New ETFs On The Block: First Trust Eurozone Alphadex ETF (FEUZ)

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104700912European equities have performed well this year despite stubbornly low inflation in the European Union with the pan-European STOXX Europe 600 Index jumping 3.1 percent in November alone.

Since all the major EU economies are net importers of crude oil, falling gas prices in pumps are expected to boost consumer spending across the region, thus creating sustainable demand in the real-economy and pushing up price levels going forward. The European Central Bank has already cut interest rates to record low level while introducing negative interest rates in order to boost growth.

First Trust, the Wheaton, Il-based sixth largest US issuer of exchange-traded funds, recently launched the First Trust Eurozone AlphaDEX ETF (FEUZ) to take advantage of eurozone’s twin economic stimulus; loose monetary policy and low energy prices. FEUZ is First Trust’s first dedicated euro-area ETF that focuses on eurozone-domiciled companies.

The passively-managed FEUZ tracks the NASDAQ AlphaDEX Eurozone Index, an “enhanced” index that employs the AlphaDEX stock methodology to screen companies from the wide universe of NASDAQ Eurozone Index.

The AlphaDEX index ranks eligible stocks based on growth factors including 3-, 6- and 12-month price appreciation, trailing 12 months sales growth and sales to price ratio.

Additionally, value factors such as return on assets (ROA), price to book-value ratio (P/BV) and cash-flow to price ratio (CF/P) are also considered. Stocks are then ranked based on the sum of growth factors and value factors separately and the top 150 stocks are shortlisted for consideration. Stocks are then divided in quintiles based on their rankings and the top-quintile stocks are assigned greater weight. Stocks within each quintile, however, receive equal weight.

Stock weights are constrained by country/sector with cutoff set at 15 percent above the benchmark. The index is reconstituted and rebalanced semi-annually. The portfolio is well diversified with 148 holdings.

Neste Oil Oyj is the top pick with 1.38 percent weight, followed by UPM-Kymmene Oyj (1.33 percent), Teleperformance (1.29 percent), Volkswagen AG and Voestalpine AG (1.20 percent). Country-wise, European Union’s biggest economies Germany and France get the maximum allocation, followed by Italy, Spain and Belgium.

The fund is tilted toward financials (20.62 percent) while industrials (12.52 percent), materials (12.02 percent), utilities (11.21 percent), healthcare (10.28 percent) and consumer discretionary all (10.07 percent) all get double-digit allocations.

FEUZ has an annual expense ratio of 0.8 percent.

Disclosure: No holdings

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