Rule 497(k)
File No. 333-171759
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First Trust
Exchange-Traded AlphaDEX® Fund II
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SUMMARY PROSPECTUS
First Trust Emerging Markets Small Cap AlphaDEX® Fund
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Ticker Symbol:
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FEMS
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Exchange:
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The Nasdaq Stock Market LLC
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Before you invest, you may want to review the Fund’s prospectus, which contains more information about the Fund and its risks. You can find the Fund’s statutory prospectus and other information about the Fund, including the statement of additional information and most recent reports to shareholders, online at www.ftportfolios.com/retail/ETF/ETFfundnews.aspx?Ticker=FEMS. You can also get this information at no cost by calling (800) 621-1675 or by sending an e-mail request to info@ftportfolios.com. The Fund’s prospectus and statement of additional information, both dated May 1, 2023, are all incorporated by reference into this Summary Prospectus.
May 1, 2023
Investment Objective
The First Trust Emerging Markets Small Cap AlphaDEX® Fund (the “Fund”) seeks investment results that correspond generally to the price and yield (before the Fund’s fees and expenses) of an equity index called the Nasdaq AlphaDEX® Emerging Markets Small Cap Index (the “Index”).
Fees and Expenses of the Fund
The following table describes the fees and expenses you may pay if you buy, hold and sell shares of the Fund. Investors may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and example
below.
Shareholder Fees
(fees paid directly from your investment)
(fees paid directly from your investment)
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Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)
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None
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Annual Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your investment)
(expenses that you pay each year as a percentage of the value of your investment)
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Management Fees
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0.80%
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Distribution and Service (12b-1) Fees
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0.00%
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Other Expenses
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0.00%
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Total Annual Fund Operating Expenses
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0.80%
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Example
The example below is intended to help you compare the cost of investing in the Fund with the cost of investing in other funds.
The example assumes that you invest $10,000 in the Fund for the time periods indicated and then hold or sell all of your shares
at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain at current levels. Although your actual costs may be higher or lower, based on these assumptions your costs
would be:
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1 Year
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3 Years
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5 Years
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10 Years
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$82
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$255
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$444
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$990
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Portfolio Turnover
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Fund shares are held in a taxable
account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 117% of the average value of its portfolio.
Principal Investment Strategies
The Fund will normally invest at least 90% of its net assets (including investment borrowings) in the securities that comprise
the Index. The Fund, using an indexing investment approach, attempts to replicate, before fees and expenses, the performance of the Index.
The Index is owned and is developed, maintained and sponsored by Nasdaq, Inc. (the “Index Provider“). The Index Provider may, from time to time, exercise reasonable discretion as it deems appropriate in order to ensure Index integrity.
The Index is composed of securities issued by small cap companies operating in emerging market countries, as classified by
the Index Provider. The Index Provider classifies a country as "emerging" based on a number of criteria, including national income per
capita, national market capitalization and national trading volume. Companies are classified as operating in a country primarily by
their country of incorporation, domicile and primary exchange listing. The Index may be composed of securities denominated in non-U.S. currencies.
According to the Index Provider, the Index is designed to select stocks from the Nasdaq Emerging Markets Index (the “Base Index”) that may generate positive alpha, or risk-adjusted returns, relative to traditional indices through the use of the AlphaDEX® selection methodology. Alpha is an indication of how much an investment outperforms or underperforms on a risk-adjusted basis relative
to its benchmark. The Base Index is a comprehensive, rules-based index designed to measure stock market performance of companies
in emerging market countries, as determined by the Index Provider. The Index may be composed of, but not limited to, common stocks,
depositary receipts, real estate investment trusts ("REITs") and preferred securities.
According to the Index Provider, security selection for the Index will be conducted in the following manner:
1.
The selection universe for the Index begins with all stocks in the Base Index.
2.
The Index Provider then removes any stocks which do not trade on an eligible exchange; duplicate (multiple share classes)
stocks; stocks which do not meet the Index Provider’s liquidity screens; and stocks with a market capitalization greater than the mid cap breakpoint (50th percentile) and less than the small cap breakpoint (90th percentile) as calculated by Nasdaq. As of March 31, 2023, the mid cap breakpoint was $3.548 billion and the small cap breakpoint was $432 million. The Index Provider may include stocks above the mid cap breakpoint in order to reach a predetermined minimum number of eligible stocks.
3.
The remaining stocks in the universe are then ranked on both growth and value factors. Each stock receives the best style rank from this step as its selection score.
4.
The top 200 stocks based on the selection score determined in step 3 comprise the “selected stocks.” The selected stocks are then split into quintiles based on their selection score, with higher scoring quintiles receiving a greater weight
in the Index.
5.
The Index is subject to sector/country weighting constraints which are set at 15% above the sector/country percentages of the Base Index. A stock will be moved to a lower-weighted quintile when its weight, added to the weight assigned to all higher ranking stocks in its sector/country, is greater than the sector/country weighting constraint. Stocks that fail the sector/country weighting constraints at the lowest quintile will be removed from the Index.
The Index is rebalanced and reconstituted semi-annually and the Fund will make corresponding changes to its portfolio shortly
after the Index changes are made public. The Index’s semi-annual rebalance and reconstitution schedule may cause the Fund to experience a higher rate of portfolio turnover. The Fund will be concentrated in an industry or a group of industries to the extent that
the Index is so concentrated. As of March 31, 2023, the Index was composed of 200 securities and the Fund had significant investments
in Taiwanese issuers, Turkish issuers and Asian issuers, although this may change from time to time. In order to gain exposure
to certain Chinese companies that are included in the Index but are unavailable to direct investment by foreign investors, the Fund invests
significantly in non-Chinese shell companies that have created structures known as variable interest entities (“VIEs”) in order to gain exposure to such Chinese companies. The Fund’s investments will change as the Index changes and, as a result, the Fund may have significant investments in jurisdictions or investment sectors that it may not have had as of March 31, 2023. To the extent
the Fund invests a significant portion of its assets in a given jurisdiction or investment sector, the Fund may be exposed to the risks
associated with that jurisdiction or investment sector.
Principal Risks
You could lose money by investing in the Fund. An investment in the Fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other governmental agency. There can be no assurance that the Fund’s investment objective will be achieved. The order of the below risk factors does not indicate the significance of any particular risk
factor.
ASIA RISK. The Fund is subject to certain risks specifically associated with investments in the securities of Asian issuers. Many Asian
economies have experienced rapid growth and industrialization, and there is no assurance that this growth rate will be maintained.
Some Asian economies are highly dependent on trade, and economic conditions in other countries within and outside Asia can
impact these economies. Certain of these economies may be adversely affected by trade or policy disputes with its major trade partners.
There is also a high concentration of market capitalization and trading volume in a small number of issuers representing a
limited number of industries, as well as a high concentration of investors and financial intermediaries. Certain Asian countries have experienced
and may in the future experience expropriation and nationalization of assets, confiscatory taxation, currency manipulation, political
instability, armed conflict and social instability as a result of religious, ethnic, socio-economic and/or political unrest.
In particular, escalated tensions involving North Korea and any outbreak of hostilities involving North Korea could have a severe adverse
effect on Asian economies. Governments of certain Asian countries have exercised, and continue to exercise, substantial influence over
many aspects of the private sector. In certain cases, the government owns or controls many companies, including the largest in
the country. Accordingly, government actions could have a significant effect on the issuers of the Fund’s securities or on economic conditions generally. Recent developments in relations between the U.S. and China have heightened concerns of increased tariffs and restrictions
on trade between the two countries. An increase in tariffs or trade restrictions, or even the threat of such developments,
could lead to a significant reduction in international trade, which could have a negative impact on the economy of Asian countries and
a commensurately negative impact on the Fund.
AUTHORIZED PARTICIPANT CONCENTRATION RISK. Only an authorized participant may engage in creation or redemption transactions directly with the Fund. A limited number of institutions act as authorized participants for the Fund. To the
extent that these institutions exit the business or are unable to proceed with creation and/or redemption orders and no other authorized
participant steps forward to create or redeem, the Fund’s shares may trade at a premium or discount (the difference between the market price of the Fund's shares and the Fund's net asset value) and possibly face delisting and the bid/ask spread (the difference between
the price that someone is willing to pay for shares of the Fund at a specific point in time versus the price at which someone
is willing to sell) on the Fund’s shares may widen.
CASH TRANSACTIONS RISK. The Fund will effect some or all of its creations and redemptions for cash rather than in-kind. As a result, an investment in the Fund may be less tax-efficient than an investment in an ETF that effects all of its creations and redemptions
in-kind.
Because the Fund may effect redemptions for cash, it may be required to sell portfolio securities in order to obtain the cash
needed to distribute redemption proceeds. A sale of portfolio securities may result in capital gains or losses and may also result
in higher brokerage costs.
CURRENCY RISK. Changes in currency exchange rates affect the value of investments denominated in a foreign currency, and therefore the value of such investments in the Fund’s portfolio. The Fund’s net asset value could decline if a currency to which the Fund has exposure depreciates against the U.S. dollar or if there are delays or limits on repatriation of such currency. Currency exchange
rates can be very volatile and can change quickly and unpredictably. As a result, the value of an investment in the Fund may change
quickly and without warning.
CYBER SECURITY RISK. The Fund is susceptible to operational risks through breaches in cyber security. A breach in cyber security refers to both intentional and unintentional events that may cause the Fund to lose proprietary information, suffer data corruption
or lose operational capacity. Such events could cause the Fund to incur regulatory penalties, reputational damage, additional
compliance costs associated with corrective measures and/or financial loss. Cyber security breaches may involve unauthorized access to the Fund’s digital information systems through “hacking” or malicious software coding but may also result from outside attacks such as denial-of-service attacks through efforts to make network services unavailable to intended users. In addition, cyber security
breaches of the issuers of securities in which the Fund invests or the Fund’s third-party service providers, such as its administrator, transfer agent, custodian, or sub-advisor, as applicable, can also subject the Fund to many of the same risks associated with direct
cyber security breaches. Although the Fund has established risk management systems designed to reduce the risks associated with cyber security,
there is no guarantee that such efforts will succeed, especially because the Fund does not directly control the cyber security
systems of issuers or third-party service providers.
DEPOSITARY RECEIPTS RISK. Depositary receipts represent equity interests in a foreign company that trade on a local stock exchange. Depositary receipts may be less liquid than the underlying shares in their primary trading market. Any distributions paid
to the holders of depositary receipts are usually subject to a fee charged by the depositary. Holders of depositary receipts may have limited
voting rights, and investment restrictions in certain countries may adversely impact the value of depositary receipts because such
restrictions may limit the ability to convert the equity shares into depositary receipts and vice versa. Such restrictions may cause the
equity shares of the underlying issuer to trade at a discount or premium to the market price of the depositary receipts.
EMERGING MARKETS RISK. Investments in securities issued by governments and companies operating in emerging market countries involve additional risks relating to political, economic, or regulatory conditions not associated with investments in securities
and instruments issued by U.S. companies or by companies operating in other developed market countries. Investments in emerging
markets securities are generally considered speculative in nature and are subject to the following heightened risks: smaller market
capitalization of securities markets which may suffer periods of relative illiquidity; significant price volatility; restrictions on foreign
investment; possible repatriation of investment income and capital; rapid inflation; and currency convertibility issues. Emerging market countries
also often have less uniformity in accounting, auditing and reporting requirements, unsettled securities laws, unreliable securities
valuation and greater risk associated with custody of securities. Financial and other reporting by companies and government entities also
may be less reliable in emerging market countries. Shareholder claims that are available in the U.S., as well as regulatory oversight
and authority that is common in the U.S., including for claims based on fraud, may be difficult or impossible for shareholders of securities
in emerging market countries or for U.S. authorities to pursue. For funds that track an index or are managed based upon a benchmark, the
index may not weight the securities in emerging market countries on the basis of investor protection limitations, financial reporting
quality or available oversight mechanisms. Furthermore, investors may be required to register the proceeds of sales and future economic
or political crises could lead to price controls, forced mergers, expropriation or confiscatory taxation, seizure, nationalization
or creation of government monopolies.
EQUITY SECURITIES RISK. The value of the Fund’s shares will fluctuate with changes in the value of the equity securities in which it invests. Equity securities prices fluctuate for several reasons, including changes in investors’ perceptions of the financial condition of an issuer or the general condition of the relevant equity market, such as market volatility, or when political or economic
events affecting an issuer occur. Common stock prices may be particularly sensitive to rising interest rates, as the cost of capital rises
and borrowing costs increase. Equity securities may decline significantly in price over short or extended periods of time, and such declines
may occur in the equity market as a whole, or they may occur in only a particular country, company, industry or sector of the market.
GROWTH STOCKS INVESTMENT RISK. Stocks exhibiting growth characteristics tend to be more volatile than certain other types of stocks and their prices usually fluctuate more dramatically than the overall stock market. A stock with growth characteristics
can have sharp price declines due to decreases in current or expected earnings and may lack dividend payments that can help cushion
its share price during declining markets.
INDEX CONCENTRATION RISK. The Fund will be concentrated in an industry or a group of industries to the extent that the Index is so concentrated. To the extent that the Fund invests a significant percentage of its assets in a single asset class or the
securities of issuers within the same country, state, region, industry or sector, an adverse economic, business or political development
may affect the value of the Fund’s investments more than if the Fund were more broadly diversified. A significant exposure makes the Fund more susceptible to any single occurrence and may subject the Fund to greater market risk than a fund that is more broadly diversified.
There may be instances in which the Index, for a variety of reasons including changes in the prices of individual securities
held by the
Fund, has a larger exposure to a small number of stocks or a single stock relative to the rest of the stocks in the Index.
Under such circumstances, the Fund will not deviate from the Index except in rare circumstances or in an immaterial way and therefore the Fund’s returns would be more greatly influenced by the returns of the stock(s) with the larger exposure.
INDEX OR MODEL CONSTITUENT RISK. The Fund may be a constituent of one or more indices or ETF models. As a result, the Fund may be included in one or more index-tracking exchange-traded funds or mutual funds. Being a component security of such a
vehicle could greatly affect the trading activity involving the Fund’s shares, the size of the Fund and the market volatility of the Fund. Inclusion in an index could increase demand for the Fund and removal from an index could result in outsized selling activity in a relatively
short period of time. As a result, the Fund’s net asset value could be negatively impacted and the Fund’s market price may be below the Fund’s net asset value during certain periods. In addition, index rebalances may potentially result in increased trading activity in the Fund's shares.
INDEX PROVIDER RISK. There is no assurance that the Index Provider, or any agents that act on its behalf, will compile the Index accurately, or that the Index will be determined, maintained, constructed, reconstituted, rebalanced, composed, calculated
or disseminated accurately. The Index Provider and its agents do not provide any representation or warranty in relation to the
quality, accuracy or completeness of data in the Index, and do not guarantee that the Index will be calculated in accordance with its
stated methodology. The Advisor’s mandate as described in this prospectus is to manage the Fund consistently with the Index provided by the Index Provider. The Advisor relies upon the Index provider and its agents to accurately compile, maintain, construct,
reconstitute, rebalance, compose, calculate and disseminate the Index accurately. Therefore, losses or costs associated with any Index Provider
or agent errors generally will be borne by the Fund and its shareholders. To correct any such error, the Index Provider or its
agents may carry out an unscheduled rebalance of the Index or other modification of Index constituents or weightings. When the Fund in
turn rebalances its portfolio, any transaction costs and market exposure arising from such portfolio rebalancing will be borne
by the Fund and its shareholders. Unscheduled rebalances also expose the Fund to additional tracking error risk. Errors in respect of
the quality, accuracy and completeness of the data used to compile the Index may occur from time to time and may not be identified and
corrected by the Index Provider for a period of time or at all, particularly where the Index is less commonly used as a benchmark by
funds or advisors. For example, during a period where the Index contains incorrect constituents, the Fund tracking the Index would
have market exposure to such constituents and would be underexposed to the Index’s other constituents. Such errors may negatively impact the Fund and its shareholders. The Index Provider and its agents rely on various sources of information to assess the criteria
of issuers included in the Index, including information that may be based on assumptions and estimates. Neither the Fund nor the Advisor
can offer assurances that the Index’s calculation methodology or sources of information will provide an accurate assessment of included issuers. Unusual market conditions may cause the Index Provider to postpone a scheduled rebalance, which could cause the Index
to vary from its normal or expected composition. The postponement of a scheduled rebalance in a time of market volatility could
mean that constituents that would otherwise be removed at rebalance due to changes in market capitalizations, issuer credit ratings,
or other reasons may remain, causing the performance and constituents of the Index to vary from those expected under normal conditions.
Apart from scheduled rebalances, the Index Provider or its agents may carry out additional ad hoc rebalances to the Index
due to unusual market conditions or in order, for example, to correct an error in the selection of index constituents.
INFLATION RISK. Inflation risk is the risk that the value of assets or income from investments will be less in the future as inflation decreases the value of money. As inflation increases, the present value of the Fund’s assets and distributions may decline.
MARKET CAPITALIZATION DEVIATION RISK. There can be no assurance that the securities held by the Fund will stay within the Fund’s intended market capitalization range. As a result, the Fund may be exposed to additional risk or investors may not be given the opportunity to invest fully in a certain market capitalization range.
MARKET MAKER RISK. The Fund faces numerous market trading risks, including the potential lack of an active market for Fund shares due to a limited number of market markers. Decisions by market makers or authorized participants to reduce their role or step
away from these activities in times of market stress could inhibit the effectiveness of the arbitrage process in maintaining the
relationship between the underlying values of the Fund’s portfolio securities and the Fund’s market price. The Fund may rely on a small number of third-party market makers to provide a market for the purchase and sale of shares. Any trading halt or other problem relating
to the trading activity of these market makers could result in a dramatic change in the spread between the Fund’s net asset value and the price at which the Fund’s shares are trading on the Exchange, which could result in a decrease in value of the Fund’s shares. This reduced effectiveness could result in Fund shares trading at a discount to net asset value and also in greater than normal
intraday bid-ask spreads for Fund shares.
MARKET RISK. Market risk is the risk that a particular security, or shares of the Fund in general, may fall in value. Securities are subject
to market fluctuations caused by such factors as economic, political, regulatory or market developments, changes in interest
rates and perceived trends in securities prices. Shares of the Fund could decline in value or underperform other investments. In
addition, local, regional or global events such as war, acts of terrorism, spread of infectious diseases or other public health issues,
recessions, natural disasters, or other events could have a significant negative impact on the Fund and its investments. For example,
the coronavirus disease 2019 (COVID-19) global pandemic and the ensuing policies enacted by governments and central banks have caused and
may continue to cause significant volatility and uncertainty in global financial markets, negatively impacting global growth prospects.
While vaccines have been developed, there is no guarantee that vaccines will be effective against future variants of the disease.
As this global pandemic illustrated, such events may affect certain geographic regions, countries, sectors and industries more significantly
than others.
Recent and potential future bank failures could result in disruption to the broader banking industry or markets generally
and reduce confidence in financial institutions and the economy as a whole, which may also heighten market volatility and reduce liquidity.
These events also adversely affect the prices and liquidity of the Fund’s portfolio securities or other instruments and could result in disruptions in the trading markets. Any of such circumstances could have a materially negative impact on the value of the Fund’s shares and result in increased market volatility. During any such events, the Fund’s shares may trade at increased premiums or discounts to their net asset value and the bid/ask spread on the Fund’s shares may widen.
NON-CORRELATION RISK. The Fund’s return may not match the return of the Index for a number of reasons. The Fund incurs operating expenses not applicable to the Index, and may incur costs in buying and selling securities, especially when rebalancing the Fund’s portfolio holdings to reflect changes in the composition of the Index. In addition, the Fund’s portfolio holdings may not exactly replicate the securities included in the Index or the ratios between the securities included in the Index. Additionally, in order to comply
with its investment strategies and policies, the Fund portfolio may deviate from the composition of the Index. Accordingly, the Fund's
return may underperform the return of the Index.
NON-U.S. SECURITIES RISK. Non-U.S. securities are subject to higher volatility than securities of domestic issuers due to possible adverse political, social or economic developments, restrictions on foreign investment or exchange of securities, capital
controls, lack of liquidity, currency exchange rates, excessive taxation, government seizure of assets, the imposition of sanctions by foreign
governments, different legal or accounting standards, and less government supervision and regulation of securities exchanges
in foreign countries.
OPERATIONAL RISK. The Fund is subject to risks arising from various operational factors, including, but not limited to, human error, processing and communication errors, errors of the Fund’s service providers, counterparties or other third-parties, failed or inadequate processes and technology or systems failures. The Fund relies on third-parties for a range of services, including custody.
Any delay or failure relating to engaging or maintaining such service providers may affect the Fund’s ability to meet its investment objective. Although the Fund and the Fund's investment advisor seek to reduce these operational risks through controls and procedures, there is
no way to completely protect against such risks.
PASSIVE INVESTMENT RISK. The Fund is not actively managed. The Fund invests in securities included in or representative of the Index regardless of investment merit. The Fund generally will not attempt to take defensive positions in declining markets.
In the event that the Index is no longer calculated, the Index license is terminated or the identity or character of the Index is materially
changed, the Fund will seek to engage a replacement index.
PORTFOLIO TURNOVER RISK. High portfolio turnover may result in the Fund paying higher levels of transaction costs and may generate greater tax liabilities for shareholders. Portfolio turnover risk may cause the Fund’s performance to be less than expected.
PREFERRED SECURITIES RISK. Preferred securities combine some of the characteristics of both common stocks and bonds. Preferred securities are typically subordinated to bonds and other debt securities in a company’s capital structure in terms of priority to corporate income, subjecting them to greater credit risk than those debt securities. Generally, holders of preferred securities have
no voting rights with respect to the issuing company unless preferred dividends have been in arrears for a specified number of periods,
at which time the preferred security holders may obtain limited rights. In certain circumstances, an issuer of preferred securities
may defer payment on the securities and, in some cases, redeem the securities prior to a specified date. Preferred securities may also
be substantially less liquid than other securities, including common stock.
PREMIUM/DISCOUNT RISK. The market price of the Fund’s shares will generally fluctuate in accordance with changes in the Fund’s net asset value as well as the relative supply of and demand for shares on the Exchange. The Fund’s investment advisor cannot predict whether shares will trade below, at or above their net asset value because the shares trade on the Exchange at market prices
and not at net asset value. Price differences may be due, in large part, to the fact that supply and demand forces at work in the
secondary trading market for shares will be closely related, but not identical, to the same forces influencing the prices of the holdings
of the Fund trading individually or in the aggregate at any point in time. However, given that shares can only be purchased and redeemed
in Creation Units, and only to and from broker-dealers and large institutional investors that have entered into participation agreements
(unlike shares of closed-end funds, which frequently trade at appreciable discounts from, and sometimes at premiums to, their net
asset value), the Fund’s investment advisor believes that large discounts or premiums to the net asset value of shares should not be sustained. During stressed market conditions, the market for the Fund’s shares may become less liquid in response to deteriorating liquidity in the market for the Fund’s underlying portfolio holdings, which could in turn lead to differences between the market price of the Fund’s shares and their net asset value and the bid/ask spread on the Fund’s shares may widen.
REIT RISK. REITs typically own and operate income-producing real estate, such as residential or commercial buildings, or real-estate
related assets, including mortgages. As a result, investments in REITs are subject to the risks associated with investing
in real estate, which may include, but are not limited to: fluctuations in the value of underlying properties; defaults by borrowers or tenants;
market saturation; changes in general and local operating expenses; and other economic, political or regulatory occurrences affecting
companies in the real estate sector. REITs are also subject to the risk that the real estate market may experience an economic downturn
generally, which may have a material effect on the real estate in which the REITs invest and their underlying portfolio securities. REITs
may have also a relatively small market capitalization which may result in their shares experiencing less market liquidity and greater
price volatility than larger companies. Increases in interest rates typically lower the present value of a REIT's future earnings stream, and
may make
financing property purchases and improvements more costly. Because the market price of REIT stocks may change based upon investors'
collective perceptions of future earnings, the value of the Fund will generally decline when investors anticipate or experience
rising interest rates.
SMALLER COMPANIES RISK. Small capitalization companies may be more vulnerable to adverse general market or economic developments, and their securities may be less liquid and may experience greater price volatility than larger, more established
companies as a result of several factors, including limited trading volumes, fewer products or financial resources, management inexperience
and less publicly available information. Accordingly, such companies are generally subject to greater market risk than larger,
more established companies.
TAIWAN RISK. The Fund is subject to certain risks specifically associated with investments in the securities of Taiwanese issuers. Taiwan
is an emerging market and demonstrates significantly higher volatility from time to time in comparison to developed markets.
Shareholder claims that are available in the U.S., as well as regulatory oversight and authority that is common in the U.S.,
including for claims based on fraud, may be difficult or impossible for shareholders of securities in Taiwan or for U.S. authorities to pursue. Taiwan’s geographic proximity and history of political contention with China have resulted in ongoing tensions between the two countries.
These tensions may materially affect the Taiwanese economy and its securities market. Taiwan’s economy is export-oriented, so it depends on an open world trade regime and remains vulnerable to fluctuations in the world economy. Rising labor costs and
increasing environmental consciousness have led some labor-intensive industries to relocate to countries with cheaper work forces, and
continued labor outsourcing may adversely affect the Taiwanese economy.
TRADING ISSUES RISK. Trading in Fund shares on the Exchange may be halted due to market conditions or for reasons that, in the view of the Exchange, make trading in shares inadvisable. In addition, trading in Fund shares on the Exchange is subject to
trading halts caused by extraordinary market volatility pursuant to the Exchange’s “circuit breaker” rules. There can be no assurance that the requirements of the Exchange necessary to maintain the listing of the Fund will continue to be met or will remain unchanged.
The Fund may have difficulty maintaining its listing on the Exchange in the event the Fund’s assets are small, the Fund does not have enough shareholders, or if the Fund is unable to proceed with creation and/or redemption orders.
TURKEY RISK. The Fund is subject to certain risks specifically associated with investments in the securities of Turkish issuers. The Turkish economy is heavily dependent on relationships with certain key trading partners, including European Union countries,
China and Russia. The Turkish economy has certain significant economic weaknesses, such as its relatively high current account deficit
and currency depreciation. Turkey has historically experienced acts of terrorism and strained relations related to border disputes
with certain neighboring countries. The continuation of the conflict on the Turkish-Syrian border, for example, could have an adverse impact
on the Turkish economy. Turkey is subject to considerable degrees of social and political instability. Unanticipated or sudden
political, economic or social developments as well as natural disasters, have caused and may cause further volatility in the Turkish
securities markets or currency market and as a result may adversely affect the Fund’s investments.
VALUE STOCKS INVESTMENT RISK. The intrinsic value of a stock with value characteristics may not be fully recognized by the market for a long time or a stock judged to be undervalued may actually be appropriately priced at a low level.
VARIABLE INTEREST ENTITIES RISK. In China, direct ownership of companies in certain sectors by foreign individuals and entities is prohibited. In order to allow for foreign investment in these businesses, many Chinese companies have created VIE structures
to enable indirect foreign ownership. In such an arrangement, a Chinese operating company typically establishes an offshore shell
company in another jurisdiction, such as the Cayman Islands. That shell company enters into service and other contracts with the Chinese
issuer or operating company to obtain economic exposure to the Chinese company, then issues shares on an exchange outside of mainland
China, and U.S. investors hold stock in the non-Chinese shell company rather than directly in the Chinese issuer or operating
company. This arrangement allows U.S. investors, such as the Fund, to obtain economic exposure to the Chinese issuer or operating company
through contractual means rather than through formal equity ownership. Because neither the shell company nor the Fund owns
actual equity interests in the Chinese operating company, they do not have the voting rights or other types of control that an equity
holder would expect to benefit from. Although VIEs are a longstanding industry practice and well known to officials and regulators
in China, VIEs are not formally recognized under Chinese law. Intervention by the Chinese government with respect to VIEs could significantly
affect the Chinese company’s performance and the enforceability of the VIE’s contractual arrangements that establish the links between the Chinese company and the shell company in which the Fund invests. This could considerably impact the financial condition
of the shell company in which the Fund invests by limiting its ability to consolidate the financial results of the Chinese operating
company into its own financial statements, as well as make the value of the shares held by the Fund effectively worthless. Further,
if Chinese officials prohibit the existence of VIEs, the market value of the Fund’s associated holdings would likely suffer significant, and possibly permanent effects, which could negatively impact the Fund’s net asset value and could result in substantial losses. Further, it is uncertain whether any new laws, rules or regulations relating to VIE structures will be adopted or, if adopted, what impact they would
have on the value of the Fund’s shares.
VIEs are also subject to the investment risks associated with the underlying Chinese issuer or operating company. Chinese
companies are not subject to the same degree of regulatory requirements or accounting standards and oversight as companies in more developed
countries. As a result, information about the Chinese securities and VIEs in which the Fund invests may be less reliable and
incomplete. There also may be significant obstacles to obtaining information necessary for investigations into or litigation against Chinese
companies
and VIEs, and shareholders may have limited legal remedies, which could negatively impact the Fund. Additionally, U.S.-listed
VIEs may be delisted if they do not meet U.S. accounting standards and auditor oversight requirements. Delisting would significantly
decrease the liquidity and value of the securities, decrease the ability of the Fund to invest in such securities and may increase
the cost of the Fund if required to seek alternative markets in which to invest in such securities.
Annual Total Return
The bar chart and table below illustrate the annual calendar year returns of the Fund based on net asset value as well as
the average annual Fund and Index returns. The bar chart and table provide an indication of the risks of investing in the Fund by showing
changes in the Fund’s performance from year-to-year and by showing how the Fund’s average annual total returns based on net asset value compared to those of the Index, two market indices and a broad-based market index. See “Total Return Information” for additional performance information regarding the Fund. The Fund’s performance information is accessible on the Fund’s website at www.ftportfolios.com.
On October 13, 2015 the Fund’s underlying index changed from the Defined Emerging Markets Small Cap Index to the Nasdaq AlphaDEX® Emerging Markets Small Cap Index. Therefore, the Fund’s performance and historical returns shown below are not necessarily indicative of the performance that the Fund, based on the Index, would have generated. Returns for an underlying index are
only disclosed for those periods in which the index was in existence for the whole period. Because the Fund’s new underlying index had an inception date of September 8, 2014, it was not in existence for all of the periods disclosed. The new index is substantially
similar to the Defined Emerging Markets Small Cap Index.
First Trust Emerging Markets Small Cap AlphaDEX® Fund
Calendar Year Total Returns as of 12/31
Calendar Year Total Returns as of 12/31
During the periods shown in the chart above:
|
Best Quarter
|
|
Worst Quarter
|
|
|
32.17%
|
June 30, 2020
|
-35.53%
|
March 31, 2020
|
The Fund’s past performance (before and after taxes) is not necessarily an indication of how the Fund will perform in the future.
All after-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not
reflect the impact of any state or local tax. Returns after taxes on distributions reflect the taxed return on the payment of dividends and capital
gains. Returns after taxes on distributions and sale of shares assume you sold your shares at period end, and, therefore, are also
adjusted for any capital gains or losses incurred. Returns for the market indices do not include expenses, which are deducted from
Fund returns, or taxes.
Your own actual after-tax returns will depend on your specific tax situation and may differ from what is shown here. After-tax
returns are not relevant to investors who hold Fund shares in tax-deferred accounts such as individual retirement accounts (IRAs) or employee-sponsored retirement plans.
Average Annual Total Returns for the Periods Ended December 31, 2022
|
|
1 Year
|
5 Years
|
10 Years
|
Since
Inception
|
Inception
Date
|
|
Return Before Taxes
|
1.36%
|
2.64%
|
5.14%
|
6.11%
|
2/15/2012
|
|
Return After Taxes on Distributions
|
-0.74%
|
0.71%
|
3.52%
|
4.53%
|
|
|
Return After Taxes on Distributions and Sale of Fund
Shares
|
0.63%
|
1.13%
|
3.24%
|
4.08%
|
|
|
Nasdaq AlphaDEX® Emerging Markets Small Cap Index(1)
(reflects no deduction for fees, expenses or taxes)
|
2.75%
|
4.16%
|
N/A
|
N/A
|
|
|
Nasdaq Emerging Markets Small Cap Index(1) (reflects no
deduction for fees, expenses or taxes)
|
-13.78%
|
1.72%
|
4.07%
|
N/A
|
|
|
MSCI Emerging Markets Small Cap Index (reflects no
deduction for fees, expenses or taxes)
|
-18.02%
|
1.06%
|
3.21%
|
3.23%
|
|
|
MSCI Emerging Markets Index (reflects no deduction for
fees, expenses or taxes)
|
-20.09%
|
-1.40%
|
1.44%
|
17.86%
|
|
(1)
Performance data is not available for all the periods shown in the table for the index because performance data does not exist
for some of the entire periods.
Management
Investment Advisor
First Trust Advisors L.P. (“First Trust” or the “Advisor”)
Portfolio Managers
The Fund’s portfolio is managed by a team (the “Investment Committee”) consisting of:
•
Daniel J. Lindquist, Chairman of the Investment Committee and Managing Director of First Trust
•
David G. McGarel, Chief Investment Officer, Chief Operating Officer and Managing Director of First Trust
•
Jon C. Erickson, Senior Vice President of First Trust
•
Roger F. Testin, Senior Vice President of First Trust
•
Stan Ueland, Senior Vice President of First Trust
•
Chris A. Peterson, Senior Vice President of First Trust
•
Erik Russo, Vice President of First Trust
The Investment Committee members are primarily and jointly responsible for the day-to-day management of the Fund. Each Investment Committee member has served as a part of the portfolio management team of the Fund since 2012, except for Chris A. Peterson and Erik Russo who have served as part of the portfolio management team of the Fund since 2016 and 2020, respectively.
Purchase and Sale of Fund Shares
The Fund issues and redeems shares on a continuous basis, at net asset value, only in large blocks of shares called “Creation Units.” Individual shares of the Fund may only be purchased and sold on the secondary market through a broker-dealer. Since shares
of the Fund trade on securities exchanges in the secondary market at their market price rather than their net asset value, the Fund’s shares may trade at a price greater than (premium) or less than (discount) the Fund’s net asset value. An investor may incur costs attributable to the difference between the highest price a buyer is willing to pay to purchase shares of the Fund (bid) and the lowest
price a seller is willing to accept for shares of the Fund (ask) when buying or selling shares in the secondary market (the “bid-ask spread”). Recent information, including the Fund’s net asset value, market price, premiums and discounts, bid-ask spreads and the median bid-ask spread for the Fund’s most recent fiscal year, is available online at https://www.ftportfolios.com/Retail/etf/home.aspx.
Tax Information
The Fund’s distributions are taxable and will generally be taxed as ordinary income or capital gains. Distributions on shares held in a tax-deferred account, while not immediately taxable, will be subject to tax when the shares are no longer held in a tax-deferred
account.
Payments to Broker-Dealers and Other Financial Intermediaries
If you purchase shares of the Fund through a broker-dealer, registered investment adviser, bank or other financial intermediary
(collectively, “intermediaries”), First Trust and First Trust Portfolios L.P., the Fund’s distributor, may pay the intermediary for the sale of Fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or
other intermediary and your salesperson to recommend the Fund over another investment. Ask your salesperson or visit your financial
intermediary’s website for more information.
You can find the Fund’s statutory prospectus and other information about the Fund, including the statement of additional information and most recent reports to shareholders, online at www.ftportfolios.com/retail/ETF/ETFfundnews.aspx?Ticker=FEMS.
FEMSSP050123