First Trust Multi Cap Value AlphaDEX Fund (FAB) seeks to track the NASDAQ AlphaDEX Multi Cap Value Index, which selects undervalued U.S. stocks across all market capitalizations using fundamental value metrics like price-to-book, price-to-sales, and price-to-cash flow ratios.
How It Works
FAB uses a rules-based methodology that screens the broad U.S. stock universe for value characteristics, then applies the proprietary AlphaDEX weighting system that overweights stocks with the strongest value scores while underweighting those with weaker metrics. The fund rebalances quarterly to maintain alignment with index changes and typically holds 200-400 stocks across small-, mid-, and large-cap segments, with enhanced weightings toward the most attractively valued securities.
Key Features
- AlphaDEX methodology provides enhanced exposure to stocks with strongest value characteristics versus traditional market-cap weighting
- Multi-cap approach captures value opportunities across entire size spectrum, not just large-cap value stocks
- Quarterly rebalancing systematically captures value rotation as market conditions change and valuations shift
Risks
- This ETF can lose value when growth stocks outperform value stocks, as seen during technology rallies when value investing falls out of favor
- Enhanced weighting toward smaller-cap value stocks increases volatility risk compared to large-cap focused value ETFs during market stress
- Value investing can underperform for extended periods, potentially lagging growth strategies for multiple years during momentum-driven markets
Who Should Own This
Best suited for tactical allocation (10-25% of equity portfolio) by investors with 3+ year time horizons seeking value factor exposure. Requires medium-to-high risk tolerance due to value stock volatility and potential multi-year underperformance periods. Works well as satellite holding for investors wanting enhanced value exposure beyond traditional market-cap weighted value ETFs.