New York, United States – The First Trust Multi Cap Value AlphaDEX Fund (FAB) offers investors exposure to a diverse range of nearly 700 U.S. stocks across various size segments, focusing on strong value characteristics. While it presents as a comprehensive solution for value investors, some drawbacks, such as its expense ratio of 0.64% and quarterly reconstitution schedule, have impacted its overall performance. As a result, a neutral “hold” rating may be most appropriate for this ETF.

FAB tracks the Nasdaq AlphaDEX Multi Cap Value Index, which selects stocks from three Nasdaq Indexes representing different size segments: Nasdaq US 500 Large Cap Value Index, Nasdaq US 600 Mid Cap Value Index, and Nasdaq US 700 Small Cap Value Index. This approach creates a true multi-cap fund, with different-sized stocks receiving target weights of 50%, 30%, and 20%, respectively.

The index ranks eligible stocks based on growth and value factors, with only top-ranked value stocks qualifying for inclusion. The quarterly reconstitution and rebalancing of the index contribute to a high portfolio turnover rate, approaching 100%. While this active management aspect of the ETF can be beneficial, it may limit the long-term impact of the strategy.

Performance analysis comparing FAB to low-cost value funds showed similar long-term returns but with higher volatility. While FAB managed to cover its fees with excess returns, it trailed the benchmark in the last ten years by 1.70% annually. The ETF underwent a change in the tracked index in April 2016, bringing uncertainty to its future strategy.

The fundamental analysis of FAB’s top sub-industries revealed its slightly higher volatility compared to the benchmark portfolio. Despite having a higher sector-adjusted value score, FAB lagged behind in its growth score. This suggests room for improvement in the selection of value stocks within specific sub-industries.

Investors may also consider alternative multi-cap funds like the Cambria Shareholder Yield ETF and Invesco High Yield Equity Dividend Achievers ETF for better performance. Each ETF presents different approaches that may align better with specific investment strategies.

In conclusion, while FAB offers a diverse portfolio across size segments, its performance and expenses warrant caution. Comparisons with peer ETFs and analysis of sector-adjusted scores provide additional insights for investors to consider. A “hold” recommendation stands, with continued monitoring and evaluation of its performance over time.