ETF Education Report: FIRST TRUST EMERGING MARKETS ALPHADEX FUND (FEM)

What this ETF is trying to do

The FIRST TRUST EMERGING MARKETS ALPHADEX FUND (ticker: FEM) is an exchange-traded fund (ETF) traded on the NASDAQ. While the specific investment strategy details are not listed in this report, ETFs like this one generally provide exposure to various companies within emerging markets.

What the numbers show

When looking at an ETF, it is important to understand two different types of returns: price return and total return.

• Price Return: This measures only the change in the share price.

• Total Return: This includes both the share price change and any cash distributions (dividends) paid out to investors.

For FEM, the numbers show growth over different time periods:

• Year-to-Date (YTD): The price return is approximately 21.94%, while the total return is approximately 23.89%.

• One Year: The price return is approximately 23.20%, while the total return is approximately 26.15%.

• Three Years: The price return is approximately 62.45%, while the total return is approximately 77.24%.

To visualize the price change, we can look at an estimated price from roughly one year ago. The estimated price was $27.07, and the current price is $33.35.

Income and distribution explanation

Some investors look for ETFs that pay out cash, known as distributions. FEM has a distribution yield of approximately 2.15%. This means the cash distributed is about 2.15% of the ETF's price. Over the last 12 months, there were 4 distributions, which usually happen every quarter.

It is important to remember that a distribution yield is not the same as total return. Total return tells you the full picture of how much value was created, including those cash payments.

NAV erosion explanation

"NAV erosion" is a term used to describe when the value of an ETF's underlying assets declines significantly. Investors often care about this because they want to keep their original investment (the principal) stable while collecting income.

For this ETF, the erosion-risk score is 100, and the label indicates "No price erosion detected." There is no severe erosion-risk flag for this fund.

Pros

• The ETF has shown positive price returns and total returns over the one-year and three-year periods.

• It provides regular distributions (usually quarterly).

Cons

• The provided data does not list any specific top holdings or the total number of companies held in the fund.

Beginner takeaway

When studying FEM, notice the difference between the share price movement and the total return. The total return is higher than the price return because it accounts for the cash distributions paid to investors. Always look at both numbers to understand how an ETF has performed overall.