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Is First Trust Materials AlphaDEX ETF (FXZ) a Strong ETF Right Now?
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Launched on 05/08/2007, the First Trust Materials AlphaDEX ETF (FXZ - Free Report) is a smart beta exchange traded fund offering broad exposure to the Materials ETFs category of the 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.
Because market cap weighted indexes provide a low-cost, convenient, and transparent way of replicating market returns, they work well for investors who believe in market efficiency.
There are some investors, though, who think it's possible to beat the market with great stock selection; this group likely invests in another class of funds known as smart beta, which track non-cap weighted strategies.
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.
Even though this space provides many choices to investors--think one of the simplest methodologies like equal-weighting and more complicated ones like fundamental and volatility/momentum based weighting--not all have been able to deliver first-rate results.
Fund Sponsor & Index
FXZ is managed by First Trust Advisors, and this fund has amassed over $1.75 billion, which makes it one of the larger ETFs in the Materials ETFs. This particular fund, before fees and expenses, 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
Expense ratios are an important factor in the return of an ETF and in the long-term, cheaper funds can significantly outperform their more expensive cousins, other things remaining the same.
Annual operating expenses for FXZ are 0.64%, which makes it one of the more expensive products in the space.
The fund has a 12-month trailing dividend yield of 0.91%.
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 93.40% of the portfolio.
Taking into account individual holdings, Nucor Corporation (NUE - Free Report) accounts for about 5.16% of the fund's total assets, followed by Westlake Corporation (WLK - Free Report) and Reliance Steel & Aluminum Co. (RS - Free Report) .
The top 10 holdings account for about 47.81% of total assets under management.
Performance and Risk
The ETF has gained about 16.50% and it's up approximately 31.87% so far this year and in the past one year (as of 03/31/2022), respectively. FXZ has traded between $53.74 and $73.35 during this last 52-week period.
FXZ has a beta of 1.21 and standard deviation of 31.45% for the trailing three-year period, which makes the fund a medium risk choice in the space. With about 38 holdings, it has more concentrated exposure than peers.
Alternatives
First Trust Materials AlphaDEX ETF 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 ETF (XLB - Free Report) tracks Materials Select Sector Index and the FlexShares Morningstar Global Upstream Natural Resources ETF (GUNR - Free Report) tracks Morningstar Global Upstream Natural Resources Index. Materials Select Sector SPDR ETF has $7.80 billion in assets, FlexShares Morningstar Global Upstream Natural Resources ETF has $8.27 billion. XLB has an expense ratio of 0.10% 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 ETF (FXZ) a Strong ETF Right Now?
Launched on 05/08/2007, the First Trust Materials AlphaDEX ETF (FXZ - Free Report) is a smart beta exchange traded fund offering broad exposure to the Materials ETFs category of the 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.
Because market cap weighted indexes provide a low-cost, convenient, and transparent way of replicating market returns, they work well for investors who believe in market efficiency.
There are some investors, though, who think it's possible to beat the market with great stock selection; this group likely invests in another class of funds known as smart beta, which track non-cap weighted strategies.
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.
Even though this space provides many choices to investors--think one of the simplest methodologies like equal-weighting and more complicated ones like fundamental and volatility/momentum based weighting--not all have been able to deliver first-rate results.
Fund Sponsor & Index
FXZ is managed by First Trust Advisors, and this fund has amassed over $1.75 billion, which makes it one of the larger ETFs in the Materials ETFs. This particular fund, before fees and expenses, 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
Expense ratios are an important factor in the return of an ETF and in the long-term, cheaper funds can significantly outperform their more expensive cousins, other things remaining the same.
Annual operating expenses for FXZ are 0.64%, which makes it one of the more expensive products in the space.
The fund has a 12-month trailing dividend yield of 0.91%.
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 93.40% of the portfolio.
Taking into account individual holdings, Nucor Corporation (NUE - Free Report) accounts for about 5.16% of the fund's total assets, followed by Westlake Corporation (WLK - Free Report) and Reliance Steel & Aluminum Co. (RS - Free Report) .
The top 10 holdings account for about 47.81% of total assets under management.
Performance and Risk
The ETF has gained about 16.50% and it's up approximately 31.87% so far this year and in the past one year (as of 03/31/2022), respectively. FXZ has traded between $53.74 and $73.35 during this last 52-week period.
FXZ has a beta of 1.21 and standard deviation of 31.45% for the trailing three-year period, which makes the fund a medium risk choice in the space. With about 38 holdings, it has more concentrated exposure than peers.
Alternatives
First Trust Materials AlphaDEX ETF 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 ETF (XLB - Free Report) tracks Materials Select Sector Index and the FlexShares Morningstar Global Upstream Natural Resources ETF (GUNR - Free Report) tracks Morningstar Global Upstream Natural Resources Index. Materials Select Sector SPDR ETF has $7.80 billion in assets, FlexShares Morningstar Global Upstream Natural Resources ETF has $8.27 billion. XLB has an expense ratio of 0.10% 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.