Alpha Dex Seminar Presentation

AlphaDEX® ETFsAn Enhanced IndexingApproach to Investing

Not FDIC Insured · No Bank Guarantee · May Lose Value

You should consider a fund’s investment objectives, risks, and charges and expenses carefully before investing. Contact First Trust Portfolios L.P. at 1-800-621-1675 or visit www.ftportfolios.com to obtain a prospectus or summary prospectus which contains this and other information about a fund. The prospectus or summary prospectus should be read carefully before investing.

AlphaDEX® ETFsAn Enhanced Indexing Approach to Investing

About First Trust

First Trust Portfolios L.P. along its affiliate, First Trust Advisors L.P., were established in 1991. We operate nationwide as well as in Canada. We provide a variety of investment services, including asset management, financial advisory services, and municipal and corporate investment banking.

Our products:Closed-end fundsMutual fundsSeparate managed accountsUnit investment trustsVariable annuity sub-accountsExchange-traded funds


$1 $0 $1 $2 $7 $16 $34$66 $83 $102

$151

$228

$301

$423

$608

$531

$777

$992$1,048

'93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11Source: Investment Company Institute in $billions.

ETF Industry Growth

Assets have doubled in 5 years 1120+ ETFs available


Factors Driving ETF Demand

Targeted Market Exposure Transparent Low Expenses* Diversification Intraday Liquidity General Tax Efficiency Flexibility

*Compared to the average expense ratio of all domestic stock mutual funds tracked by Morningstar.

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How Do ETFs Compare?

ETFs StocksIndex Mutual

FundsTax Efficient

Low Expenses

Low Investment Minimums

Intraday Liquidity

Diversification

Fully Invested Possible

Portfolio Transparency Possible

Able to Sell Short

Able to Buy on Margin

Able to Use Limit and Stop Orders

Listed Options Available

Ease of Dollar Cost Averaging


Which Stocks to Own?

How are they Weighted?

Alpha vs. Beta Indexes

Beta All

Size

Alpha Select Group

Fundamental Factors

Alpha is an indication of how much an investment outperforms or underperforms on a risk-adjusted basis relative to its benchmark. Beta is a measure of price variability relative to the market.


Large Market Cap = Outperformance?

Data obtained from the Compustat database. Average return rank is determined by taking the average total return rank (based on calendar year total return) of the ten largest stocks by market capitalization. Market capitalization is as of the previous year end. Past performance is no guarantee of future results. This example is for illustrative purposes and does not represent any actual investment.

Large Market Cap = Outperformance?


Source: Kenneth R. French data library using the CRSP database. The universe includes all NYSE, AMEX & NASDAQ stocks. Stocks are equally weighted. Past performance is no guarantee of future results.

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

18.00%

20.00%

22.00%

Worst-10 9 8 7 6 5 4 3 2 Best-1

Decile

Ave

rage

Ann

ual T

otal

Ret

urn

Price to cash flow 1952-2010

Fundamental Factors Matter


Active, Passive or Happy Medium

Active Management Passive Indexing AlphaDEX®


“Merit-based” approach through quantitative screening

Overweight stocks based on investment potential – seek to go beyond merely avoiding pitfalls of cap-weighting

Use the findings available in the academic literature

Seek to earn alpha through a disciplined empirical approach

What is AlphaDEX®?


Dual Lenses – Separate Growth and Value Factors

Simple – Only 3 Growth & 3 Value Factors

Transparent – No “Black Box” Mystique

What are AlphaDEX® Funds?

ETFs based on a group of custom enhanced indexes


Factors Used in the AlphaDEX® Model


Rebalance & Reconstitute

Broad-Based Index

Stock A

Stock B

Stock C

Stock D

Stock E

Stock F

Stock G

Stock H

Stock I

Stock J

Stock K

Stock L

Stock M

Stock N

Stock O

Stock P

Stock Q

Stock R

Stock S

Stock T

Stock U

Stock V

Stock W

Stock X

Stock Y

Stock Z

Stock AA

Stock BB

Stock CC

Stock DD

Stock EE

Stock FF

Stock GG

Stock HH

Stock II

AlphaDEX® Methodology

This example is for illustrative purposes and does not represent any actual investment.

33.3% Weight

26.7% Weight

20.0% Weight

13.3% Weight

6.7% Weight


*Compared to the average expense ratio of all domestic stock funds tracked by Morningstar.

Lower Expense Ratio* General Tax Efficiency Transparent Trading Flexibility

AlphaDEX® - A Smart Alternative to Active Management


Risk Considerations

A fund’s shares will change in value, and you could lose money by investing in a fund. One of the principal risks of investing in a fund is market risk. Market risk is the risk that a particular stock owned by a fund, fund shares or stocks in general may fall in value.

You should anticipate that the value of the shares will decline, more or less, in correlation with any decline in the value of the index. A fund’s return may not match the return of the index. A fund may not be fully invested at times. Securities held by a fund will generally not be bought or sold in response to market fluctuations.

Investors buying or selling fund shares on the secondary market may incur customary brokerage commissions. Investors who sell fund shares may receive less than the share’ s net asset value. Shares may be sold throughout the day on the exchange through any brokerage account. However, shares may only be redeemed directly from the fund by authorized participants, in very large creation/redemption units.


Additional Risk Considerations

The funds are classified as “non-diversified.” A non-diversified fund generally may invest a larger percentage of its assets in the securities of a smaller number of issuers. As a result, the fund may be more susceptible to the risks associated with these particular companies, or to a single economic, political or regulatory occurrence affecting these companies.

The funds may invest in small and mid capitalization companies. Such companies may experience greater price volatility than larger, more established companies.

An investment in a fund containing equity securities of foreign issuers is subject to additional risks, including currency fluctuations, political risks, withholding, the lack of adequate financial information, and exchange control restrictions impacting foreign issuers. These risks may be heightened for securities of companies located in, or with significant operations in, emerging market countries.

The information contained in this presentation does not constitute tax advice. Please consult your tax advisor for specific information about your tax situation.


Talk to your financial advisor for more information. Or, visit our website at:

www.ftportfolios.com

“AlphaDEX®” is a registered trademark of First Trust Portfolios L.P.A patent application with respect to the AlphaDEX® stock selection methodology is pending at the United States Patent and Trademark Office.

http://www.ftportfolios.com/Retail/etf/etflist.aspx

Documents

Alpha Dex Seminar Presentation