Making its debut on 05/08/2007, smart beta exchange traded fund First Trust Health Care AlphaDEX ETF (
FXH Quick Quote FXH - Free Report) provides investors broad exposure to the Health Care 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.
Market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns, and are a good option 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
Because the fund has amassed over $1.42 billion, this makes it one of the larger ETFs in the Health Care ETFs. FXH is managed by First Trust Advisors. FXH, before fees and expenses, seeks to match the performance of the StrataQuant Health Care Index.
The StrataQuant Health Care Index employs the AlphaDEX stock selection methodology to select stocks from the Russell 1000 Index.
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 FXH are 0.61%, which makes it on par with most peer products in the space.
The fund has a 12-month trailing dividend yield of 0%.
Sector Exposure and Top Holdings
While ETFs offer diversified exposure, which minimizes single stock risk, a deep look into a fund's holdings is a valuable exercise. And, most ETFs are very transparent products that disclose their holdings on a daily basis.
Representing 100% of the portfolio, the fund has heaviest allocation to the Healthcare sector.
Taking into account individual holdings, Abbvie Inc. (
ABBV Quick Quote ABBV - Free Report) accounts for about 2.47% of the fund's total assets, followed by Universal Health Services, Inc. (class B) ( UHS Quick Quote UHS - Free Report) and Regeneron Pharmaceuticals, Inc. ( REGN Quick Quote REGN - Free Report) .
The top 10 holdings account for about 21.91% of total assets under management.
Performance and Risk
The ETF has lost about -14.38% and is down about -11.61% so far this year and in the past one year (as of 07/05/2022), respectively. FXH has traded between $97.16 and $128.11 during this last 52-week period.
The fund has a beta of 0.84 and standard deviation of 23.41% for the trailing three-year period, which makes FXH a medium risk choice in this particular space. With about 86 holdings, it effectively diversifies company-specific risk.
First Trust Health Care AlphaDEX ETF is a reasonable option for investors seeking to outperform the Health Care ETFs segment of the market. However, there are other ETFs in the space which investors could consider.
Vanguard Health Care ETF (
VHT Quick Quote VHT - Free Report) tracks MSCI US Investable Market Health Care 25/50 Index and the Health Care Select Sector SPDR ETF ( XLV Quick Quote XLV - Free Report) tracks Health Care Select Sector Index. Vanguard Health Care ETF has $15.64 billion in assets, Health Care Select Sector SPDR ETF has $37.69 billion. VHT has an expense ratio of 0.10% and XLV charges 0.10%.
Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Health Care ETFs.
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