First Trust, the Wheaton, Ill.-based firm that sponsors a
popular Internet-linked ETF (NYSEArca:FDN), filed paperwork with
U.S. regulators to market an agriculture-focused equities ETF
that's built around its alpha-seeking AlphaDex indexing
The registration statement for the First Trust Global
Agriculture AlphaDex ETF comes just two months after the company
filed similar paperwork to market a broader commodities fund that
would also tap into agriculture-linked securities, but that would
also include exposure to precious metals, base metals and energy
First Trust already sponsors more than two dozen AlphaDex funds
that serve up everything from country-specific portfolios to size
and style strategies to sector ETFs, the first of which was rolled
out back in 2007. But the company has yet to venture into the
The new agriculture ETF will track a NYSE Euronext index from
its StrataQuant Index Series, which is a fundamentally weighted
benchmark that picks agriculture stocks of companies involved in
the sector globally, and that may generate positive alpha relative
to traditional passive indexes.
First Trust's agriculture fund would join a growing roster of
equities-based ETFs that tap into the space, such as the $5.76
billion Market Vectors Agribusiness (NYSEArca:MOO), the PowerShares
Global Agriculture Portfolio (NasdaqGM:PAGG) and the iShares MSCI
Global Agriculture Producers (NYSEArca:VEGI).
But First Trust AlphaDex methodology adds a quasi-active element
that the competing funds, which are purely beta strategies, don't
Overall, the segment has performed largely in line with the
broader stock market as measured by the S&P 500 Index. MOO and
PAGG have both climbed 10.8 percent year-to-date. The $5 million
VEGI has slid 0.72 percent since its Jan. 31 launch, as it missed
out on rallying stocks in the first month of the year.
Even though the newcomer seems to serve up very similar country
exposure and carry similar weightings to top holdings such as
Monsanto and Potash Corp. as its more established counterparts do,
VEGI has the biggest portfolio, with 168 securities compared with
MOO's 49 holdings and PAGG's 47.
The Inner Workings
First Trust's AlphaDex methodology seeks to generate extra
returns relative to conventional beta market
capitalization-weighted indexes by employing an active security
selection process that hones in on alpha-producing stocks.
To be included in the mix, companies need to meet minimum
liquidity requirements as well as have a market capitalization of
at least $1 billion. Still, companies smaller than that will be
included if the eligible universe of stock falls below the 47 the
fund hopes to hold, the filing said.
The selected securities are then ranked on growth and value
factors such as price appreciation over a certain period; sales
growth, book value in relation to price; and return on assets, to
name a few. Only those ranking within the top 75 percent of all
stocks in the group will make it into the fund.
Finally, the portfolio is split into quintiles, with the
top-ranked securities representing a third of the mix, followed by
four other smaller groups based on rankings. Stocks are equally
weighted within each quintile.
The filing, which says the fund will replicate as fully as
possible its benchmark, leaves the door open to the use of
derivatives instruments in the portfolio if First Trust deems it
First Trust didn't disclose tickers or fees.
Permalink | 'copy; Copyright 2009 IndexUniverse LLC. All rights
Don't forget to check IndexUniverse.com's ETF Data
2012 IndexUniverse LLC
. All Rights Reserved.