First Trust Developed Markets ex-US Small Cap AlphaDEX Fund (FDTS) seeks to track the NASDAQ AlphaDEX Developed Markets ex-US Small Cap Index, which measures small-capitalization companies from developed international markets excluding the United States, using a quantitative stock selection and weighting methodology based on growth and value factors.
How It Works
FDTS employs the AlphaDEX methodology, which ranks international small-cap stocks based on growth factors (sales growth, one-year sales growth) and value factors (book value-to-price, cash flow-to-price). The top-ranked stocks within each sector are selected and equally weighted, with quarterly rebalancing to maintain factor exposure. This rules-based approach creates concentrated sector allocations while maintaining diversification across developed markets including Europe, Japan, and Asia-Pacific regions.
Key Features
- Combines growth and value factor screening to select highest-scoring small-cap stocks from developed international markets
- Equal weighting within sectors prevents market-cap concentration while maintaining sector diversification across global developed markets
- Targets underexplored small-cap international segment often overlooked by large-cap focused international ETFs
Risks
- This ETF can lose significant value during international market downturns, with small-cap stocks typically declining 40-50% more than large-caps in bear markets
- Currency fluctuations against the U.S. dollar can reduce returns even when underlying international stocks perform well
- Factor-based selection may underperform during periods when growth or value styles fall out of favor with investors
Who Should Own This
Best suited as a satellite holding (5-15% of equity allocation) for investors with 7+ year time horizons seeking international small-cap exposure with factor tilts. High risk tolerance required due to small-cap volatility and currency exposure. Works well for investors already holding U.S. and large-cap international ETFs seeking portfolio completion.