Is First Trust Japan AlphaDEX ETF (FJP) a Strong ETF Right Now?

The First Trust Japan AlphaDEX ETF (FJP), a smart beta fund tracking the NASDAQ AlphaDEX Japan Index, has delivered strong performance, gaining approximately 29.4% year-to-date and over the past year. While holding over $202.58 million in AUM and considered a medium-risk option with 102 holdings, its 0.80% expense ratio positions it as one of the most expensive in the Asia-Pacific (Developed) ETF category, notably higher than larger alternatives like BBJP (0.19%) and EWJ (0.50%). This high cost is a key consideration for investors seeking exposure to the Japanese market.

Analysis

The First Trust Japan AlphaDEX ETF (FJP) presents a clear trade-off between demonstrated performance and high costs. The fund has delivered significant returns, gaining approximately 29.4% year-to-date and over the past year, indicating its smart beta strategy, which uses the NASDAQ AlphaDEX methodology for stock selection, has been effective. This performance is coupled with a relatively low market beta of 0.58, suggesting lower volatility than the broader market, and a 2.16% trailing dividend yield. However, FJP's annual operating expense ratio of 0.80% positions it as one of the most expensive products in its category. This high fee structure stands in stark contrast to much larger and more liquid alternatives like the JPMorgan BetaBuilders Japan ETF (BBJP) and the iShares MSCI Japan ETF (EWJ), which have expense ratios of 0.19% and 0.50%, respectively. While FJP is well-diversified with 102 holdings and a low concentration in its top ten positions (17.54%), its asset base of $202.58 million is substantially smaller than its peers, which command over $14 billion each.

Key Decisions for Investors

• Investors prioritizing active management and willing to pay a premium for potential alpha could consider FJP, given its strong recent performance suggests its smart beta strategy is currently delivering results.
• Cost-sensitive investors should carefully weigh if the fund's historical outperformance justifies its high 0.80% expense ratio, especially when significantly cheaper and larger alternatives like BBJP and EWJ offer broad Japanese market exposure.
• Given the fund's medium-risk classification and 20.36% standard deviation, it is crucial to monitor whether the AlphaDEX methodology can consistently generate returns that overcome both its high fees and inherent volatility over the long term.