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Is First Trust Materials AlphaDEX ETF (FXZ) a Strong ETF Right Now?
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The First Trust Materials AlphaDEX ETF (FXZ - Free Report) made its debut on 05/08/2007, and is a smart beta exchange traded fund that provides broad exposure to the Materials ETFs category of the market.
What Are Smart Beta ETFs?
Products that are based on market cap weighted indexes, which are strategies designed to reflect a specific market segment or the market as a whole, have traditionally dominated the ETF industry.
A good option for investors who believe in market efficiency, market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns.
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.
By attempting to pick stocks that have a better chance of risk-return performance, non-cap weighted indexes are based on certain fundamental characteristics, or a combination of such.
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
The fund is sponsored by First Trust Advisors. It has amassed assets over $1.30 billion, making it one of the larger ETFs in the Materials ETFs. FXZ seeks to match the performance of the StrataQuant Materials Index before fees and expenses.
The StrataQuant Materials Index is a modified equal-dollar weighted index designed by the AMEX to objectively identify and select stocks from the Russell 1000 Index that may generate positive alpha relative to traditional passive style indices through the use of the AlphaDEX screening methodology.
Cost & Other Expenses
When considering an ETF's total return, expense ratios are an important factor. And, cheaper funds can significantly outperform their more expensive cousins in the long term if all other factors remain equal.
Operating expenses on an annual basis are 0.64% for this ETF, which makes it one of the more expensive products in the space.
FXZ's 12-month trailing dividend yield is 1.71%.
Sector Exposure and Top Holdings
Even though ETFs offer diversified exposure which minimizes single stock risk, it is still important to look into a fund's holdings before investing. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.
FXZ's heaviest allocation is in the Materials sector, which is about 92.80% of the portfolio.
Looking at individual holdings, United States Steel Corporation (X - Free Report) accounts for about 5.75% of total assets, followed by Nucor Corporation (NUE - Free Report) and Cleveland-Cliffs Inc. (CLF - Free Report) .
FXZ's top 10 holdings account for about 46.3% of its total assets under management.
Performance and Risk
So far this year, FXZ has lost about -11.33%, and is down about -3.25% in the last one year (as of 10/04/2022). During this past 52-week period, the fund has traded between $50.77 and $74.60.
FXZ has a beta of 1.23 and standard deviation of 33.08% for the trailing three-year period, which makes the fund a medium risk choice in the space. With about 40 holdings, it has more concentrated exposure than peers.
Alternatives
First Trust Materials AlphaDEX ETF is an excellent option for investors seeking to outperform the Materials ETFs segment of the market. There are other ETFs in the space which investors could consider as well.
Materials Select Sector SPDR ETF (XLB - Free Report) tracks Materials Select Sector Index and the FlexShares Morningstar Global Upstream Natural Resources ETF (GUNR - Free Report) tracks Morningstar Global Upstream Natural Resources Index. Materials Select Sector SPDR ETF has $4.92 billion in assets, FlexShares Morningstar Global Upstream Natural Resources ETF has $6.61 billion. XLB has an expense ratio of 0.10% and GUNR charges 0.46%.
Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Materials 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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Is First Trust Materials AlphaDEX ETF (FXZ) a Strong ETF Right Now?
The First Trust Materials AlphaDEX ETF (FXZ - Free Report) made its debut on 05/08/2007, and is a smart beta exchange traded fund that provides broad exposure to the Materials ETFs category of the market.
What Are Smart Beta ETFs?
Products that are based on market cap weighted indexes, which are strategies designed to reflect a specific market segment or the market as a whole, have traditionally dominated the ETF industry.
A good option for investors who believe in market efficiency, market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns.
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.
By attempting to pick stocks that have a better chance of risk-return performance, non-cap weighted indexes are based on certain fundamental characteristics, or a combination of such.
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
The fund is sponsored by First Trust Advisors. It has amassed assets over $1.30 billion, making it one of the larger ETFs in the Materials ETFs. FXZ seeks to match the performance of the StrataQuant Materials Index before fees and expenses.
The StrataQuant Materials Index is a modified equal-dollar weighted index designed by the AMEX to objectively identify and select stocks from the Russell 1000 Index that may generate positive alpha relative to traditional passive style indices through the use of the AlphaDEX screening methodology.
Cost & Other Expenses
When considering an ETF's total return, expense ratios are an important factor. And, cheaper funds can significantly outperform their more expensive cousins in the long term if all other factors remain equal.
Operating expenses on an annual basis are 0.64% for this ETF, which makes it one of the more expensive products in the space.
FXZ's 12-month trailing dividend yield is 1.71%.
Sector Exposure and Top Holdings
Even though ETFs offer diversified exposure which minimizes single stock risk, it is still important to look into a fund's holdings before investing. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.
FXZ's heaviest allocation is in the Materials sector, which is about 92.80% of the portfolio.
Looking at individual holdings, United States Steel Corporation (X - Free Report) accounts for about 5.75% of total assets, followed by Nucor Corporation (NUE - Free Report) and Cleveland-Cliffs Inc. (CLF - Free Report) .
FXZ's top 10 holdings account for about 46.3% of its total assets under management.
Performance and Risk
So far this year, FXZ has lost about -11.33%, and is down about -3.25% in the last one year (as of 10/04/2022). During this past 52-week period, the fund has traded between $50.77 and $74.60.
FXZ has a beta of 1.23 and standard deviation of 33.08% for the trailing three-year period, which makes the fund a medium risk choice in the space. With about 40 holdings, it has more concentrated exposure than peers.
Alternatives
First Trust Materials AlphaDEX ETF is an excellent option for investors seeking to outperform the Materials ETFs segment of the market. There are other ETFs in the space which investors could consider as well.
Materials Select Sector SPDR ETF (XLB - Free Report) tracks Materials Select Sector Index and the FlexShares Morningstar Global Upstream Natural Resources ETF (GUNR - Free Report) tracks Morningstar Global Upstream Natural Resources Index. Materials Select Sector SPDR ETF has $4.92 billion in assets, FlexShares Morningstar Global Upstream Natural Resources ETF has $6.61 billion. XLB has an expense ratio of 0.10% and GUNR charges 0.46%.
Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Materials 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.