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Is First Trust Technology AlphaDEX ETF (FXL) a Strong ETF Right Now?
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Designed to provide broad exposure to the Technology ETFs category of the market, the First Trust Technology AlphaDEX ETF (FXL - Free Report) is a smart beta exchange traded fund launched on 05/08/2007.
What Are Smart Beta ETFs?
Market cap weighted indexes were created to reflect the market, or a specific segment of the market, and the ETF industry has traditionally been dominated by products based on this strategy.
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.
This kind of index follows this same mindset, as it attempts to pick stocks that have better chances of risk-return performance; non-cap weighted strategies base selection on certain fundamental characteristics, or a mix of such characteristics.
Methodologies like equal-weighting, one of the simplest options out there, fundamental weighting, and volatility/momentum based weighting are all choices offered to investors in this space, but not all of them can deliver superior returns.
Fund Sponsor & Index
Managed by First Trust Advisors, FXL has amassed assets over $1.29 billion, making it one of the larger ETFs in the Technology ETFs. Before fees and expenses, FXL seeks to match the performance of the StrataQuant Technology Index.
The StrataQuant Technology 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
Since cheaper funds tend to produce better results than more expensive funds, assuming all other factors remain equal, it is important for investors to pay attention to an ETF's expense ratio.
Operating expenses on an annual basis are 0.62% for this ETF, which makes it on par with most peer products in the space.
FXL's 12-month trailing dividend yield is 0.44%.
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.
FXL's heaviest allocation is in the Information Technology sector, which is about 80.30% of the portfolio. Its Industrials and Telecom round out the top three.
Looking at individual holdings, Vertiv Group Corp (VRT - Free Report) accounts for about 2.66% of total assets, followed by Nvidia Corporation (NVDA - Free Report) and Nutanix, Inc. (class A) (NTNX - Free Report) .
Its top 10 holdings account for approximately 20.82% of FXL's total assets under management.
Performance and Risk
Year-to-date, the First Trust Technology AlphaDEX ETF return is roughly 0.23% so far, and is up about 33.02% over the last 12 months (as of 05/06/2024). FXL has traded between $97.81 and $138.57 in this past 52-week period.
The ETF has a beta of 1.16 and standard deviation of 24.78% for the trailing three-year period, making it a medium risk choice in the space. With about 98 holdings, it effectively diversifies company-specific risk.
Alternatives
First Trust Technology AlphaDEX ETF is an excellent option for investors seeking to outperform the Technology ETFs segment of the market. There are other ETFs in the space which investors could consider as well.
Technology Select Sector SPDR ETF (XLK - Free Report) tracks Technology Select Sector Index and the Vanguard Information Technology ETF (VGT - Free Report) tracks MSCI US Investable Market Information Technology 25/50 Index. Technology Select Sector SPDR ETF has $63.65 billion in assets, Vanguard Information Technology ETF has $64.15 billion. XLK has an expense ratio of 0.09% and VGT 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 Technology 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 Technology AlphaDEX ETF (FXL) a Strong ETF Right Now?
Designed to provide broad exposure to the Technology ETFs category of the market, the First Trust Technology AlphaDEX ETF (FXL - Free Report) is a smart beta exchange traded fund launched on 05/08/2007.
What Are Smart Beta ETFs?
Market cap weighted indexes were created to reflect the market, or a specific segment of the market, and the ETF industry has traditionally been dominated by products based on this strategy.
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.
This kind of index follows this same mindset, as it attempts to pick stocks that have better chances of risk-return performance; non-cap weighted strategies base selection on certain fundamental characteristics, or a mix of such characteristics.
Methodologies like equal-weighting, one of the simplest options out there, fundamental weighting, and volatility/momentum based weighting are all choices offered to investors in this space, but not all of them can deliver superior returns.
Fund Sponsor & Index
Managed by First Trust Advisors, FXL has amassed assets over $1.29 billion, making it one of the larger ETFs in the Technology ETFs. Before fees and expenses, FXL seeks to match the performance of the StrataQuant Technology Index.
The StrataQuant Technology 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
Since cheaper funds tend to produce better results than more expensive funds, assuming all other factors remain equal, it is important for investors to pay attention to an ETF's expense ratio.
Operating expenses on an annual basis are 0.62% for this ETF, which makes it on par with most peer products in the space.
FXL's 12-month trailing dividend yield is 0.44%.
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.
FXL's heaviest allocation is in the Information Technology sector, which is about 80.30% of the portfolio. Its Industrials and Telecom round out the top three.
Looking at individual holdings, Vertiv Group Corp (VRT - Free Report) accounts for about 2.66% of total assets, followed by Nvidia Corporation (NVDA - Free Report) and Nutanix, Inc. (class A) (NTNX - Free Report) .
Its top 10 holdings account for approximately 20.82% of FXL's total assets under management.
Performance and Risk
Year-to-date, the First Trust Technology AlphaDEX ETF return is roughly 0.23% so far, and is up about 33.02% over the last 12 months (as of 05/06/2024). FXL has traded between $97.81 and $138.57 in this past 52-week period.
The ETF has a beta of 1.16 and standard deviation of 24.78% for the trailing three-year period, making it a medium risk choice in the space. With about 98 holdings, it effectively diversifies company-specific risk.
Alternatives
First Trust Technology AlphaDEX ETF is an excellent option for investors seeking to outperform the Technology ETFs segment of the market. There are other ETFs in the space which investors could consider as well.
Technology Select Sector SPDR ETF (XLK - Free Report) tracks Technology Select Sector Index and the Vanguard Information Technology ETF (VGT - Free Report) tracks MSCI US Investable Market Information Technology 25/50 Index. Technology Select Sector SPDR ETF has $63.65 billion in assets, Vanguard Information Technology ETF has $64.15 billion. XLK has an expense ratio of 0.09% and VGT 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 Technology 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.