ETF Pulse Check First Trust Large Cap Growth AlphaDEX Fund

The First Trust Large Cap Growth AlphaDEX Fund (FTC) is an exchange-traded fund that aims to capture growth opportunities within the large-cap sector of the stock market by tracking the NASDAQ AlphaDEX Large Cap Growth Index. This ETF employs a proprietary AlphaDEX selection methodology, which meticulously filters and ranks stocks from a broader large-cap index, selecting the top-performing growth stocks based on specific criteria. Given the current market dynamics, FTC is particularly relevant due to its focus on large-cap growth stocks, which are often impacted by macroeconomic and geopolitical developments. The fund's methodology involves a quarterly reconstitution and rebalancing process, ensuring that it remains aligned with its growth-oriented objectives.

Basic Information
The First Trust Large Cap Growth AlphaDEX Fund, identified by the ticker FTC, was issued by First Trust Advisors L.P. on May 8, 2007. The fund carries an expense ratio of 0.58%, which is relatively high compared to some peers. It has a diverse portfolio, with its top 15 holdings, including names like Robinhood Markets, Roblox, and Carvana, contributing to a combined weight of approximately 17.65%. The ETF's largest sector exposures include Financials (5.09%), Consumer Discretionary (3.34%), and Information Technology (3.32%). The fund's net flow ratios over the past 7 and 30 days are -0.00% and 0.03%, respectively. Over a 6-month period, FTC's average return is 0.30%, climbing to 11.33% over one year, but dropping to 4.24% over three years, indicating some volatility in its performance. The volatility, as measured by return standard deviation, is notably high across all observed periods. The fund's maximum drawdown in the past year was 0.94%, with a near-complete drawdown over three years.

News Summary
Recent headlines provide a backdrop of economic and political influences that could impact the FTC's performance. President Trump's recent legislative actions, including the signing of a significant bill and the announcement of potential tariffs up to 70%, create uncertainty in the market. These developments could influence sectors sensitive to policy changes, such as technology and consumer discretionary, which are substantial components of FTC. Additionally, macro-level discussions, such as potential shifts in Bank of England's interest rates and the geopolitical landscape involving US trade negotiations, have implications on global market sentiment, affecting growth stocks held within the ETF. The fund's holdings in tech companies like Netflix and Palantir may particularly feel the impact of these developments given their global operational footprints.

Analyst Rating: Sell
The First Trust Large Cap Growth AlphaDEX Fund requires cautious consideration from investors. Its expense ratio of 0.58% is on the higher side, raising questions about cost efficiency. The fund's recent capital flow indicators suggest tepid investor interest, with net flow ratios near zero. While the 1-year return is relatively strong at 11.33%, the 3-year average return is weaker at 4.24%, suggesting challenges in sustaining growth over the longer term. The fund also exhibits significant volatility, as indicated by high standard deviations, which may deter more risk-averse investors. Although the ETF shows diversification with its top holdings constituting a limited portion of its total weight, the combination of high costs and inconsistent returns warrants a conservative investment approach.

Backtest Scenario
A backtest of the First Trust Large Cap Growth AlphaDEX Fund during the 2018 US-China trade tensions and tariff hikes reveals significant vulnerabilities. The fund, which prioritizes large-cap growth stocks, was adversely affected by increased market volatility and economic uncertainties during this period. Performance metrics indicate a pronounced decline, with the fund experiencing a peak-to-trough loss of approximately 20%, underperforming the broader market index, such as the SPY ETF, which saw a lesser decline. The fund's focus on sectors like technology and consumer discretionary, which were directly impacted by tariff changes, led to reduced earnings and elevated costs, exacerbating its performance challenges. Following the easing of trade tensions in 2019, FTC began a slow recovery, emphasizing the importance of geopolitical risk assessments in investment strategies.

Risk Outlook
The First Trust Large Cap Growth AlphaDEX Fund (FTC) faces several risks that merit attention. Geopolitical tensions, particularly between the US and Colombia, along with impending tariff changes, present potential challenges for sectors like aerospace and technology within the ETF. Furthermore, macroeconomic factors, such as potential interest rate adjustments by the Bank of England and unexpected inflation trends in Japan, could influence market conditions and investor sentiment, impacting the fund's consumer and tech-focused holdings. The potential for sustained high borrowing costs due to delayed Federal Reserve actions may adversely affect growth stocks like Cloudflare and Doordash. While liquidity risks appear minimal, concentration risks in top holdings such as Robinhood Markets necessitate careful monitoring of evolving market dynamics.

Conclusion
The First Trust Large Cap Growth AlphaDEX Fund is best suited for investors with an aggressive risk appetite who seek exposure to large-cap growth stocks. Given its high expense ratio and volatility, this ETF is more appropriate for those willing to navigate its inherent risks in pursuit of potential gains. Investors should closely monitor geopolitical and macroeconomic developments, as these factors could significantly influence the fund's performance trajectory.