First Trust Large Cap Value AlphaDEX Fund (FTA) seeks to track the Defined Large Cap Value Index, which selects large-cap U.S. value stocks using a quantitative screening process that ranks companies by growth and value factors, then applies equal weighting to reduce concentration risk compared to market-cap weighted approaches.
How It Works
The fund uses First Trust's proprietary AlphaDEX methodology to identify undervalued large-cap stocks through multi-factor screening including price-to-book, price-to-sales, and earnings growth metrics. Selected stocks are equally weighted and reconstituted quarterly to maintain factor exposure. This active index approach differs from traditional value ETFs by using quantitative ranking systems rather than simple value metrics, typically holding 100-200 positions with enhanced diversification across sectors.
Key Features
- Equal-weighting methodology reduces single-stock concentration risk compared to market-cap weighted value ETFs like VTV or VYM
- Multi-factor quantitative screening process combines traditional value metrics with growth and quality factors for enhanced selection
- Quarterly rebalancing captures mean reversion opportunities as undervalued stocks potentially outperform over time
Risks
- This ETF can lose value if the value investing style underperforms growth stocks, as occurred during 2017-2020 when growth significantly outpaced value
- Equal weighting creates higher turnover costs and potential tax inefficiency compared to market-cap weighted alternatives in taxable accounts
- Large-cap value stocks can decline 25-35% during broad market downturns, with additional factor-specific risk if quantitative models fail to identify truly undervalued companies
Who Should Own This
Best suited for tactical allocation (10-25% of equity portfolio) by investors with 3-5 year time horizons seeking value factor exposure with reduced concentration risk. Medium-to-high risk tolerance required due to style and equal-weighting volatility. Works well as complement to core market-cap weighted holdings for investors implementing factor-based diversification strategies.