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Is First Trust Materials AlphaDEX ETF (FXZ) a Strong ETF Right Now?
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The First Trust Materials AlphaDEX ETF (FXZ - Free Report) was launched on 05/08/2007, and is a smart beta exchange traded fund designed to offer broad exposure to the Materials ETFs category of the market.
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.
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.
Non-cap weighted indexes try to choose stocks that have a better chance of risk-return performance, which is based on specific fundamental characteristics, or a mix of other 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, and has been able to amass over $1.98 billion, which makes it one of the larger ETFs in the Materials ETFs. Before fees and expenses, FXZ 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.
Operating expenses on an annual basis are 0.64% for this ETF, which makes it one of the more expensive products in the space.
The fund has a 12-month trailing dividend yield of 0.92%.
Sector Exposure and Top Holdings
Most ETFs are very transparent products, and disclose their holdings on a daily basis. ETFs also offer diversified exposure, which minimizes single stock risk, though it's still important for investors to research a fund's holdings.
Representing 93.40% of the portfolio, the fund has heaviest allocation to the Materials sector.
When you look at individual holdings, United States Steel Corporation (X - Free Report) accounts for about 6.15% of the fund's total assets, followed by Steel Dynamics, Inc. (STLD - Free Report) and Nucor Corporation (NUE - Free Report) .
Its top 10 holdings account for approximately 48.38% of FXZ's total assets under management.
Performance and Risk
The ETF has added roughly 15.06% and is up about 16.17% so far this year and in the past one year (as of 06/01/2022), respectively. FXZ has traded between $53.74 and $74.60 during this last 52-week period.
The ETF has a beta of 1.16 and standard deviation of 31.90% 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.
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 $7.44 billion in assets, FlexShares Morningstar Global Upstream Natural Resources ETF has $8.88 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?
The First Trust Materials AlphaDEX ETF (FXZ - Free Report) was launched on 05/08/2007, and is a smart beta exchange traded fund designed to offer broad exposure to the Materials ETFs category of the market.
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.
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.
Non-cap weighted indexes try to choose stocks that have a better chance of risk-return performance, which is based on specific fundamental characteristics, or a mix of other 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, and has been able to amass over $1.98 billion, which makes it one of the larger ETFs in the Materials ETFs. Before fees and expenses, FXZ 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.
Operating expenses on an annual basis are 0.64% for this ETF, which makes it one of the more expensive products in the space.
The fund has a 12-month trailing dividend yield of 0.92%.
Sector Exposure and Top Holdings
Most ETFs are very transparent products, and disclose their holdings on a daily basis. ETFs also offer diversified exposure, which minimizes single stock risk, though it's still important for investors to research a fund's holdings.
Representing 93.40% of the portfolio, the fund has heaviest allocation to the Materials sector.
When you look at individual holdings, United States Steel Corporation (X - Free Report) accounts for about 6.15% of the fund's total assets, followed by Steel Dynamics, Inc. (STLD - Free Report) and Nucor Corporation (NUE - Free Report) .
Its top 10 holdings account for approximately 48.38% of FXZ's total assets under management.
Performance and Risk
The ETF has added roughly 15.06% and is up about 16.17% so far this year and in the past one year (as of 06/01/2022), respectively. FXZ has traded between $53.74 and $74.60 during this last 52-week period.
The ETF has a beta of 1.16 and standard deviation of 31.90% 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.
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 $7.44 billion in assets, FlexShares Morningstar Global Upstream Natural Resources ETF has $8.88 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.