Minafi's Take on FMK vs IUS
Here's an in depth look at the differences between First Trust Mega Cap AlphaDEX Fund ($FMK) and Invesco RAFI Strategic US ETF ($IUS).
To start off, here's a look at the basics of each fund. Keep an eye on the FI Score. That's a custom score from 0 to 100 that we generate based on how good this fund is for the casual investor. Most investors only need a handful of total funds in their portfolio. The higher the score, the more likely this is one of those few. Score alone isn't enough! Keep reading on to see how different (or perhaps similar) these two funds are.
- fmk
- ETF
- US Stocks
- Large Blend
First Trust Mega Cap AlphaDEX Fund
Expenses: 0.70% (Better than 1% of similar funds)
This is a bad choice for a Large Blend US Stocks fund. See why »
Both $FMK and $IUS are categorized as ETFs. ETFs have an added bonus over mutual funds of being more widely available. Mutual funds are often limited to only the issuing investment brokerage. Since these are both ETFs, you may be able to find these at a wider number of investment apps and websites.
The biggest disadvantage of ETFs is that some platforms only allow you to purchase ETFs in whole shares. So if an ETF is going for $75, you may need to invest in increments of $75. Most 401(k)'s allow for investing down to the penny, but you'll want to verify your platform allows for "fractional ETF Shares".
To learn more about the difference between these two, you can read about the difference between ETFs and Mutual Funds.
When evaluating a fund, the first things I look at are:
- What it invests in
- How much it charges in fees
- How large the fund is
Let's look into these criteria one by one and see if either of these funds stands out.
Fund Holdings Comparison
Both of these funds are US Stocks Large Blend funds – which means they're likely both investing in about the same investments behind the scenes.
Minafi's FI Score algorithm takes into account the category and market. The more niche a fund is, the lower the score. This doesn't mean it's a worse fund, but it does mean you should stop and make sure this a fund you need to diversify your portfolio.
| FMK | IUS | |
|---|---|---|
| Market Score | 0.7 /10 | 2.4 /10 |
| Category Score | 10.0 /10 | 10.0 /10 | Total | 10.7 | 12.4 |
A score of 10 means this is a solid market and category that almost every investor will want to have investments in. The lower the score, the more specific the investment. These scores are based on when most investors would add these funds to their portfolio. A score of 10 means that this fund (or one like it) belongs in a three-fund portfolio. The lower the score, the farther down in your portfolio a fund would go.
For each fund we've created a "diversification score" – a metric to indicate how closely each funds asset allocation matches it's benchmark. For example, an S&P 500 fund would have a diversification score of 10 if it's fully in line with the actual S&P 500.
The diversification score for FMK is 2.7/10, while IUS has a diversification score of 5.4/10.
In other words, IUS more closely matches it's benchmark.
Winner: $IUS
Fee Comparison
Fees are one of the biggest killers of portfolio growth. The difference between a 2% fee and a 0.04% fee over 30 years can result in your portfolio having half the total value!
If you're just getting started investing and learning how fees impact your portfolio, I'd encourage you to read through my free investment course (specifically '2.2 - All About Fees') where I go over all the different types of fees you can be charged and how to lower them.
For these two funds, FMK has an expense ratio of 0.70% while IUS has an expense ratio of 0.19%.
Winner: $IUS
Fund Size Comparison
Both FMK and IUS have a similar number of assets under management. FMK has 20.8 Million in assets under management, while IUS has 127 Million.
Minafi categorizes both of these funds as small funds. Fund size is a good indication of how many other investors trust this fund. A large fund by itself doesn't mean it's a good fund, but it is one thing to consider when figuring out how to choose the right fund.
Winner: tie
Which Should You Choose? FMK or IUS?
Since both of these funds are US Stocks Large Blend funds, you'll most likely only need to invest in one of these funds – not both. Running both of these funds through Minafi's FI Score algorithm, gives FMK a score of 35 and IUS a score of 62.
Neither of these funds has an FI Score above 90 – which is a red flag. I'd look into more funds to find one with a higher FI Score.
Winner: Neither, I'd research more funds if you're looking to invest for retirement.