First Trust Emerging Markets Small Cap AlphaDEX Fund (FEMS) Covered Calls

The First Trust Emerging Markets Small Cap AlphaDEX Fund (FEMS) is an exchange-traded fund that provides exposure to small-capitalization stocks in emerging market economies. The fund utilizes the AlphaDEX selection methodology, which employs fundamental factors to identify and weight stocks with the greatest potential for capital appreciation. By focusing on the small-cap segment, FEMS offers a unique way to capture the growth potential of developing domestic markets.

You can sell covered calls on First Trust Emerging Markets Small Cap AlphaDEX Fund to lower risk and earn monthly income. Born To Sell's covered call screener gives you customized search capabilities across all possible covered calls but here are a couple of examples for FEMS (prices last updated Fri 4:16 PM ET):

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The First Trust Emerging Markets Small Cap AlphaDEX Fund (FEMS) is an "enhanced" index ETF that seeks to outperform traditional market-cap-weighted benchmarks by using a proprietary quantitative selection process. The fund tracks the NASDAQ AlphaDEX Emerging Markets Small Cap Index, which targets the small-cap segment of the emerging markets equity universe. Unlike standard index funds, FEMS uses a "smart beta" approach to tilt the portfolio toward stocks with favorable growth and value characteristics.

The AlphaDEX methodology ranks stocks based on growth factors (such as price appreciation and sales-to-price) and value factors (such as book value-to-price and cash flow-to-price). The top-ranked securities are then selected and divided into tiers, with higher-ranked stocks receiving a larger weighting. This systematic approach is designed to eliminate the potential biases of market-cap weighting, which often over-allocates to companies that have already experienced significant price runs but may have deteriorating fundamentals.

Core Business and Products

The core product of FEMS is its diversified portfolio of approximately 200 small-cap stocks from developing nations. The fund provides significant exposure to countries such as Taiwan, South Korea, Brazil, and Turkey. Because it focuses on small-cap companies, the portfolio is often more reflective of local domestic demand within these countries than large-cap indices, which are typically dominated by multinational exporters. Key sectors usually include Information Technology, Industrials, and Materials, reflecting the industrializing nature of the underlying economies.

Competitive Landscape

The emerging markets ETF space is dominated by massive, low-cost passive funds. FEMS competes by offering a specialized factor-based alternative for investors who believe that small-cap emerging stocks are a fertile ground for quantitative "alpha" (outperformance). Key competitors in the emerging markets and small-cap international space include:

1. Vanguard FTSE Emerging Markets ETF: The industry giant for broad emerging market exposure, tracking a market-cap-weighted index at a very low cost.
2. iShares MSCI Emerging Markets ETF: A highly liquid benchmark fund used by institutional traders to express broad views on the developing world.
3. iShares MSCI Emerging Markets Small-Cap ETF: A direct passive competitor that targets the same market-cap segment as FEMS but without the AlphaDEX factor tilting.
4. Schwab Fundamental Emerging Markets Large Company Index ETF: A competitor that also uses a "smart beta" strategy, though it focuses on larger companies based on fundamental size.
5. WisdomTree Emerging Markets SmallCap Dividend Fund: A thematic rival that focuses specifically on small-cap companies in emerging markets that pay dividends.

Strategic Outlook and Innovation

The strategic outlook for FEMS is closely tied to the global "risk-on" sentiment and the relative strength of the U.S. dollar. Small-cap emerging market stocks tend to be highly volatile and sensitive to global liquidity conditions. However, they also offer some of the highest potential returns during periods of synchronized global growth. The fund provider, First Trust, focuses on the rigor of the AlphaDEX engine to ensure that the portfolio remains disciplined and does not fall victim to the speculative "bubbles" that can sometimes form in smaller, less liquid international markets.

Innovation for this fund involves the continuous refinement of the quantitative factors used in the AlphaDEX model. As global accounting standards and reporting transparency improve in emerging markets, the fund can utilize more sophisticated data points to rank and select its holdings. Furthermore, the fund’s periodic rebalancing ensures that it can quickly exit stocks with declining fundamentals and pivot toward new growth leaders. This dynamic approach makes FEMS a tactical tool for investors looking to exploit inefficiencies in the often-overlooked small-cap segments of the world’s fastest-growing economies.

Want more examples? FEM Covered Calls | FENC Covered Calls