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Is First Trust Consumer Discretionary AlphaDEX ETF (FXD) a Strong ETF Right Now?

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Making its debut on 05/08/2007, smart beta exchange traded fund First Trust Consumer Discretionary AlphaDEX ETF (FXD - Free Report) provides investors broad exposure to the Consumer Discretionary ETFs category of the market.

What Are Smart Beta ETFs?

For a long time now, the ETF industry has been flooded with products based on market capitalization weighted indexes, which are designed to represent the broader market or a particular market segment.

Market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns, and are a good option for investors who believe in market efficiency.

However, some investors believe in the possibility of beating the market through exceptional stock selection, and choose a different type of fund that tracks non-cap weighted strategies: smart beta.

Based on specific fundamental characteristics, or a combination of such, these indexes attempt to pick stocks that have a better chance of risk-return performance.

The smart beta space gives investors many different choices, from equal-weighting, one of the simplest strategies, to more complicated ones like fundamental and volatility/momentum based weighting. However, not all of these methodologies have been able to deliver remarkable returns.

Fund Sponsor & Index

FXD is managed by First Trust Advisors, and this fund has amassed over $489.83 million, which makes it one of the larger ETFs in the Consumer Discretionary ETFs. FXD, before fees and expenses, seeks to match the performance of the StrataQuant Consumer Discretionary Index.

The StrataQuant Consumer Discretionary Index employs the AlphaDEX stock selection methodology to select stocks from the Russell 1000 Index.

Cost & Other Expenses

For ETF investors, expense ratios are an important factor when considering a fund's return; in the long-term, cheaper funds actually have the ability to outperform their more expensive cousins if all other things remain the same.

Operating expenses on an annual basis are 0.61% for FXD, making it on par with most peer products in the space.

The fund has a 12-month trailing dividend yield of 0.82%.

Sector Exposure and Top Holdings

Most ETFs are very transparent products, and disclose their holdings on a daily basis. ETFs also offer diversified exposure, which minimizes single stock risk, though it's still important for investors to research a fund's holdings.

FXD's heaviest allocation is in the Consumer Discretionary sector, which is about 81% of the portfolio. Its Telecom and Industrials round out the top three.

When you look at individual holdings, Kohl's Corporation (KSS - Free Report) accounts for about 1.93% of the fund's total assets, followed by Nexstar Media Group, Inc. (NXST - Free Report) and Paramount Global (class B) (PARA - Free Report) .

Its top 10 holdings account for approximately 16.36% of FXD's total assets under management.

Performance and Risk

The ETF has lost about -18.20% so far this year and is down about -15.77% in the last one year (as of 05/30/2022). In the past 52-week period, it has traded between $45.77 and $65.57.

The fund has a beta of 1.31 and standard deviation of 31.68% for the trailing three-year period, which makes FXD a medium risk choice in this particular space. With about 124 holdings, it effectively diversifies company-specific risk.

Alternatives

First Trust Consumer Discretionary AlphaDEX ETF is a reasonable option for investors seeking to outperform the Consumer Discretionary ETFs segment of the market. However, there are other ETFs in the space which investors could consider.

Vanguard Consumer Discretionary ETF (VCR - Free Report) tracks MSCI US Investable Market Consumer Discretionary 25/50 Index and the Consumer Discretionary Select Sector SPDR ETF (XLY - Free Report) tracks Consumer Discretionary Select Sector Index. Vanguard Consumer Discretionary ETF has $5.13 billion in assets, Consumer Discretionary Select Sector SPDR ETF has $16.09 billion. VCR has an expense ratio of 0.10% and XLY charges 0.10%.

Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Consumer Discretionary ETFs.

Bottom Line

To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.

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