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?
For a long time now, the ETF industry has been flooded with products based on market capitalization weighted indexes, which are designed to represent the broader market or a particular market segment.
Investors who believe in market efficiency should consider market cap indexes, as they replicate market returns in a low-cost, convenient, and transparent way.
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.
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.
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
Because the fund has amassed over $1.68 billion, this makes it one of the average sized ETFs in the Financials ETFs. FXO is managed by First Trust Advisors. FXO seeks to match the performance of the StrataQuant Financials Index before fees and expenses.
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
Investors should also pay attention to an ETF's expense ratio. Lower cost products will produce better results than those with a higher cost, assuming all other metrics remain the same.
Operating expenses on an annual basis are 0.61% for this ETF, which makes it one of the more expensive products in the space.
It has a 12-month trailing dividend yield of 1.90%.
Sector Exposure and Top Holdings
It is important to delve into an ETF's holdings before investing despite the many upsides to these kinds of funds like diversified exposure, which minimizes single stock risk. And, 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.
When you look at individual holdings, Lpl Financial Holdings Inc. (
LPLA Quick Quote LPLA - Free Report) accounts for about 1.65% of the fund's 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) .
Its top 10 holdings account for approximately 16.21% of FXO's total assets under management.
Performance and Risk
Year-to-date, the First Trust Financials AlphaDEX ETF has gained about 39.71% so far, and was up about 39.85% over the last 12 months (as of 12/28/2021). FXO has traded between $33.73 and $48.60 in this past 52-week period.
FXO has a beta of 1.19 and standard deviation of 32.44% for the trailing three-year period, which makes the fund 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 $11.66 billion in assets, Financial Select Sector SPDR ETF has $43.45 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.