Launched on 04/18/2011, the First Trust Japan AlphaDEX ETF (FJP Quick QuoteFJP - Free Report) is a smart beta exchange traded fund offering broad exposure to the Asia-Pacific (Developed) ETFs category of the market.

What Are Smart Beta ETFs?

Market cap weighted indexes were created to reflect the market, or a specific segment of the market, and the ETF industry has traditionally been dominated by products based on this strategy.

Investors who believe in market efficiency should consider market cap indexes, as they replicate market returns in a low-cost, convenient, and transparent way.

However, some investors believe in the possibility of beating the market through exceptional stock selection, and choose a different type of fund that tracks non-cap weighted strategies: smart beta.

Based on specific fundamental characteristics, or a combination of such, these indexes attempt to pick stocks that have a better chance of risk-return performance.

The smart beta space gives investors many different choices, from equal-weighting, one of the simplest strategies, to more complicated ones like fundamental and volatility/momentum based weighting. However, not all of these methodologies have been able to deliver remarkable returns.

Fund Sponsor & Index

Managed by First Trust Advisors, FJP has amassed assets over $200.56 million, making it one of the average sized ETFs in the Asia-Pacific (Developed) ETFs. FJP seeks to match the performance of the NASDAQ AlphaDEX Japan Index before fees and expenses.

The NASDAQ AlphaDEX Japan Index is an enhanced index which employs the AlphaDEX stock selection methodology to select stocks from the NASDAQ Japan Index.

Cost & Other Expenses

When considering an ETF's total return, expense ratios are an important factor. And, cheaper funds can significantly outperform their more expensive cousins in the long term if all other factors remain equal.

Operating expenses on an annual basis are 0.80% for FJP, making it one of the most expensive products in the space.

It has a 12-month trailing dividend yield of 3.31%.

Sector Exposure and Top Holdings

While ETFs offer diversified exposure, which minimizes single stock risk, a deep look into a fund's holdings is a valuable exercise. And, most ETFs are very transparent products that disclose their holdings on a daily basis.

Looking at individual holdings, Nomura Holdings, Inc. (8604.JP) accounts for about 2.18% of total assets, followed by Lawson, Inc. (2651.JP) and Daiwa Securities Group Inc. (8601.JP).

Its top 10 holdings account for approximately 18.67% of FJP's total assets under management.

Performance and Risk

So far this year, FJP has added roughly 8.54%, and is up about 14.41% in the last one year (as of 07/18/2024). During this past 52-week period, the fund has traded between $46.81 and $55.30.

The fund has a beta of 0.63 and standard deviation of 18.69% for the trailing three-year period, which makes FJP a medium risk choice in this particular space. With about 102 holdings, it effectively diversifies company-specific risk.

Alternatives

First Trust Japan AlphaDEX ETF is a reasonable option for investors seeking to outperform the Asia-Pacific (Developed) ETFs segment of the market. However, there are other ETFs in the space which investors could consider.

JPMorgan BetaBuilders Japan ETF (BBJP Quick QuoteBBJP - Free Report) tracks MORNINGSTAR JAPAN TRGT MRKT EXPOSURE ID and the iShares MSCI Japan ETF (EWJ Quick QuoteEWJ - Free Report) tracks MSCI Japan Index. JPMorgan BetaBuilders Japan ETF has $12.40 billion in assets, iShares MSCI Japan ETF has $16.35 billion. BBJP has an expense ratio of 0.19% and EWJ charges 0.50%.

Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Asia-Pacific (Developed) ETFs.

Bottom Line

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