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Is First Trust Materials AlphaDEX Fund (FXZ) a Hot ETF Right Now?
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The First Trust Materials AlphaDEX Fund (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 U.S. equity market.
What Are Smart Beta ETFs?
The ETF industry has traditionally been dominated by products based on market capitalization weighted indexes that are designed to represent the market or a particular segment of the market.
Investors who believe in market efficiency should consider market cap indexes, as they replicate market returns in a low-cost, convenient, and transparent way.
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.
While this space offers a number of choices to investors, including simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies, not all these strategies have been able to deliver superior results.
Fund Sponsor & Index
The fund is managed by First Trust Advisors. FXZ has been able to amass assets over $366.43 M, making it one of the average sized ETFs in the Materials ETFs. Before fees and expenses, this particular fund seeks to match the performance of the StrataQuant Materials Index.
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
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.
With on par with most peer products in the space, this ETF has annual operating expenses of 0.65%.
The fund has a 12-month trailing dividend yield of 0.93%.
Sector Exposure and Top Holdings
Even though ETFs offer diversified exposure that minimizes single stock risk, investors should also look at the actual holdings inside the fund. 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 79.20% of the portfolio. Its Industrials and Information Technology round out the top three.
When you look at individual holdings, Eastman Chemical Company (EMN - Free Report) accounts for about 3.89% of the fund's total assets, followed by Westlake Chemical Corporation (WLK - Free Report) and Steel Dynamics, Inc. (STLD - Free Report) .
Its top 10 holdings account for approximately 34.06% of FXZ's total assets under management.
Performance and Risk
The ETF has lost about -5.00% so far this year and was up about 11.13% in the last one year (as of 04/09/2018). In the past 52-week period, it has traded between $36.96 and $46.42.
FXZ has a beta of 1.22 and standard deviation of 16.82% for the trailing three-year period, which makes the fund a medium choice in the space. With about 52 holdings, it effectively diversifies company-specific risk.
Alternatives
First Trust Materials AlphaDEX Fund 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 Fund (XLB - Free Report) tracks Materials Select Sector Index and the FlexShares Morningstar Global Upstream Natural Resources Index Fund (GUNR - Free Report) tracks Morningstar Global Upstream Natural Resources Index. Materials Select Sector SPDR Fund has $4.79 B in assets, FlexShares Morningstar Global Upstream Natural Resources Index Fund has $5.29 B. XLB has an expense ratio of 0.13% 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 Fund (FXZ) a Hot ETF Right Now?
The First Trust Materials AlphaDEX Fund (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 U.S. equity market.
What Are Smart Beta ETFs?
The ETF industry has traditionally been dominated by products based on market capitalization weighted indexes that are designed to represent the market or a particular segment of the market.
Investors who believe in market efficiency should consider market cap indexes, as they replicate market returns in a low-cost, convenient, and transparent way.
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.
While this space offers a number of choices to investors, including simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies, not all these strategies have been able to deliver superior results.
Fund Sponsor & Index
The fund is managed by First Trust Advisors. FXZ has been able to amass assets over $366.43 M, making it one of the average sized ETFs in the Materials ETFs. Before fees and expenses, this particular fund seeks to match the performance of the StrataQuant Materials Index.
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
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.
With on par with most peer products in the space, this ETF has annual operating expenses of 0.65%.
The fund has a 12-month trailing dividend yield of 0.93%.
Sector Exposure and Top Holdings
Even though ETFs offer diversified exposure that minimizes single stock risk, investors should also look at the actual holdings inside the fund. 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 79.20% of the portfolio. Its Industrials and Information Technology round out the top three.
When you look at individual holdings, Eastman Chemical Company (EMN - Free Report) accounts for about 3.89% of the fund's total assets, followed by Westlake Chemical Corporation (WLK - Free Report) and Steel Dynamics, Inc. (STLD - Free Report) .
Its top 10 holdings account for approximately 34.06% of FXZ's total assets under management.
Performance and Risk
The ETF has lost about -5.00% so far this year and was up about 11.13% in the last one year (as of 04/09/2018). In the past 52-week period, it has traded between $36.96 and $46.42.
FXZ has a beta of 1.22 and standard deviation of 16.82% for the trailing three-year period, which makes the fund a medium choice in the space. With about 52 holdings, it effectively diversifies company-specific risk.
Alternatives
First Trust Materials AlphaDEX Fund 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 Fund (XLB - Free Report) tracks Materials Select Sector Index and the FlexShares Morningstar Global Upstream Natural Resources Index Fund (GUNR - Free Report) tracks Morningstar Global Upstream Natural Resources Index. Materials Select Sector SPDR Fund has $4.79 B in assets, FlexShares Morningstar Global Upstream Natural Resources Index Fund has $5.29 B. XLB has an expense ratio of 0.13% 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.