First Trust Japan AlphaDEX Fund (FJP)

The First Trust Japan AlphaDEX Fund (ticker FJP) is an exchange-traded fund that buys stocks in Japan using a computer rule designed to find companies that look undervalued and are rising in price at the same time.

FJP holds about 80 to 120 stocks from across Japan’s market. It does not try to own every Japanese company or match the biggest market index. Instead, it uses a system called AlphaDEX to pick a smaller group of stocks that meet two conditions: they look cheap on standard measures like price relative to earnings, and they are going up in price recently.

The stocks in FJP come from all over Japan’s economy. You get banks, automakers, industrial companies, real estate firms, food makers, retail stores, and more. The fund cannot be too concentrated in any one sector, so it holds positions across the whole market. But the AlphaDEX rule decides which specific companies actually make it into the fund’s portfolio.

AlphaDEX is a computer program, not a person. It looks at signals developed by Research Affiliates, a research company, and ranks Japanese stocks on things like: Are they cheap? Are they rising? Do they make real earnings? Are they financially stable? The program picks stocks that score well on a mix of these signals, especially stocks that are cheap but rising. The thinking is simple: a cheap stock that is also rising might mean the market is waking up to the fact that it is worth more than people thought. That combination is what the program hunts for.

The AlphaDEX rule is mechanical. It runs the same way every quarter when the fund rebalances. First Trust does not have a team of Japan experts arguing about whether to buy a specific stock. The rule decides. You get discipline and lower fees than you would with active stock-picking, but you also get zero special insight if the rule stops working in a particular market environment.

Japan’s market is huge—the second-largest in Asia after China. There is no shortage of companies to choose from. Japanese stocks are priced in yen, so when a US investor buys FJP, you are betting on both the Japanese stock market and the yen currency. If the yen gets stronger, that is good for your returns. If it gets weaker, that hurts. FJP does not try to neutralize the currency effect. You get the full impact either way.

FJP charges a modest expense ratio, typically around 0.4% to 0.7% per year. That covers everything—management, administration, no surprises. The fund trades on US stock exchanges during the day like any other ETF. You can buy or sell whenever the market is open. Liquidity is reasonable but not enormous. The bid-ask spread—the difference between what buyers offer and what sellers want—can be wider in FJP than in larger Japan funds, so check before trading big amounts.

FJP does not pay much of a dividend. Japanese companies historically pay smaller dividends than US companies do. Your return comes from stock prices rising.

Here is the core bet: FJP is not trying to match all of Japan. It is betting that a smaller list of undervalued, rising stocks will beat the broad market over time. That is a more concentrated bet, and it can easily fail. If cheap stocks stay cheap and do not rise as expected, FJP will lag. If momentum stocks suddenly reverse, FJP suffers. The fund is also more volatile than a Japan index fund because it holds fewer stocks and is betting on a specific factor combination working.

Japan’s economy has been slow-growing for decades. The country faces an aging population that is shrinking, tough competition from Asia, and a government saddled with massive debt. These are not problems FJP can fix. They are the permanent backdrop. Investors need to accept that owning Japanese stocks means accepting these long-term headwinds on top of the specific bet that the AlphaDEX rule will work.

FJP works best for investors who believe in Japan as part of a diversified portfolio and think that a rules-based, value-plus-momentum approach beats the broad market. It is more daring than a simple Japan index fund, and it carries real risk that the rule does not deliver as hoped.

To research FJP, read the fact sheet and prospectus on the First Trust website. Look at the actual stocks the fund has held to see what kinds of Japanese companies the rule tends to pick. Compare FJP’s returns over the past three, five, and ten years against a basic Japan index fund. Did the AlphaDEX bet actually pay off? Finally, learn how AlphaDEX works from Research Affiliates’ website. Read their white papers explaining the factors. This will help you understand what FJP is betting on and whether you agree with that bet.