First Trust Latin America AlphaDEX Fund (FLN)

The First Trust Latin America AlphaDEX Fund (ticker FLN) is an exchange-traded fund investing in stocks across Latin American countries using a rules-based selection approach that identifies undervalued stocks showing upward price momentum.

Which countries and companies does FLN actually hold?

FLN holds stocks from the largest Latin American economies, with heavy weight on Brazil and Mexico, the region’s two largest and most liquid stock markets. Holdings also include companies from Chile, Colombia, Peru, and Argentina, though these typically represent smaller positions. The fund is not required to hold stocks from every country, and the portfolio naturally tilts toward the markets with the deepest liquidity and the most companies to choose from. Brazil’s market is dominated by banking groups, energy companies (state-owned and private), mining operations, and large consumer businesses. Mexico’s market leans toward industrial manufacturers, telecommunications companies, and consumer goods makers. Together, these two countries typically represent the bulk of FLN’s portfolio, with smaller allocations to other regional players. This concentration in just two markets means FLN’s fate is closely tied to Brazil’s and Mexico’s economic outlooks and macroeconomic policies.

How does the AlphaDEX system actually work in Latin America?

FLN applies the same AlphaDEX methodology that First Trust uses in its Japan and UK funds, but adapted to the Latin American stock market. The system scans stocks across Latin America and ranks them on multiple factors: valuation (are they cheap relative to earnings, cash flow, or book value?), momentum (are they rising in price?), profitability (do they make real earnings?), financial stability (are they financially sound?), and other metrics developed by Research Affiliates. The algorithm then selects a portfolio of 80 to 120 stocks that score well on a blend of these signals, particularly favoring stocks that are both undervalued and showing positive price momentum. The underlying idea is straightforward: the best opportunities appear where markets have mispriced value—where stocks are both cheap and rising, suggesting the market is beginning to recognize the undervaluation. By requiring both value and momentum, the system tries to avoid the classic trap of catching falling knives (buying cheap stocks that keep getting cheaper) while still picking up stocks at reasonable entry points rather than waiting until the recovery is obvious and expensive.

The fund rebalances quarterly, meaning the algorithm re-runs and the portfolio adjusts accordingly. If valuations shift or momentum changes, holdings are sold and replaced. This mechanical approach removes human judgment from stock selection, which reduces the risk of behavioral mistakes but also means the fund has no ability to step outside the algorithm if its logic breaks down in a particular market environment. The AlphaDEX rule is disciplined and consistent, but it is only as good as the factors it was designed around, which perform well in some periods and disappoint in others.

What kinds of Latin American companies typically appear in FLN?

Latin American stocks are often highly cyclical and commodity-linked. Mining companies (copper, iron ore, precious metals), oil and gas producers (both state-owned and private), and agricultural exporters are common holdings because Latin America’s economies depend heavily on commodity exports. Banks dominate the financial sector and are frequent large holdings. Manufacturing, retail, utilities, telecommunications, and consumer goods round out typical sector exposures. Many of the companies in FLN are multinational operations with significant business outside Latin America, though they are headquartered and listed in the region—a global consumer goods company with Brazilian headquarters, for example. FLN does not own tiny companies or micro-cap startups. It sticks to the larger, more liquid parts of Latin American stock markets—companies with sufficient trading volume that the fund can buy and sell meaningful amounts without moving the market. This means the portfolio tends to include regionally important firms with global brands or significant market reach, rather than domestic-only retailers or local manufacturers with no scale beyond their home country.

What happens to FLN when currencies move or when politics gets messy?

Owning FLN means exposure to the currencies of Latin America, primarily the Brazilian real and Mexican peso. These currencies are volatile and sometimes move sharply when global risk appetite shifts or when commodity prices change—since many Latin American exports are commodities, their currencies typically strengthen when commodity prices rise and weaken when they fall. FLN does not hedge its currency exposure, so investors get the full effect of currency movements for better or worse. If the real strengthens against the dollar, that boosts returns. If it weakens, that hurts. The broader economic context matters enormously. Latin America has a long history of inflation, currency instability, and political uncertainty. Brazil has navigated these challenges more successfully than some neighbors over the past two decades, but remains exposed to commodity price swings and global growth slowdowns. Mexico’s economy is closely linked to the United States and can be affected sharply by US recession or policy shifts. Smaller countries in the region—Argentina, Venezuela—have faced periods of capital flight and extreme currency devaluation. These are not problems FLN can solve; they are the environment Latin American equities operate within. Investors must be comfortable with political and economic volatility before owning emerging-market funds. FLN is not a defensive holding for risk-averse portfolios. It is a higher-conviction bet that Latin American stock markets will deliver strong long-term returns despite periodic turbulence and currency swings.

How does FLN compare to simply buying a passive Latin America index fund?

FLN is not a passive index tracker. It is a concentrated bet that AlphaDEX’s value-and-momentum approach will identify outperforming stocks within Latin America. This is a riskier, more active choice than holding every major Latin American stock in market-cap proportions. If the AlphaDEX factors work, FLN should outperform a passive index fund. If they do not, FLN will lag and investors will have paid fees for underperformance. The fund’s expense ratio is moderate for an actively managed strategy, typically in the 0.5% to 0.8% range annually. This is higher than a passive Latin America index fund but lower than a traditional actively managed Latin America mutual fund with a human stock-picker. The key question is whether the active factor-based choices are worth the cost. Investors comparing FLN to a simple Latin America index fund should examine whether FLN’s factor bets have historically added value net of fees over rolling three, five, and ten-year periods. This depends partly on market luck and partly on whether the AlphaDEX factors truly identify mispriced stocks in the specific Latin American context, where less analyst coverage and information asymmetry may create opportunities, but also where political risk and currency volatility add complications that factor models cannot fully capture.

Who should consider owning FLN and how do I research it?

FLN appeals to investors who believe Latin American stocks are attractively valued as part of a diversified portfolio, want factor-based exposure (value plus momentum) rather than a passive index bet, and can tolerate significant currency volatility and political risk. It is not for conservative investors or those uncomfortable with emerging markets. To evaluate FLN, start with the fund’s fact sheet and prospectus on First Trust’s website. Examine the current holdings to understand which countries and sectors are represented—how much is Brazil versus Mexico, what is the exposure to energy versus banking versus consumer goods. Look at FLN’s historical returns versus a broad Latin America index fund over three, five, and ten-year periods to assess whether AlphaDEX’s factor approach has worked in this region. Research what is driving Latin American economies and currencies: commodity prices, US interest rates, political stability—these macro factors shape the environment that FLN’s holdings operate within. Finally, consider what percentage of your portfolio you are comfortable allocating to emerging markets generally, since FLN represents a concentrated slice of that exposure and carries real risks of currency depreciation and political shocks.