To some exchange-traded funds (ETF) investors, First Trust is not a household name on par with an iShares or a Vanguard. That does not mean the Illinois-based ETF sponsor does not offer some fine ETFs. Nor does it mean that it is small.
Home to nearly $50 billion in ETF assets under management as of Aug. 17, First Trust is the sixth-largest U.S. ETF issuer and one of the fastest-growing.
It features a massive stable of ETFs, spanning asset classes such as fixed income, dividend stocks, master-limited partnerships (MLPs), ex-U.S. developed markets equities, emerging markets stocks and U.S. sector and industry funds. The issuer is also one of the largest purveyors of smart beta funds and many of the best First Trust ETFs are smart beta products.
Additionally, some of the best First Trust ETFs allow investors to get tactical and focus on narrow though potentially lucrative, fast-growing market segments. Consider some of the following First Trust ETFs.
First Trust ETFs: First Trust Cloud Computing ETF (SKYY)
Expense Ratio: 0.6% per year, or $60 annually on a $10,000 investment
The First Trust Cloud Computing ETF (NASDAQ:SKYY) is one of the First Trust ETFs that epitomizes the issuer’s success in focusing on narrow market niches. When SKYY came to market more than six years ago, some critics assailed the ETF as a niche product that would fail to gain traction among investors due to its narrow focus.
In reality, the opposite has been true for this ETF. The cloud computing market is booming and SKYY is participating in that growth as highlighted by $915.5 million in assets under management. Investors looking for a growth-oriented investment will like SKYY as the ETF is home to storied growth stocks such as Facebook Inc (NASDAQ:FB), Netflix, Inc. (NASDAQ:NFLX) and Amazon.com, Inc. (NASDAQ:AMZN).
Since coming to market in July 2011, not only has SKYY been one of the best First Trust ETFs, but one of the best-performing technology ETFs. SKYY has the advantage of holding stocks such as Amazon and Netflix because those stocks are not found in traditional technology funds due to their classification as members of the consumer discretionary sector.
First Trust ETFs: First Trust Health Care AlphaDEX Fund (FXH)
Expense Ratio: 0.61%
Many of First Trust ETFs are AlphaDEX funds, or smart beta spins on industries, regions, sectors and other assets.
The $991 million First Trust Health Care AlphaDEX Fund (NYSEARCA:FXH) is one of those products. Like First Trust’s other AlphaDEX funds, FXH focuses 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 the issuer.
FXH holds 77 stocks and as illustrated by the AlphaDEX description, this fund goes about its business in significantly different fashion than traditional, cap-weighted healthcare ETFs. For example, pharmaceuticals and biotechnology stocks usually combine for more than 60% of a traditional healthcare ETF’s roster, but this ETF allocates just over 26% to those two groups.
Conversely, FXH allocates a combined 58.3% of its weight to healthcare provider and fast-growing healthcare equipment makers, two of the best-performing industry groups in the broader healthcare sector this year. Obviously, the risk with FXH is that if biotechnology and pharmaceuticals names rally, the ETF can lag its cap-weighted rivals.
First Trust ETFs: First Trust Emerging Markets Small Cap AlphaDEX Fund (FEMS)
Expense Ratio: 0.8%
Tired of hearing about the laggard status of U.S. small-caps this year? The First Trust Emerging Markets Small Cap AlphaDEX Fund (NASDAQ:FEMS) has been one of the best First Trust ETFs this year and can certainly help investors looking for ex-U.S. small-cap exposure. The Russell 2000 Index is barely clinging to a year-to-date gain while this ETF is up 40%.
FEMs, which has nearly $212 million in assets under management and debuted in February 2012, holds 203 stocks. While emerging markets small-caps are believed to be a volatile asset class, this ETF tempers some of that volatility by allocating 30% of its geographic weight to Taiwan, one of the least volatile developing economies. China and Brazil combine for over a quarter of the fund’s roster.
Over the past year, FEMS’ underlying index, the AlphaDEX Emerging Markets Small Cap Index, is up 28.4% compared to a gain of 17% for the MSCI Emerging Markets Small Cap Index.
As of this writing, Todd Shriber did not hold a position in any of the aforementioned securities.
