Non-U.S. Small-Cap Focus Through AlphaDEX: An FDTS Assessment

Investors looking beyond the U.S. to diversify into international small-cap equities seek both growth opportunities and diversification benefits. How does the First Trust Developed Markets ex-US Small Cap AlphaDEX? Fund (FDTS) perform in the current market environment? A review of its sector weights and its rule-based stock selection sheds light on what matters now.

Key FDTS portfolio points
- Industrials: ca. 25,02 % Gewichtung
- Materials: ca. 15,53 % Gewichtung
- Cyclical consumer goods: ca. 14,91 % Gewichtung
- Regional emphasis: Japan and South Korea
- Total Expense Ratio (TER): 0,80 %

Cyclicality drives the allocation
The fund currently exhibits a pronounced tilt toward cyclical sectors. The industrials sector alone accounts for about a quarter of the holdings. Together with positions in materials and cyclical consumer goods, the ETF?s sensitivity to economic developments in developed markets outside the United States is notable. Japan and South Korea stand out as prominent regional focuses within the strategy.

The AlphaDEX approach in detail
Unlike traditional ETFs that weight holdings by market capitalization, FDTS employs a quantitative stock-selection framework. The process draws its candidates from the Nasdaq Developed Markets ex-US Index and ranks them using growth and value factors.

But is this rule-based method the key advantage over purely passive index funds? The approach incorporates growth indicators such as recent price performance and revenue growth, alongside value metrics like price-to-book and cash flow. With a total expense ratio of 0,80 %, the ETF is priced above many purely passive products, reflecting the active nature of its stock-picking methodology.

What investors should take into account
Although there are no specific dates set in February for rebalancing the underlying index, the AlphaDEX strategy calls for a systematic review of the holdings. Market watchers in this space are increasingly monitoring capital flows into international small-cap stocks, as such flows can signal shifts in investor sentiment. The forthcoming adjustments to the index composition will reveal whether the heavy concentration in industrials remains appropriate given the global macro landscape.