Designed to provide broad exposure to the Materials - Broad segment of the equity market, the First Trust Materials AlphaDEX ETF (
FXZ Quick Quote FXZ - Free Report) is a passively managed exchange traded fund launched on 05/08/2007.
Passively managed ETFs are becoming increasingly popular with institutional as well as retail investors due to their low cost, transparency, flexibility and tax efficiency. They are excellent vehicles for long term investors.
Sector ETFs also provide investors access to a broad group of companies in particular sectors that offer low risk and diversified exposure. Materials - Broad is one of the 16 broad Zacks sectors within the Zacks Industry classification. It is currently ranked 7, placing it in top 44%.
The fund is sponsored by First Trust Advisors. It has amassed assets over $201.90 million, making it one of the average sized ETFs attempting to match the performance of the Materials - Broad segment of the equity market. 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.
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.
Annual operating expenses for this ETF are 0.65%, making it on par with most peer products in the space.
It has a 12-month trailing dividend yield of 1.40%.
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.
This ETF has heaviest allocation in the Materials sector--about 81.30% of the portfolio, followed by Industrials.
Looking at individual holdings, Olin Corporation (
OLN Quick Quote OLN - Free Report) accounts for about 5.79% of total assets, followed by The Timken Company ( TKR Quick Quote TKR - Free Report) and The Scotts Miracle-Gro Company ( SMG Quick Quote SMG - Free Report) .
The top 10 holdings account for about 46.96% of total assets under management.
Performance and Risk
The ETF has added roughly 8.74% so far this year and is up about 34.16% in the last one year (as of 01/07/2021). In that past 52-week period, it has traded between $22.82 and $51.77.
The ETF has a beta of 1.29 and standard deviation of 30.49% for the trailing three-year period, making it a medium risk choice in the space. With about 38 holdings, it has more concentrated exposure than peers.
First Trust Materials AlphaDEX ETF carries a Zacks ETF Rank of 3 (Hold), which is based on expected asset class return, expense ratio, and momentum, among other factors. Thus, FXZ is a reasonable option for those seeking exposure to the Materials ETFs area of the market. Investors might also want to consider some other ETF options in the space.
FlexShares Morningstar Global Upstream Natural Resources ETF (
GUNR Quick Quote GUNR - Free Report) tracks Morningstar Global Upstream Natural Resources Index and the Materials Select Sector SPDR ETF ( XLB Quick Quote XLB - Free Report) tracks Materials Select Sector Index. FlexShares Morningstar Global Upstream Natural Resources ETF has $3.73 billion in assets, Materials Select Sector SPDR ETF has $5.46 billion. GUNR has an expense ratio of 0.46% and XLB charges 0.13%. Bottom Line
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