First Trust reveals European ETF plans

First Trust’s chief executive said: “We have potentially a lot of investors in Europe who like the Alphadex model.

“We have also seen strong inflows into our Europe Alphadex fund in the States, but at the moment there is no option for European investors in their home market, so this is something we’re hoping to launch by the end of the year.”

Last year, First Trust launched three ETF funds domiciled in Ireland and listed on the LSE tracking respectively US large cap stocks, emerging markets and UK indices, while the firm already operates a Europe Alphadex fund in the US, which has a market cap of $759.54m.

The firm’s first year results published this month showed its US large cap ETF outperformed the benchmark by 3.31 per cent over the year to 9 April 2014, and the UK ETF outperformed the FTSE all share index by 10.53 per cent over the same period, while the emerging market ETF underperformed the MSCI emerging market index by 4.81 per cent.

Traditional ETFs tend to weight stocks based on market cap share of an index, which Eric Anderson, portfolio manager at First Trust, said can result in some ETFs being overweight in overvalued stocks “simply because they are the largest companies”.

However, First Trust’s Alphadex model weights stocks in an index according to six criteria: price momentum, sales growth, price to sales ratio, price to book ratio, price to cash flow ratio and return on assets.

Mr Fulton added that First Trust would like to launch ETFs in the US small cap, US sector specific and European country specific spaces at some point in the future.

Adviser view

Justin King, managing director of Dorset-based Mfp Wealth Management, said: “I’m a fan of value-based investing and am a big proponent of French and Farmer, and the research they’ve done. I don’t know of many offerings available in that space, so more in this area sounds interesting.”