Designed to provide broad exposure to the Financials ETFs category of the market, the First Trust Financials AlphaDEX ETF (
FXO Quick Quote FXO - Free Report) is a smart beta exchange traded fund launched on 05/08/2007. 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.
On the other hand, some investors who believe that it is possible to beat the market by superior stock selection opt to invest in another class of funds that track non-cap weighted strategies--popularly known as smart beta.
These indexes attempt to select stocks that have better chances of risk-return performance, based on certain fundamental characteristics or a combination of such characteristics.
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 managed by First Trust Advisors. FXO has been able to amass assets over $1.51 billion, making it one of the average sized ETFs in the Financials ETFs. Before fees and expenses, this particular fund seeks to match the performance of the StrataQuant Financials Index.
The StrataQuant Financials 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 0.62% for FXO, making it one of the more expensive products in the space.
FXO's 12-month trailing dividend yield is 1.65%.
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.
FXO's heaviest allocation is in the Financials sector, which is about 100% of the portfolio.
Looking at individual holdings, Lpl Financial Holdings Inc. (
LPLA Quick Quote LPLA - Free Report) accounts for about 1.65% of total assets, followed by The Carlyle Group Inc. ( CG Quick Quote CG - Free Report) and Fidelity National Financial, Inc. ( FNF Quick Quote FNF - Free Report) .
FXO's top 10 holdings account for about 16.21% of its total assets under management.
Performance and Risk
The ETF has gained about 44.02% and is up roughly 74.01% so far this year and in the past one year (as of 10/27/2021), respectively. FXO has traded between $26.63 and $48.31 during this last 52-week period.
The ETF has a beta of 1.20 and standard deviation of 32.50% for the trailing three-year period, making it a medium risk choice in the space. With about 106 holdings, it effectively diversifies company-specific risk.
First Trust Financials AlphaDEX ETF is a reasonable option for investors seeking to outperform the Financials ETFs segment of the market. However, there are other ETFs in the space which investors could consider.
Vanguard Financials ETF (
VFH Quick Quote VFH - Free Report) tracks MSCI US Investable Market Financials 25/50 Index and the Financial Select Sector SPDR ETF ( XLF Quick Quote XLF - Free Report) tracks Financial Select Sector Index. Vanguard Financials ETF has $11.76 billion in assets, Financial Select Sector SPDR ETF has $45.62 billion. VFH has an expense ratio of 0.10% and XLF charges 0.12%.
Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Financials ETFs.
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.