First Trust China AlphaDEX Fund (FCA) seeks to track the Defined China Index, which measures Chinese companies listed on U.S. exchanges using a multi-factor stock selection methodology. This China-focused equity ETF provides exposure to Chinese stocks through ADRs and direct listings trading on American markets.
How It Works
FCA uses First Trust's proprietary AlphaDEX methodology, which ranks Chinese stocks based on growth and value factors including sales growth, return on assets, and price momentum. The fund equal-weights selected stocks within each sector, then rebalances quarterly to maintain sector neutrality while emphasizing stocks with the strongest factor scores. Holdings typically include 50-100 Chinese companies across various sectors, avoiding market-cap weighting in favor of factor-based selection.
Key Features
- Factor-based selection methodology emphasizes growth and value metrics rather than market capitalization weighting used by traditional China ETFs
- Equal-weighting approach within sectors reduces concentration risk compared to cap-weighted China funds dominated by mega-cap technology stocks
- Focuses exclusively on Chinese companies trading on U.S. exchanges, providing easier access without foreign market complications
Risks
- This ETF can lose significant value during U.S.-China trade tensions or regulatory crackdowns, as Chinese ADRs often decline 20-40% during geopolitical conflicts
- Currency fluctuations between the yuan and dollar can impact returns even though stocks trade in USD, affecting underlying business values
- Chinese regulatory changes or delisting threats can cause severe volatility, as seen when Chinese education and technology stocks collapsed 50-80% in 2021
Who Should Own This
Best suited as a satellite holding (5-15% of equity allocation) for aggressive investors with 3+ year time horizons seeking China exposure. High risk tolerance required due to geopolitical volatility and regulatory uncertainty. Appropriate for investors wanting factor-based China exposure without the complexity of direct foreign market investing.