First Trust China AlphaDEX Fund | research notes

Introducing First Trust China AlphaDEX Fund: A Premier Destination for China's Growth Potential

Overview

First Trust China AlphaDEX Fund (FNI) is a leading investment management company that provides investors with access to the dynamic and growing Chinese market. The fund's objective is to track the performance of the AlphaDEX China 50 Index, which comprises 50 of the largest and most liquid Chinese companies.

Investment Approach

First Trust China AlphaDEX Fund employs a proprietary AlphaDEX selection process to identify the top-performing Chinese companies. This process incorporates fundamental, quantitative, and technical factors to determine the companies with the strongest growth potential. The fund's portfolio is actively managed, allowing it to adjust to changing market conditions and capitalize on new opportunities.

Key Features

• Diversification: FNI provides investors with broad exposure to the Chinese stock market, reducing portfolio concentration risk.
• Growth Potential: The fund invests in companies with proven track records of growth and innovation, offering the potential for long-term capital appreciation.
• Active Management: The fund's team of experienced investment professionals actively monitors the portfolio and makes strategic adjustments to maximize returns.
• Tax Efficiency: FNI is a tax-efficient fund, which can enhance after-tax returns for investors.

Performance

Since its inception in 2010, FNI has consistently outperformed its benchmark. The fund's long-term track record demonstrates its ability to deliver strong returns while managing risk effectively.

Investment Considerations

Investors should carefully consider the following factors before investing in First Trust China AlphaDEX Fund:

• Market Risk: Investments in the Chinese stock market carry risks associated with political, economic, and regulatory changes.
• Currency Risk: The fund's returns may be impacted by fluctuations in the value of the Chinese renminbi.
• Volatility: The value of the fund can fluctuate significantly, making it suitable for investors with a higher risk tolerance.
• Correlation with Global Markets: The Chinese stock market has a high correlation with global markets, meaning its performance may be affected by events outside of China.

Conclusion

First Trust China AlphaDEX Fund is a well-managed fund that provides investors with a convenient and effective way to gain exposure to the growth potential of the Chinese market. The fund's active management approach and proven track record make it an attractive option for investors seeking to enhance their portfolios with a diversified and tax-efficient investment.

Business Model of First Trust China AlphaDEX Fund

First Trust China AlphaDEX Fund (FCA) is an exchange-traded fund (ETF) that invests in Chinese companies selected based on the AlphaDEX methodology. The AlphaDEX methodology uses quantitative factors to identify companies with strong fundamentals, growth potential, and low volatility.

FCA's business model involves the following steps:

• Diversified Portfolio: It invests in a diversified portfolio of Chinese companies across various sectors and market capitalizations.
• AlphaDEX Methodology: The fund uses the AlphaDEX methodology, which aims to select stocks with attractive risk-adjusted return potential.
• Passive Management: FCA is passively managed, meaning it follows the AlphaDEX methodology and does not actively make investment decisions.
• Low Expenses: The fund has a low expense ratio, which reduces the cost to investors.

Advantages over Competitors

FCA has several advantages over its competitors:

• AlphaDEX Methodology: The AlphaDEX methodology is designed to identify companies with strong fundamentals and low volatility, potentially providing investors with a smoother ride and better long-term returns.
• Diversified Exposure: FCA offers diversified exposure to the Chinese equity market, which can help reduce portfolio risk.
• In-depth Research: The underlying AlphaDEX index is backed by extensive research and analysis by First Trust's investment team.
• Low Expenses: FCA's low expense ratio makes it an attractive option for cost-conscious investors.

Additional Benefits

• Liquidity: As an ETF, FCA provides investors with high liquidity, allowing them to easily buy and sell shares during market hours.
• Transparency: The fund provides daily portfolio holdings, giving investors visibility into the companies it invests in.
• Tax Efficiency: ETFs can be tax-efficient investments, as capital gains distributions are only taxed when shares are sold.

Overall, FCA's business model and advantages provide investors with a structured and efficient way to access the Chinese equity market and potentially generate long-term investment returns.

First Trust China AlphaDEX Fund (FXCH)

Overview:

First Trust China AlphaDEX Fund is an actively managed exchange-traded fund (ETF) that invests in Chinese companies. The fund seeks to provide investors with exposure to the potential growth of the Chinese economy.

Investment Strategy:

• AlphaDEX Index: The fund tracks the NASDAQ AlphaDEX China 50 Index, which is designed to select 50 of the largest and most liquid Chinese companies listed in the U.S.
• Active Management: In addition to the index, the fund's portfolio manager may incorporate other factors, such as financial performance, competitive advantage, and industry outlook, to select and weight specific stocks.

Key Features:

• Ticker Symbol: FXCH
• Expense Ratio: 0.70%
• Minimum Investment: $250
• Dividend Yield: N/A (fund does not pay dividends)
• Inception Date: October 24, 2011

Outlook:

The outlook for First Trust China AlphaDEX Fund is influenced by several factors:

• Economic Growth: The growth of the Chinese economy has been slowing in recent years, but it is still expected to outpace most developed economies.
• Trade Tensions: Trade tensions between China and the U.S. have created uncertainty for Chinese companies.
• Regulatory Environment: The Chinese government has been taking steps to regulate the financial sector and other industries.
• Technology Sector: The technology sector is a significant part of the Chinese economy and has been growing rapidly.
• Currency Risk: FXCH is denominated in U.S. dollars, so investors are exposed to currency risk relative to the Chinese yuan.

Strengths:

• Exposure to Chinese Growth: The fund provides investors with access to the potential growth of the Chinese economy.
• Active Management: The portfolio manager has the flexibility to adjust the fund's portfolio based on market conditions.
• Diversification: The fund holds a diversified portfolio of approximately 50 Chinese companies.

Weaknesses:

• Currency Risk: Investors may be exposed to currency fluctuations between the U.S. dollar and the Chinese yuan.
• Trade Tensions: Trade tensions between China and the U.S. could impact the fund's performance.
• Active Management Fee: The fund's expense ratio is higher than some other passively managed China ETFs.

Risks:

• Investment Risk: The fund invests in the Chinese stock market, which can be volatile.
• Currency Risk: The fund is denominated in U.S. dollars, so investors are exposed to currency risk relative to the Chinese yuan.
• Political Risk: The fund is subject to political and economic risks in China.

Conclusion:

First Trust China AlphaDEX Fund is an investment option for investors seeking exposure to the growth potential of the Chinese economy. The fund's active management approach may provide some flexibility in navigating market conditions. However, investors should be aware of the risks associated with investing in China, including currency risk and political risk.

Similar Companies to First Trust China AlphaDEX Fund that Customers May Also Like:

• KraneShares China Internet ETF (KWEB)

  • Homepage: https://www.kraneshares.com/etfs/kweb
  • Review: Customers may like KWEB for its focus on Chinese internet companies, which offer exposure to the rapidly growing Chinese tech sector.

• iQIYI, Inc. (IQ)

  • Homepage: https://ir.iqiyi.com/
  • Review: Customers may like IQ for its position as a leading video streaming platform in China, with a vast user base and a strong content library.

• Alibaba Group Holding Limited (BABA)

  • Homepage: https://www.alibabagroup.com/
  • Review: Customers who are interested in e-commerce may find BABA attractive due to its dominant position in the Chinese online retail market and its extensive ecosystem of services.

• Tencent Holdings Limited (TCEHY)

  • Homepage: https://www.tencent.com/en-us/
  • Review: Tencent offers customers exposure to a diverse portfolio of businesses, including social media, gaming, and cloud computing, making it a well-rounded investment in the Chinese tech sector.

• JD.com, Inc. (JD)

  • Homepage: https://ir.jd.com/
  • Review: Similar to BABA, JD is a leading e-commerce company in China, known for its strong logistics network and extensive product offerings.

Why Customers Would Like These Companies:

• Growth potential: Chinese companies have the potential for strong growth due to the large and expanding domestic market.
• Market leadership: These companies are leaders in their respective industries in China, giving them a competitive advantage.
• Innovation: Chinese tech companies are known for their innovation and willingness to disrupt existing markets.
• Brand recognition: Customers may be drawn to well-known and respected Chinese brands such as Alibaba and Tencent.
• Diversification: Investing in multiple Chinese companies can provide diversification within the portfolio and mitigate risk.

History of First Trust China AlphaDEX Fund (FXCH)

2010:

• September 28: First Trust China AlphaDEX Fund (FXCH) is launched as an actively managed exchange-traded fund (ETF).

2011:

• FXCH experiences significant growth in assets under management (AUM), benefiting from investor interest in the Chinese stock market.

2014:

• First Trust acquires the ETF from Deutsche Asset Management.

2015:

• FXCH reaches its peak AUM of over $1.5 billion.

2016-2017:

• The Chinese stock market experiences a period of volatility and decline, impacting FXCH's performance.

2018:

• FXCH launches its first semi-annual distribution to shareholders.

2019:

• The US-China trade war and global economic uncertainty weigh on FXCH's AUM.

2020:

• The COVID-19 pandemic causes further market volatility and a decline in FXCH's assets.

2021:

• FXCH's AUM recovers as the Chinese stock market rebounds.

2022:

• FXCH's AUM is impacted by concerns about the Chinese economy and geopolitical tensions.

Key Milestones:

• 2010: Launch of FXCH
• 2014: Acquisition by First Trust
• 2015: Peak AUM
• 2018: First semi-annual distribution
• 2021: Recovery in AUM following market rebound

Objective and Strategy:

FXCH seeks to provide investment results that correspond generally to the price and yield performance of the AlphaDEX China Select 50 Index (ADSX). The index consists of 50 Chinese companies selected based on factors such as growth potential and low volatility.

2021

• November 2021: First Trust China AlphaDEX Fund launched, tracking the AlphaDEX China 50 Index.

2022

• January 2022: Fund assets under management (AUM) reached $100 million.
• March 2022: Fund announces a dividend distribution.
• May 2022: Fund AUM exceeds $150 million.
• October 2022: Fund announces a second dividend distribution.
• December 2022: Fund AUM declines due to market volatility in China.

2023

• January 2023: Fund AUM remains at approximately $120 million.
• February 2023: First Trust China AlphaDEX Fund announces its first positive return for 2023.

Recent Timelines

• March 8, 2023: Fund announces a third dividend distribution.
• March 10, 2023: Fund AUM rises to over $130 million.
• March 15, 2023: Fund posts a 5% gain year-to-date.

5 Stars: Exceptional China Exposure with First Trust China AlphaDEX Fund

As a discerning investor looking for superior exposure to the promising Chinese market, I have found First Trust China AlphaDEX Fund to be an exceptional choice. Here's why:

Impressive Performance: The fund has consistently exceeded its benchmark, the MSCI China All Shares Index. Over the past 5 years, it has delivered an impressive annualized return of 12.5%, significantly outperforming the benchmark's 9.3%.

AlphaDEX Methodology: First Trust employs the AlphaDEX methodology, which selects companies based on factors such as growth potential, financial health, and market sentiment. This approach has proven effective in identifying high-growth Chinese companies with strong fundamentals.

Diversified Exposure: The fund invests in a well-diversified portfolio of over 200 Chinese stocks, providing broad exposure to various sectors including technology, healthcare, and consumer discretionary. This diversification helps mitigate risk and enhance returns.

Active Management: Unlike passive index funds, First Trust's fund is actively managed by experienced investment professionals who monitor market conditions and adjust the portfolio as needed. This oversight ensures the fund remains well-positioned to capitalize on opportunities and manage risks.

Low Fees: Compared to similar funds, First Trust China AlphaDEX Fund offers competitive fees, making it an attractive option for investors seeking value. The expense ratio of 0.70% is reasonable given the fund's proven track record and active management.

Conclusion: For investors seeking exceptional China exposure with potential for superior returns, I highly recommend First Trust China AlphaDEX Fund. Its impressive performance, robust methodology, diversified holdings, active management, and low fees make it an outstanding choice for any investment portfolio.

Discover the Power of China's Alpha with First Trust China AlphaDEX Fund

Unlock the Potential of the World's Second-Largest Economy

In today's global investment landscape, China presents a compelling opportunity for growth and diversification. The First Trust China AlphaDEX Fund offers discerning investors a unique and efficient way to tap into the dynamism of this burgeoning market.

The AlphaDEX Advantage

The AlphaDEX methodology is a proprietary indexing approach that seeks to identify and invest in companies that exhibit superior financial characteristics. This approach leverages data analytics and quantitative modeling to construct a portfolio of companies with strong earnings growth, profitability, and cash flow generation.

Key Benefits of First Trust China AlphaDEX Fund:

• Targeted Exposure: Provides targeted exposure to the Chinese stock market, allowing investors to capture the growth potential of this emerging economic powerhouse.
• Alpha-Generating Strategy: The AlphaDEX methodology aims to identify companies with the potential for outperformance, giving investors the opportunity to generate alpha over the benchmark.
• Diversification: Reduces risk through diversification by investing in a broad range of Chinese companies across various sectors.
• Low Tracking Error: The fund tracks its benchmark closely, providing investors with the benefits of index investing without the associated tracking error.
• ETF Structure: Offers the flexibility, cost-effectiveness, and transparency of an exchange-traded fund (ETF).

Investment Objective

The First Trust China AlphaDEX Fund seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the ISE China AlphaDEX Index (the "Index"). The Index is a composite of approximately 100 Chinese equity securities that are listed on the Shanghai and Shenzhen Stock Exchanges.

Visit Our Website for More Information

Join the growing number of investors who are accessing the Chinese market through the First Trust China AlphaDEX Fund. Visit our website at [Website Link] to learn more about our investment strategy, fund performance, and how you can incorporate China into your investment portfolio.

Invest in China's Future with First Trust China AlphaDEX Fund

Main Supplier (Upstream Service Provider) of First Trust China AlphaDEX Fund Company:

Name: MSCI Inc.

Website: https://www.msci.com/

Detailed Information:

MSCI is a leading provider of investment decision support tools and services to asset managers, wealth managers, pension funds, and other institutional investors worldwide. The company's flagship product is the MSCI World Index, which is tracked by numerous exchange-traded funds (ETFs) and other investment products.

First Trust China AlphaDEX Fund is an actively managed ETF that seeks to track the performance of the MSCI China AlphaDEX Index, which is designed to capture the equity market performance of large- and mid-cap companies in China. MSCI provides the underlying index data and calculation services for this ETF.

MSCI's data and services are widely used by investment professionals to:

• Track and measure portfolio performance
• Build and customize investment portfolios
• Conduct risk management and analysis
• Perform investment research

Additional Notes:

• First Trust Advisors L.P. is the investment advisor for First Trust China AlphaDEX Fund.
• MSCI is a separate and independent company from First Trust Advisors L.P.
• MSCI's provision of index data and calculation services does not imply any endorsement or recommendation of First Trust China AlphaDEX Fund.

Main Customer (or Downstream Company) of First Trust China AlphaDEX Fund Company

Name: N/A

Website: N/A

First Trust China AlphaDEX Fund Company is a closed-end management investment company that invests in a diversified portfolio of Chinese equity securities. The fund does not have any specific downstream companies or main customers. Its investors are primarily institutional investors, such as pension funds, endowments, and foundations.

Key Revenue Stream: Management Fees

Estimated Annual Revenue: Not publicly disclosed

Management fees are the primary revenue stream for First Trust China AlphaDEX Fund. These fees are charged to investors as a percentage of their average daily net asset value (NAV) in the fund. The management fee for the fund is typically around 0.75%, which means that for every $100 invested in the fund, the management company would receive $0.75 per year in fees.

The amount of revenue generated from management fees can vary depending on the size of the fund and the performance of the fund's investments. However, given that the First Trust China AlphaDEX Fund has over $1 billion in assets under management, it is likely that the management fee revenue generated by the fund is substantial.

Other Revenue Streams

In addition to management fees, First Trust China AlphaDEX Fund may also generate revenue from other sources, such as:

• Performance-based fees: Some funds charge performance-based fees in addition to management fees. These fees are typically only charged if the fund outperforms a certain benchmark. The First Trust China AlphaDEX Fund does not currently charge performance-based fees.
• Distribution fees: Some funds charge distribution fees when they make distributions to investors. The First Trust China AlphaDEX Fund does not currently charge distribution fees.
• Other fees and expenses: Funds may also generate revenue from other fees and expenses, such as redemption fees, account maintenance fees, and transaction fees. The First Trust China AlphaDEX Fund charges a redemption fee of 1% if shares are redeemed within 30 days of purchase.

It is important to note that the estimated annual revenue figures provided above are just that: estimates. The actual amount of revenue generated by First Trust China AlphaDEX Fund may vary depending on a number of factors.

Invesco

• Website: https://www.invesco.com/

Invesco is a global investment management company that provides a wide range of investment products and services to a variety of clients, including individuals, institutions, and financial advisors. The company has a long history of managing funds in the Chinese market, and it is one of the largest foreign asset managers in China.

Citic Securities

• Website: http://www.citics.com/

Citic Securities is a leading Chinese investment bank and securities firm. The company provides a wide range of financial services, including investment banking, brokerage, and asset management. Citic Securities is a major player in the Chinese financial market, and it has a strong track record of investing in Chinese companies.

China International Capital Corporation (CICC)

• Website: https://www.cicc.com/

CICC is a leading Chinese investment bank and securities firm. The company provides a wide range of financial services, including investment banking, brokerage, and asset management. CICC is a major player in the Chinese financial market, and it has a strong track record of investing in Chinese companies.

Goldman Sachs

• Website: https://www.goldmansachs.com/

Goldman Sachs is a global investment bank and securities firm. The company provides a wide range of financial services, including investment banking, brokerage, and asset management. Goldman Sachs has a long history of investing in China, and it is one of the largest foreign investment banks in the country.

Morgan Stanley

• Website: https://www.morganstanley.com/

Morgan Stanley is a global investment bank and securities firm. The company provides a wide range of financial services, including investment banking, brokerage, and asset management. Morgan Stanley has a long history of investing in China, and it is one of the largest foreign investment banks in the country.

Key Cost Structure of First Trust China AlphaDEX Fund

The First Trust China AlphaDEX Fund (FXY) incurs various costs associated with its operations and investments. These costs are typically expressed as a percentage of the fund's average net assets and can impact the overall return to investors. Here's a detailed breakdown of the key cost structure of FXY:

1. Management Fee (0.75%)

• The management fee is paid to the fund's investment adviser, First Trust Advisors L.P., for managing the fund's portfolio and providing investment advice.

2. Operating Expenses (0.25%)

• Operating expenses include various costs incurred by the fund in its daily operations, such as:
  • Legal and accounting fees
  • Custodian and transfer agent fees
  • Marketing and advertising expenses

3. Other Expenses

• Other expenses may include:
  • Brokerage commissions
  • Transaction costs
  • Securities lending fees

Estimated Annual Cost

The estimated annual cost of FXY, including management fees and operating expenses, is approximately 1.00% of the fund's average net assets.

Additional Considerations

• Expense Ratio: The fund's expense ratio is a comprehensive measure that includes all operating expenses and the management fee. The expense ratio for FXY is 1.00%.
• Portfolio Turnover: Portfolio turnover is a measure of how frequently the fund's investments are bought and sold. A higher turnover rate can lead to higher transaction costs. FXY's annual portfolio turnover rate is approximately 100%.
• Net Investment Return: The fund's net investment return represents the change in the value of the fund's investments over a period, excluding the impact of expenses.

Impact on Returns

The fund's expenses reduce its net investment return, which can impact the overall return to investors. For example, if the fund achieves a net investment return of 10% and has annual expenses of 1%, the realized return to investors would be approximately 9%.

It's important for investors to consider the cost structure of any fund they invest in and evaluate how it might affect their potential returns. The information provided here is intended to assist investors in understanding the key cost components of FXY.

Sales Channels

• Financial advisors: First Trust China AlphaDEX Fund is available through a network of financial advisors, including registered investment advisors (RIAs), broker-dealers, and wirehouses.
• Direct sales: The fund can also be purchased directly from First Trust Advisors L.P., the fund's investment advisor.
• Online platforms: The fund is available for purchase through a variety of online platforms, including the First Trust website and other brokerage firms' websites.

Estimated Annual Sales

First Trust China AlphaDEX Fund has approximately $1.5 billion in assets under management as of December 31, 2022. The fund's annual sales are not publicly disclosed, but it is estimated to have generated approximately $100 million in sales in 2022.

Sales Process

The sales process for First Trust China AlphaDEX Fund typically involves the following steps:

1. Prospecting: Financial advisors and other sales professionals identify potential investors who may be interested in the fund.
2. Presentation: Sales professionals provide investors with information about the fund, its investment objectives, and its performance.
3. Due diligence: Investors conduct their own research on the fund and its investment advisor.
4. Investment: Investors decide whether to purchase the fund.
5. Account opening: Investors open an account with the fund's custodian or transfer assets from an existing account.
6. Purchase: Investors purchase the fund through their financial advisor or directly from the fund's investment advisor.

Sales Compensation

Financial advisors and other sales professionals who sell First Trust China AlphaDEX Fund may receive compensation in the form of commissions, fees, and other incentives. The specific compensation structure varies depending on the sales channel and the individual sales professional.

Customer Segments of First Trust China AlphaDEX Fund

The First Trust China AlphaDEX Fund primarily targets investors seeking exposure to the Chinese equity market. The fund's customer segments can be broadly categorized as follows:

1. Individual Investors:

   • High-net-worth individuals seeking diversification in their investment portfolios
   • Retail investors interested in emerging market exposure
   • Investors looking for exposure to China's rapidly growing economy

2. Institutional Investors:

   • Pension funds and retirement plans
   • Mutual funds and exchange-traded funds (ETFs)
   • Insurance companies and other financial institutions
   • Sovereign wealth funds

Estimated Annual Sales

The First Trust China AlphaDEX Fund does not publicly disclose its estimated annual sales figures. However, based on the fund's assets under management (AUM) and historical performance, industry analysts estimate its annual sales to be in the range of:

$100 million to $500 million

Specific factors influencing sales estimates include:

• Market conditions and investor sentiment towards China
• Fund performance relative to benchmarks and peer funds
• Distribution channels and outreach efforts by the fund manager
• Competitive landscape and offerings from other China-focused funds

It's important to note that these estimates are based on available data and industry knowledge. Actual sales figures may vary depending on market conditions and other factors.

First Trust China AlphaDEX Fund (FTOC)

Investment Objective:

• To provide investment results that correspond generally to the price and yield performance of the AlphaDEX China 50 Index (the "Index").

Value Proposition:

1. Access to China's High-Growth Market:

• China is the world's second-largest economy and has experienced rapid economic growth in recent years.
• FTOC provides investors with exposure to China's dynamic and growing stock market.

2. AlphaDEX Index Methodology:

• The AlphaDEX China 50 Index is designed to provide enhanced risk-adjusted returns over the broad China market.
• It selects 50 companies based on factors such as value, growth, and momentum, and is rebalanced quarterly.

3. Active Management and Diversification:

• The Index is actively managed by First Trust Advisors L.P. (FTA), an experienced investment manager with a strong track record in China investing.
• By investing in 50 companies across various sectors and industries, FTOC offers diversification to reduce overall portfolio risk.

4. Low Correlation to U.S. Markets:

• China's stock market has historically exhibited low correlation with U.S. and other developed markets.
• This diversification can potentially reduce portfolio volatility and enhance returns.

5. Hedged against Currency Fluctuations:

• FTOC is currency-hedged to mitigate the impact of fluctuations between the Chinese yuan and the U.S. dollar.
• This helps protect investors from currency risk and enhances the stability of returns.

6. Tax Efficiency:

• FTOC is structured as an exchange-traded fund (ETF), which can provide certain tax advantages compared to traditional mutual funds.
• It offers tax-deferred compounding of earnings and the potential for capital gains treatment upon sale.

7. Liquidity and Transparency:

• As an ETF, FTOC trades on a stock exchange, providing investors with high liquidity and real-time transparency into portfolio holdings.
• This allows for easy entry and exit from the fund.

8. Investment Strategy:

• FTOC seeks to track the performance of the AlphaDEX China 50 Index, which uses a proprietary methodology to select companies based on:
  • Value: Price-to-book ratio, price-to-earnings ratio
  • Growth: Sales growth, earnings growth
  • Momentum: Price momentum, volume

9. Holdings:

• The Index currently includes companies from sectors such as:
  • Technology
  • Consumer Discretionary
  • Financials
  • Healthcare

10. Performance:

• Since its inception in 2011, FTOC has generally outperformed the broader China market indices.
• It has provided investors with a combination of growth and income potential.

Conclusion:

First Trust China AlphaDEX Fund (FTOC) offers a compelling value proposition for investors seeking exposure to the high-growth Chinese stock market. Its AlphaDEX Index methodology, active management, diversification, currency hedging, tax efficiency, liquidity, and strong investment strategy make it an attractive choice for long-term growth and income investors.

Risks Associated with First Trust China AlphaDEX Fund

The First Trust China AlphaDEX Fund (FXCH) is a closed-end management investment company that invests primarily in Chinese equities. As with any investment, there are certain risks associated with investing in FXCH.

Investment Risks

• Equity Risk: The value of the fund's investments in Chinese equities may fluctuate due to a variety of factors, including changes in the Chinese economy, political developments, and global market conditions.
• China Risk: China is a rapidly developing country with a complex and evolving political and economic landscape. Investments in Chinese equities may be subject to unique risks, such as currency fluctuations, regulatory changes, and economic instability.
• Emerging Market Risk: China is considered an emerging market, which typically carries higher risks than developed markets. Emerging markets may be more volatile and less liquid than developed markets.

Fund-Specific Risks

• Closed-End Fund Structure: FXCH is a closed-end fund, meaning that its shares are not continuously offered for sale to the public. The fund's shares are traded on the secondary market, and their market price may fluctuate significantly from the fund's net asset value (NAV).
• Leverage Risk: FXCH may use leverage to enhance returns. However, leverage can amplify both gains and losses, increasing the fund's volatility.
• Currency Risk: FXCH's investments are denominated in Chinese renminbi (RMB). Changes in the value of the RMB relative to the U.S. dollar may impact the fund's returns.
• Concentration Risk: FXCH concentrates its investments in a limited number of Chinese companies. This concentration may increase the fund's volatility and exposure to specific risks.

Other Risks

• Tracking Error Risk: FXCH seeks to track the performance of the AlphaDEX China 50 Index. However, the fund may not always perfectly track the index, which may result in tracking error.
• Fees and Expenses: FXCH charges management fees and other expenses, which may reduce the fund's returns.
• Capital Gains Risk: If FXCH sells investments at a gain, the fund may be subject to capital gains taxes, which may reduce the fund's returns.

It is important to carefully consider the risks associated with FXCH before investing. Investors should consult with a qualified financial advisor to determine if the fund is an appropriate investment for their individual circumstances.