First Trust United Kingdom AlphaDEX Fund | research notes

First Trust United Kingdom AlphaDEX Fund: A Comprehensive Overview

Introduction

First Trust United Kingdom AlphaDEX Fund (FPX) is an actively managed exchange-traded fund (ETF) that provides investors with exposure to the larger companies in the United Kingdom stock market. The fund seeks to achieve long-term capital appreciation by investing in a portfolio of approximately 100 stocks that meet specific criteria.

Investment Strategy

FPX employs the AlphaDEX methodology, which selects stocks based on a combination of fundamental and technical factors. The fund's managers utilize a quantitative model to identify companies with:

• Strong financial performance
• High return on assets
• Low debt-to-equity ratios
• Favorable stock price momentum

The portfolio is reviewed and rebalanced quarterly to maintain alignment with these criteria.

Portfolio Composition

As of June 30, 2023, the top 10 holdings in the FPX portfolio include:

• BP PLC
• AstraZeneca PLC
• Unilever PLC
• Shell plc
• Rio Tinto Group
• BAE Systems PLC
• BHP Group Ltd.
• Diageo PLC
• Reckitt Benckiser Group PLC
• GlaxoSmithKline PLC

These holdings represent the largest and most successful publicly traded companies in the United Kingdom, spanning various industries such as energy, healthcare, consumer staples, and pharmaceuticals.

Performance

Since its inception in 2007, FPX has generated strong total returns. As of June 30, 2023, the fund has:

• Returned an average of 8.48% annually
• Outperformed the FTSE 100 Index by an average of 0.75% per year

Advantages

• Broad Market Exposure: Provides access to a diversified portfolio of leading UK companies.
• Active Management: Fund managers actively select and monitor stocks to enhance return potential.
• Cost-Effective: Lower expense ratio than actively managed mutual funds.
• Tax Efficiency: Structured as an ETF, offering potential tax advantages for certain investors.

Considerations

• Market Risk: The fund is exposed to fluctuations in the UK stock market.
• Active Management Fee: The fund incurs an expense ratio of 0.45%, which may impact overall returns.
• Currency Risk: The fund is denominated in British pounds, so fluctuations in the GBP/USD exchange rate can affect returns for non-UK investors.

Suitability

FPX is suitable for investors who:

• Seek long-term capital appreciation
• Have a tolerance for market volatility
• Believe in the potential of the UK stock market
• Prefer actively managed investments

Conclusion

First Trust United Kingdom AlphaDEX Fund provides investors with a well-diversified and actively managed exposure to the UK stock market. The fund's rigorous selection criteria and track record of outperformance make it a compelling investment option for those seeking long-term growth potential.

Business Model of First Trust United Kingdom AlphaDEX Fund Company

Overview

First Trust United Kingdom AlphaDEX Fund is a closed-end investment management company that invests primarily in a portfolio of UK large-cap and mid-cap stocks. It employs an actively managed approach to invest based on factors such as value, momentum, and quality.

Investment Strategy

The fund's investment strategy is based on the AlphaDEX stock selection methodology, which uses quantitative techniques to identify companies that exhibit certain characteristics associated with superior performance. These characteristics include:

• High return on equity (ROE)
• Strong cash flow generation
• Low debt-to-equity ratios
• Positive earnings surprises
• High analyst consensus

Revenue Model

The fund generates revenue primarily from the following sources:

• Investment returns on its portfolio of stocks
• Management fees charged to investors

Competitive Advantages

First Trust United Kingdom AlphaDEX Fund has several key competitive advantages over its competitors:

1. Quantitative Stock Selection Methodology:

• The AlphaDEX methodology provides a disciplined and systematic approach to stock selection, reducing potential biases and emotional decision-making.
• It identifies companies that have historically outperformed the market by focusing on specific financial characteristics.

2. Experienced Investment Team:

• The fund is managed by an experienced team of investment professionals with a track record of success in managing factor-based equity portfolios.
• They have a deep understanding of the UK market and the factors that drive stock performance.

3. Low Management Fees:

• The fund's management fees are lower than those of many competing actively managed funds, which can reduce investment costs for investors.

4. Tax Efficiency:

• The fund is structured as a closed-end investment company, which provides certain tax advantages to investors.
• Its dividends are eligible for the UK dividend allowance, and capital gains are potentially subject to a lower capital gains tax rate.

5. Diversified Portfolio:

• The fund's portfolio includes a wide range of UK large-cap and mid-cap stocks, providing diversification benefits to investors.
• This reduces the risk associated with any individual investment and enhances the overall portfolio return profile.

First Trust United Kingdom AlphaDEX Fund

Company Overview

• Ticker: FKUK
• Investment Type: Equity Fund
• Sector: International Equity
• Region: United Kingdom
• Inception Date: February 13, 2013

Investment Objective

The fund seeks to provide investment results that correspond generally to the price and yield performance of a core group of approximately 750 publicly-traded companies in the United Kingdom, as represented by the FTSE United Kingdom Index (the "Index").

Investment Strategy

The fund invests in a portfolio of securities that, in the opinion of the portfolio manager, are among the best in the United Kingdom stock market using a proprietary screening process called the AlphaDEX selection process. This process seeks to identify companies with:

• High Return on Assets (ROA)
• Low Debt-to-Equity Ratio
• High Profit Margins
• Consistent Earnings Growth
• Positive Earnings Surprises

Index

The fund's benchmark is the FTSE United Kingdom Index, which represents the performance of the largest 750 publicly-traded companies in the United Kingdom.

Fees and Expenses

• Expense Ratio: 0.58%
• Sales Load: None

Distributions

The fund pays dividends on a quarterly basis. The dividend yield is typically around 2-3%.

Performance History

Since its inception in 2013, the fund has outperformed its benchmark, the FTSE United Kingdom Index.

| | | | | | | | Year | FKUK Return | | Index Return | | Excess Return | | 2013 | 7.54% | | 6.21% | | 1.33% | | 2014 | 15.19% | | 11.59% | | 3.60% | | 2015 | -5.39% | | -4.59% | | -0.80% | | 2016 | 16.48% | | 14.17% | | 2.31% | | 2017 | 11.73% | | 9.77% | | 1.96% | | 2018 | -12.49% | | -10.64% | | -1.85% | | 2019 | 14.30% | | 12.09% | | 2.21% | | 2020 | 9.19% | | 11.95% | | -2.76% | | 2021 | 19.58% | | 14.36% | | 5.22% | | 2022 | -6.41% | | -5.93% | | -0.48% |

Outlook

The outlook for the First Trust United Kingdom AlphaDEX Fund is generally positive. The UK economy is expected to grow in the coming years, driven by consumer spending and business investment. The fund's focus on high-quality companies with strong fundamentals should continue to benefit investors over the long term.

Risks

• Company Risk: The fund is concentrated in a limited number of companies, which increases the risk of underperformance if any of those companies experience difficulties.
• Market Risk: The fund is subject to fluctuations in the overall stock market, which can impact its performance.
• Foreign Currency Risk: The fund invests in companies in the United Kingdom, which exposes it to fluctuations in the value of the British pound.
• Dividend Risk: The fund's dividends are not guaranteed and may fluctuate or be suspended.

Suitability

The First Trust United Kingdom AlphaDEX Fund is suitable for investors who:

• Are seeking exposure to the UK equity market
• Prefer a fund with a focus on high-quality companies
• Are willing to tolerate higher risk in exchange for the potential for higher returns
• Have a long-term investment horizon

Companies Similar to First Trust United Kingdom AlphaDEX Fund

1. iShares MSCI United Kingdom ETF (EWU)

• Homepage: https://www.ishares.com/us/products/etf/ewu
• Review: This ETF provides broad exposure to the UK stock market, tracking the MSCI United Kingdom Index. It offers low fees and high liquidity.

2. Vanguard FTSE All-World ex-US Small Cap Index Fund ETF (VSS)

• Homepage: https://investor.vanguard.com/investor-resources/education/understanding-investment-types/etfs/etf-strategy-guide/small-cap-etfs
• Review: This ETF includes exposure to small-cap stocks in the UK and other developed countries outside the US. It can add diversification to a portfolio.

3. SPDR S&P 500 ETF Trust (SPY)

• Homepage: https://www.spdrfunds.com/en/etf/spy
• Review: While not specifically focused on the UK, SPY provides exposure to the broader US stock market. It is one of the most widely traded ETFs and offers high liquidity.

4. Invesco QQQ Trust (QQQ)

• Homepage: https://www.invesco.com/qqq
• Review: QQQ tracks the Nasdaq-100 Index, which includes many large-cap technology companies. It can provide exposure to a segment of the UK market that is heavily involved in technology.

5. Global X MSCI United Kingdom Small Cap ETF (DUKW)

• Homepage: https://www.globalxetfs.com/dukw/
• Review: DUKW focuses on small-cap companies in the UK, providing exposure to a less-covered segment of the market. It can enhance portfolio diversification.

Why Customers May Like These Companies:

• Diversification: These ETFs offer exposure to different segments of the UK and international stock markets, reducing risk.
• Low Fees: Most of these ETFs have expense ratios below 0.5%, making them cost-effective investment options.
• Passive Investing: These ETFs track indices, providing a passive way to invest in the UK market without active management.
• Liquidity: The ETFs are widely traded, ensuring easy buying and selling when desired.
• Reputable Providers: All the mentioned companies are well-established and reputable ETF providers, giving investors confidence in the products.

Inception and Early Years (2004-2006)

• 2004: First Trust Advisors L.P., a US-based investment management firm, launched the First Trust United Kingdom AlphaDEX Fund (FTUK).
• The fund was designed to provide investors with exposure to the UK equity market using a quantitative indexing strategy known as AlphaDEX.

AlphaDEX Strategy

• AlphaDEX is a proprietary indexing methodology developed by First Trust Advisors.
• It aims to enhance the performance of a traditional market-capitalization-weighted index by overweighting stocks with favorable momentum, growth, and value characteristics.

Growth and Expansion (2007-2010)

• 2007: FTUK added an ETF share class (ticker: FUK), providing investors with a more flexible and liquid way to access the fund.
• The fund gained popularity among investors seeking exposure to the UK market with a focus on growth and value.
• Assets under management (AUM) increased significantly during this period.

Market Volatility and Recovery (2011-2015)

• 2011: FTUK experienced declines in AUM during the European debt crisis and subsequent market volatility.
• However, the fund's performance remained relatively stable compared to its peers.
• 2014-2015: AUM gradually recovered as the UK economy improved.

Brexit and Market Uncertainty (2016-2020)

• 2016: The UK's vote to leave the European Union caused significant market uncertainty.
• FTUK experienced outflows as investors became cautious about investing in UK equities.
• The fund's performance also suffered during this period.

Recent Developments (2021-Present)

• 2021: FTUK's performance improved following the UK's successful rollout of the COVID-19 vaccine.
• AUM increased as investors returned to the UK market.
• Present: First Trust United Kingdom AlphaDEX Fund remains a popular investment vehicle for investors seeking exposure to the UK equity market with a focus on growth and momentum.

Key Milestones:

• 2004: Fund launch
• 2007: Addition of ETF share class
• 2016: Brexit vote
• 2021: Improved performance and AUM growth
• Present: Continued popularity as an investment vehicle

Last Three Years

• 2019:
  • Launched the First Trust United Kingdom AlphaDEX Fund (FKU)
  • The fund outperformed the FTSE 100 Index by over 3% in its first year
• 2020:
  • The fund continued to outperform the FTSE 100 Index, delivering a total return of over 8%
• 2021:
  • The fund continued to perform well, despite market volatility, delivering a total return of over 6%

Recent Timelines

• December 2022:
  • The fund's assets under management exceeded $500 million
• March 2023:
  • The fund announced a distribution of $0.10 per share
• June 2023:
  • The fund launched a new index strategy, the FTSE 100 Value AlphaDEX Index

Exceptional Investment Solutions with First Trust United Kingdom AlphaDEX Fund

As a discerning investor, I am thrilled to share my glowing review of First Trust United Kingdom AlphaDEX Fund. Their unwavering commitment to delivering innovative and high-quality investment solutions has surpassed my expectations.

Innovative AlphaDEX Methodology

The cornerstone of First Trust's success lies in their proprietary AlphaDEX methodology. This cutting-edge approach identifies companies with strong earnings momentum, growth potential, and positive analyst sentiment. By systematically selecting stocks that meet these criteria, the fund consistently outperforms its benchmark indices.

Stellar Performance Track Record

The fund's performance has been nothing short of stellar. Over the past five years, it has consistently generated impressive returns, outpacing the FTSE All-Share Index by a significant margin. This consistent outperformance is a testament to the effectiveness of the AlphaDEX methodology and the fund's skilled management team.

Low Volatility and Risk

Despite its strong performance, the fund exhibits a relatively low level of volatility. This is achieved through a diversified portfolio of stocks, which helps to mitigate market fluctuations. The fund's risk-adjusted returns are exceptional, making it an ideal choice for investors seeking growth potential with controlled risk.

Excellent Customer Service

First Trust's commitment extends beyond its investment products. Their customer service is second to none. They are always responsive, knowledgeable, and eager to assist investors with any inquiries or concerns. This level of support provides peace of mind and enhances the overall investment experience.

Summary

In summary, I highly recommend First Trust United Kingdom AlphaDEX Fund to investors seeking exceptional investment solutions. Its innovative approach, track record of outperformance, low volatility, and excellent customer service set it apart from its peers. If you are looking for a fund that consistently delivers growth potential with controlled risk, First Trust United Kingdom AlphaDEX Fund deserves your serious consideration.

Discover Unrivaled Alpha Generation with First Trust United Kingdom AlphaDEX Fund

Are you seeking to enhance your portfolio's growth potential while mitigating risks? Look no further than the First Trust United Kingdom AlphaDEX Fund.

What is the AlphaDEX Methodology?

The AlphaDEX Fund employs the innovative AlphaDEX methodology, which combines:

• Fundamental Analysis: Selects companies with strong financial performance indicators.
• Technical Analysis: Identifies stocks with favorable momentum and trading patterns.
• Optimization: Creates a portfolio of stocks designed to maximize alpha, or excess return over the benchmark.

Why Choose the First Trust United Kingdom AlphaDEX Fund?

• Superior Alpha Generation: The AlphaDEX methodology has consistently outperformed the FTSE 100 Index, providing investors with enhanced returns.
• Broad Market Exposure: The fund invests in a diversified portfolio of UK-listed companies, allowing you to capture growth opportunities across various sectors.
• Risk Management: The AlphaDEX Fund employs robust risk management measures to limit downside volatility.
• Experienced Management: The fund is managed by First Trust, a reputable asset manager with a proven track record of success.

Benefits for Investors:

• Maximize Growth Potential: Tap into the AlphaDEX methodology's ability to consistently generate alpha.
• Diversify Your Portfolio: Gain exposure to a wide range of UK-listed companies, reducing your overall risk.
• Enhance Risk-Adjusted Returns: The AlphaDEX Fund's risk-managed approach provides attractive risk-adjusted returns.
• Professional Management: Benefit from the expertise of First Trust's experienced investment team.

Get Started Today

Visit the First Trust United Kingdom AlphaDEX Fund website at [website link] to learn more about how this innovative fund can help you achieve your financial goals.

Don't miss out on the opportunity to unlock superior alpha generation and enhance your portfolio's performance. Invest in the First Trust United Kingdom AlphaDEX Fund today!

Main Supplier of First Trust United Kingdom AlphaDEX Fund Company

Name: FTSE Russell

Website: https://www.ftserussell.com/

Services Provided:

• Index Calculation and Maintenance: FTSE Russell is responsible for calculating and maintaining the FTSE All-Share Index, which is the underlying benchmark for the First Trust United Kingdom AlphaDEX Fund.
• Data Provision: FTSE Russell provides First Trust with real-time and historical market data on the constituent stocks of the FTSE All-Share Index.
• Index Governance: FTSE Russell oversees the integrity and transparency of the FTSE All-Share Index, ensuring that it meets the highest standards of quality and objectivity.
• Consultation and Advisory Services: FTSE Russell works closely with First Trust to provide advice and guidance on index-related matters, including methodology, composition, and performance.

Key Features of the FTSE All-Share Index:

• Broad Market Coverage: The FTSE All-Share Index includes approximately 800 of the largest and most liquid stocks listed on the London Stock Exchange.
• Market Capitalization Weighted: The index is weighted by the market capitalization of its constituent stocks, meaning that larger companies have a greater influence on the overall performance.
• Sector and Industry Neutral: The index is designed to provide a broad representation of the UK stock market without bias towards any particular sector or industry.

How FTSE Russell's Services Benefit First Trust:

By partnering with FTSE Russell, First Trust gains access to:

• A widely recognized and trusted index provider with a long history of delivering accurate and reliable market data.
• A robust and transparent index that meets the specific needs of the fund's investment strategy.
• Expert advice and support from industry professionals who specialize in index creation and management.

Overall, FTSE Russell's role as a main supplier to First Trust United Kingdom AlphaDEX Fund Company ensures that the fund is able to track the performance of the underlying index effectively and transparently.

First Trust United Kingdom AlphaDEX Fund

Main Customer: Individual Investors

Description: The First Trust United Kingdom AlphaDEX Fund is an exchange-traded fund (ETF) that seeks to provide investment results that correspond generally to the price and yield performance of a benchmark index known as the AlphaDEX United Kingdom Index. The AlphaDEX index is a composite index developed by AlphaDEX, Inc. that measures the performance of approximately 100 large capitalization companies listed on the London Stock Exchange.

Website: https://www.firsttrust.com/funds/etfs/fund/fuky

Key Features:

• Tracks the AlphaDEX United Kingdom Index
• Provides exposure to large-cap UK stocks (companies with market capitalizations over £5 billion)
• High dividend yield
• Low expense ratio (0.5%)

Investment Approach:

The fund invests in stocks included in the AlphaDEX United Kingdom Index. The index is designed to provide exposure to a broad universe of UK large-cap companies while minimizing concentration risk. The index is constructed using a quantitative methodology that selects stocks based on factors such as value, momentum, quality, and technical factors.

Performance:

Since its inception in 2004, the First Trust United Kingdom AlphaDEX Fund has outperformed the FTSE 100 Index, a comparable index of UK large-cap stocks, by an average of 1.5% per year. The fund has also had a lower standard deviation of returns than the FTSE 100 Index, indicating that it has been less volatile.

Suitability:

The First Trust United Kingdom AlphaDEX Fund is suitable for investors who are seeking:

• Exposure to large-cap UK stocks
• High dividend yield
• Low expense ratio
• Low volatility

Key Revenue Stream: Management Fees

Estimated Annual Revenue: $4.4 million

First Trust United Kingdom AlphaDEX Fund generates revenue primarily through management fees charged to investors in its mutual funds. These fees are calculated as a percentage of the assets under management (AUM) and are intended to cover the costs of investment management and administration.

Calculation:

Management Fee = Average AUM x Management Fee Rate

As of December 31, 2023, the fund had an average AUM of $880 million. The management fee rate for the fund is 0.50%.

Management Fee = $880 million x 0.50% = $4.4 million

Therefore, First Trust United Kingdom AlphaDEX Fund is estimated to generate approximately $4.4 million in annual revenue from management fees.

First Trust United Kingdom AlphaDEX Fund

Key Partners

1. FTSE Russell

• Website: https://www.ftserussell.com/
• FTSE Russell is a global index provider and provider of data and analytics on financial markets and global economic trends. It provides the FTSE Developed Europe Index, the benchmark for the First Trust United Kingdom AlphaDEX Fund.

2. Northern Trust Corporation

• Website: https://www.northerntrust.com/
• Northern Trust Corporation is a global investment management and financial services company that serves institutions, families, and individuals. It provides custody and fund administration services for the First Trust United Kingdom AlphaDEX Fund.

3. BNY Mellon Investment Servicing

• Website: https://www.bnymellon.com/
• BNY Mellon Investment Servicing is a global investment servicing and asset management company that provides a range of services to institutional investors, including custody, fund administration, and performance measurement. It provides fund accounting and transfer agency services for the First Trust United Kingdom AlphaDEX Fund.

4. PricewaterhouseCoopers (PwC)

• Website: https://www.pwc.com/
• PwC is a global professional services network that provides assurance, tax, and consulting services to businesses, governments, and individuals. It provides audit and compliance services for the First Trust United Kingdom AlphaDEX Fund.

5. FundCount LLC

• Website: https://www.fundcount.com/
• FundCount LLC is a provider of fund accounting and administration software and services. It provides fund accounting and reporting services for the First Trust United Kingdom AlphaDEX Fund.

6. American Stock Transfer & Trust Company, LLC (AST)

• Website: https://www.astfinancial.com/
• AST is a provider of transfer agency and other investor services. It provides transfer agent and shareholder services for the First Trust United Kingdom AlphaDEX Fund.

7. UMB Bank, n.a.

• Website: https://www.umb.com/
• UMB Bank, n.a. is a financial services company that provides a range of services, including banking, trust, and investment services. It provides banking and cash management services for the First Trust United Kingdom AlphaDEX Fund.

Key Cost Structure and Estimated Annual Cost of First Trust United Kingdom AlphaDEX Fund

Expense Ratio: 0.69%

Management Fee: 0.60%

Other Expenses: 0.09%

Estimated Annual Cost:

For a $10,000 investment: $69

For a $100,000 investment: $690

Detailed Breakdown of Expenses:

Management Fee:

• This is the fee paid to the fund manager for managing the fund's assets.
• The management fee is typically a percentage of the fund's assets under management (AUM).

Other Expenses:

• These expenses include:
  • Custody fees: Fees paid to the custodian bank for holding the fund's assets.
  • Administrative fees: Fees related to the fund's administration, such as accounting and legal fees.
  • Marketing fees: Fees related to marketing the fund to potential investors.
  • Distribution fees: Fees related to the distribution of the fund's shares.
  • Other miscellaneous expenses: Any other expenses not included in the above categories.

How the Expense Ratio is Calculated:

The expense ratio is calculated by dividing the fund's total annual expenses by the fund's average daily net assets.

Impact of Expenses on Investment Returns:

Expenses can reduce the fund's overall investment returns. For example, if the fund has an expense ratio of 0.69%, and the fund's annual investment return is 10%, the net return to the investor will be 9.31% (10% - 0.69%).

Important Considerations:

• The expense ratio is an important factor to consider when investing in a mutual fund.
• Investors should compare the expense ratios of different funds before making an investment decision.
• Investors should also be aware that expenses can change over time.

Sales Channels

First Trust United Kingdom AlphaDEX Fund (FKU) is primarily distributed through the following sales channels:

• Financial Advisors: Financial advisors, including registered investment advisors (RIAs), broker-dealers, and independent broker-dealers, account for a significant portion of FKU's sales. They recommend the fund to their clients who are seeking exposure to the United Kingdom stock market.
• Institutional Investors: Banks, insurance companies, pension funds, and other institutional investors may invest in FKU as part of their broader investment strategies.
• Direct Sales: FKU also offers direct sales to investors through its website and customer service team. Individual investors can open accounts and purchase shares in the fund online or over the phone.
• Online Platforms: FKU is available for purchase on various online investment platforms and brokerage websites. This channel allows investors to access the fund easily and conveniently from their brokerage accounts.
• Retirement Accounts: FKU is eligible for investment in retirement accounts such as Individual Retirement Accounts (IRAs), 401(k) plans, and 403(b) plans. Investors can allocate funds from their retirement accounts into FKU to benefit from potential growth and diversification.

Estimated Annual Sales

The estimated annual sales of FKU vary depending on market conditions and investor demand. However, based on available data, the fund's sales have been as follows in recent years:

• 2023: $3.5 billion (estimated)
• 2022: $4.2 billion
• 2021: $5.1 billion
• 2020: $3.8 billion
• 2019: $4.5 billion

It's important to note that these are estimates and actual sales may fluctuate based on various factors. Investors should consult with a financial advisor to determine the suitability of FKU for their investment goals and portfolio.

First Trust United Kingdom AlphaDEX Fund

Customer Segments:

1. Institutions (Estimated $500 million in annual sales)

• Pension funds
• Endowments
• Foundations
• Insurance companies
• Banks

2. Financial Advisors (Estimated $250 million in annual sales)

• Registered investment advisors (RIAs)
• Broker-dealers
• Independent financial advisors (IFAs)

3. Individual Investors (Estimated $100 million in annual sales)

• High-net-worth individuals (HNWIs)
• Accredited investors
• Sophisticated investors

4. International Investors (Estimated $50 million in annual sales)

• Investors from the United Kingdom, Europe, and Asia

Estimated Annual Sales:

The estimated annual sales for the First Trust United Kingdom AlphaDEX Fund are approximately $900 million.

Target Market:

• Investors seeking exposure to UK stocks
• Investors looking for a high-quality, diversified portfolio
• Investors who prefer an index-based approach to investing
• Investors with a long-term investment horizon
• Investors who are comfortable with the potential for volatility

Product Features:

• Tracks the FTSE United Kingdom 100 AlphaDEX Index
• Invests in a portfolio of approximately 100 large-cap UK stocks
• Uses an AlphaDEX weighting approach to overweight stocks with higher expected returns
• Provides exposure to the UK's blue-chip companies
• Offers a low expense ratio of 0.45%

Benefits for Customers:

• Access to a diversified portfolio of UK stocks
• Potential for long-term capital appreciation
• Diversification benefits within the UK market
• Low cost of ownership
• Transparent and rules-based investment strategy

Value Proposition of First Trust United Kingdom AlphaDEX Fund

The First Trust United Kingdom AlphaDEX Fund (NYSE: FUK) is an actively managed exchange-traded fund (ETF) that seeks to provide investors with long-term capital appreciation by investing in a portfolio of large- and mid-capitalization United Kingdom (UK) stocks.

Key Features:

• Active Management: The fund is actively managed by First Trust Advisors L.P., which utilizes a proprietary AlphaDEX stock selection process to identify undervalued UK stocks with strong growth potential.
• Diversified Portfolio: The fund invests in a diversified portfolio of approximately 100 stocks, providing investors with broad exposure to the UK equity market.
• AlphaDEX Stock Selection: The AlphaDEX process evaluates stocks based on a combination of fundamental factors, including earnings momentum, price momentum, value, and quality.
• High Dividend Yield: The fund typically offers a higher dividend yield than the FTSE 100 Index, providing investors with a source of income.
• Low Expense Ratio: The fund has a low expense ratio of 0.50%, making it a cost-effective option for investors.

Target Market:

The First Trust United Kingdom AlphaDEX Fund is suitable for investors who:

• Seek long-term capital appreciation through investment in the UK equity market.
• Value active management and a proprietary stock selection process.
• Prefer a diversified portfolio with a high dividend yield.
• Are comfortable with the risks associated with investing in international stocks.

Performance:

Since its inception in 2007, the First Trust United Kingdom AlphaDEX Fund has outperformed the FTSE 100 Index on a total return basis.

Investment Strategy:

The fund's investment strategy involves the following steps:

• Universe Selection: The investable universe includes large- and mid-capitalization UK stocks with a market capitalization of at least £1 billion.
• Stock Selection: Stocks are selected based on the AlphaDEX process, which evaluates each stock on a variety of fundamental factors to identify undervalued companies with strong growth potential.
• Portfolio Construction: The fund's portfolio is constructed to provide a balance of growth and value stocks, with a focus on companies that are undervalued relative to their peers.
• Active Management: The fund's portfolio is actively managed by First Trust Advisors L.P., which monitors market conditions and makes adjustments to the portfolio as necessary.

Risks:

Investing in the First Trust United Kingdom AlphaDEX Fund involves the following risks:

• Equity Risk: The fund invests in equity securities, which can fluctuate in value and may result in losses.
• International Risk: The fund invests in UK stocks, which can be affected by political, economic, and currency fluctuations.
• Active Management Risk: The fund is actively managed, and its performance may vary depending on the skill of the investment team.

First Trust United Kingdom AlphaDEX Fund

Investment Objective: The fund's investment objective is to seek long-term capital appreciation by providing exposure to large- and mid-capitalization equity securities of companies domiciled in the United Kingdom that exhibit positive price momentum.

Risk Factors:

Market Risk: The value of the fund's investments may fluctuate due to changes in the overall stock market, economic conditions, interest rates, and other factors.

Equity Risk: The fund invests primarily in common stocks, which are subject to market fluctuations and may lose value.

International Risk: The fund invests in companies located in the United Kingdom, which may be subject to different political, economic, and regulatory environments than the United States. This can introduce risks such as currency fluctuations, economic instability, and political uncertainty.

Currency Risk: The fund invests in investments denominated in British pounds. Fluctuations in the value of the British pound relative to the U.S. dollar may negatively impact the fund's performance.

AlphaDEX Risk: The fund's AlphaDEX methodology involves selecting stocks based on price momentum, which may not be a reliable indicator of future performance. This can introduce additional risk and volatility to the fund.

Concentration Risk: The fund may invest a significant portion of its assets in a limited number of companies, which can increase the volatility of the fund's performance.

Liquidity Risk: The fund's investments may be subject to liquidity risk, which means that they may be difficult to sell quickly at a reasonable price.

Political and Economic Risk: The fund's investments are subject to the political and economic risks of the United Kingdom, which may include changes in government policy, economic instability, or political unrest.

Management Risk: The fund's performance is dependent on the skill and experience of the fund's management team. Poor investment decisions could negatively impact the fund's performance.

Tracking Error Risk: The fund's performance may not track perfectly to its benchmark index, leading to potential underperformance or overperformance.

Additional Considerations:

• The fund is actively managed, which means that the portfolio manager makes investment decisions on behalf of investors.
• The fund has a relatively high expense ratio of 0.88%, which may reduce returns.
• The fund has a minimum investment requirement of $10,000.

Conclusion:

The First Trust United Kingdom AlphaDEX Fund offers exposure to large- and mid-capitalization equity securities of companies domiciled in the United Kingdom that exhibit positive price momentum. However, it is important to be aware of the risks associated with the fund, including market risk, equity risk, international risk, currency risk, AlphaDEX risk, concentration risk, liquidity risk, political and economic risk, management risk, and tracking error risk. Investors should carefully consider these risks before investing in the fund.