return-on-assets.
The core stocks are evaluated on both metrics and the higher of the two scores is taken.

So the questions is, has First Trust succeeded in doing better than a standard cap-weighted index fund?

I took a selection of AlphaDEX funds (the ones that appeared on the Trend Leaders list this past weekend) and compared them with the corresponding SPDR ETFs managed by State Street Global Advisors.

Among the ones we looked at, it does appear that many of the AlphaDEX ETFs do indeed provide superior performance. The following charts show the gains since the March low for each of the ETFs with the AlphaDEX ETFs in blue and the SPDR ETFs in red. Click on any chart to view a larger image.

FIRST TRUST LARGE CAP VALUE OPPORTUNITIES ALPHADEX FUND (FTA)
compared to SPDR Dow Jones Large Cap Value ETF (ELV)


FIRST TRUST SMALL CAP CORE ALPHADEX FUND (FYX)
compared to SPDR Dow Jones Small Cap ETF (DSC)


FIRST TRUST MATERIALS ALPHADEX FUND (FXZ)
compared to Materials Select Sector SPDR (XLB)


FIRST TRUST CONSUMER STAPLES ALPHADEX FUND (FXG)
compared to Consumer Staples Select Sector SPDR (XLP)


FIRST TRUST CONSUMER DISCRETIONARY ALPHADEX FUND (FXD)
compared to Consumer Discretionary Select Sector SPDR (XLY)


FIRST TRUST INDUSTRIALS/PRODUCER DURABLES ALPHADEX FUND (FXR)
compared to Industrial Select Sector SPDR (XLI)


FIRST TRUST ENERGY ALPHADEX FUND (FXN)
compared to Energy Select Sector SPDR (XLE)


FIRST TRUST FINANCIALS ALPHADEX FUND (FXO)
compared to Financial Select Sector SPDR (XLF)


Conclusion --

Some of these ETFs do provide quite a margin of superior performance compared to the Select Sector SPDR ETFs and then some of them are pretty much just equivalent to the SPDRs. Judging by this sample then, it would appear that you can't really go wrong with the AlphaDEX family of ETFs in terms of returns though expenses tend to be higher than the SPDRs and volume is quite a bit lower.

The methodology does seem to add value when the stocks in the particular sector are showing the characteristics that their algorithm emphasizes. At the moment that seems to be consumer discretionary, consumer staples, materials and large-cap value. The benefit is less clear in the small cap, industrials, energy and financial sectors.

Overall, however, the AlphaDEX ETFs are worth consideration.

For more info on these ETFs: visit the First Trust site

Comments

Popular posts from this blog

Unlock Stock Market Profits - Key #1

This is the first in an ongoing series of articles where I discuss what I feel are keys to successful investing. It is based on a post that provides a summary of the ten keys that individual investors should use to identify profitable stock trades. (Click here to read the original post)

There are two basic steps to investing. First, you need to find stocks that seem to have some potential. Then you have to determine whether these stocks are actually good investments. There are many stocks that at first glance look interesting, but further research reveals that there are too many negatives to warrant taking a position.

This first post in the series starts at the beginning: getting good investment ideas.

Key #1: If something special is happening to a stock, it will be reflected in some kind of unusual activity in the markets.

As individual investors, we will never be the first to know; however, unusual activity can be an early sign that allows us to follow the Wall Street professionals and …

Unlock Stock Market Profits - Key #4

This is the fourth article in a series of posts describing 10 tools to help you identify and evaluate good investing ideas. It is based on a post that provides a summary of the ten keys that individual investors should use to identify profitable stock trades. (Click here to read the original post)

With this fourth post, we will continue another step along the path of finding stocks that seem to have some potential. The first post in the series discussed how to use unusual activity to identify investing ideas. The second post described how to use stock screeners. The third post described how to use lists of new highs and new lows. This post will focus on identifying social or business trends in order to find investing ideas.

Information on new trends might turn up anywhere. In conversation with friends or business associates, in newspapers or magazines, on TV or though your work. The key is to be aware of trends and how they start, stop or change. We'll start by describing what to lo…

Free stock alerts, Trend Leaders, Bollinger Band Breakouts and Cash Flow Kings for Jan 16, 2009

This post is to announce that the latest list of free stock alerts is up and available at Alert HQ. Each week we scan over 7400 stocks and ETFs looking for fresh BUY and SELL signals. We apply a combination of proprietary and standard technical analysis techniques to identify those stocks that are beginning to move. Our goal is to identify stocks or ETFs that are undergoing reversals, either to the upside or to the downside.

Wait, there's more...

We also use the Alert HQ process to generate more free lists of stocks and ETFs

The first byproduct of the Alert HQ process is the Trend Leaders list, our collection of stocks in strong up-trends. These stocks are registering strong signals using Aroon analysis, DMI and MACD. They are also above their 50-day exponential moving average. This week's list is now available at the TradeRadar site on the Trend Leaders page.

As another byproduct of the Alert HQ process we have generated a list of stocks that have broken either above their upper…