Enhancing the Key Concepts of Traditional Indexing
Traditional indexing seeks to match the return of a broad market and does not attempt to beat the market. When seeking market outperformance, investors have commonly turned to active management. Unlike indexing, active management attempts to beat a benchmark index through security selection and, sometimes, market timing. Active portfolio management may result in high turnover and higher fees than indexed approaches, factors that may affect tax efficiency or cause a drag on investment returns.
We believe that the passive investing structure provided by indexing can be effective when attempting to generate above average returns by employing an enhanced indexing approach. Enhanced indexing takes traditional indexing one step further by attempting to identify those stocks within a broad-based index that exhibit the fundamental characteristics that provide the greatest potential for capital appreciation. Rather than replicating traditional index models, enhanced indexing builds on the basic principles of index construction with an emphasis on generating alpha. Alpha is a measure of the portion of a return arising
from non-market risk. In other words, alpha is an indication of how much an investment outperforms or
underperforms relative to its benchmark.
AlphaDEX® Enhanced Index ETFs
The First Trust AlphaDEX® exchange-traded funds are designed to track the performance of a group of custom "enhanced" indexes which employ the proprietary, rules-based AlphaDEX® fundamental stock selection methodology. The AlphaDEX® methodology is an investment process that seeks to produce similar correlation and risk characteristics as broad market indexes while seeking outperformance due to stock selection and weighting. The AlphaDEX® family of funds consists of a diverse range of sector, style, multi cap, and international funds.
Explore our AlphaDEX® family of Funds
You should consider a fund's investment objectives, risks, and charges and expenses carefully before investing. Contact First Trust Portfolios L.P. at 1-800-621-1675 or visit www.ftportfolios.com to obtain a prospectus or summary prospectus which contains this and other information about a fund. The prospectus or summary prospectus should be read carefully before investing.
A fund's shares will change in value, and you could lose money by investing in a fund. One of the principal risks of investing in a fund is market risk. Market risk is the risk that a particular stock owned by a fund, fund shares or stocks in general may fall in value.
A fund's return may not match the return of the underlying Index. A fund may not be fully invested at times. Securities held by a fund will generally not be bought or sold in response to market fluctuations and the securities may be issued by companies concentrated in a particular industry or country. A fund may invest in small capitalization and mid capitalization companies. Such companies may experience greater price volatility than larger, more established companies.
Investors buying or selling fund shares on the secondary market may incur customary brokerage commissions. Investors who sell fund shares may receive less than the share's net asset value. Shares may be sold throughout the day on the exchange through any brokerage account. However, shares may only be redeemed directly from the fund by authorized participants, in very large creation/redemption units.
An investment in a fund containing equity securities of foreign issuers is subject to additional risks, including currency fluctuations, political risks, withholding, the lack of adequate financial information, and exchange control restrictions impacting foreign issuers. These risks may be heightened for securities of companies located in, or with significant operations in, emerging market countries.
These funds are classified as "non-diversified." A non-diversified fund generally may invest a larger percentage of its assets in the securities of a smaller number of issuers. As a result, the Funds may be more susceptible to the risks associated with these particular companies, or to a single economic, political or regulatory occurrence affecting these companies.
First Trust Advisors L.P. is the adviser to the funds. First Trust Advisors L.P. is an affiliate of First Trust Portfolios L.P., the funds' distributor.
First Trust Portfolios L.P. has obtained a patent for the AlphaDEX® stock selection methodology from the United States Patent and Trademark Office.