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Is First Trust Multi Cap Value AlphaDEX ETF (FAB) a Strong ETF Right Now?

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A smart beta exchange traded fund, the First Trust Multi Cap Value AlphaDEX ETF (FAB - Free Report) debuted on 05/08/2007, and offers broad exposure to the Style Box - All Cap Value 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.

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.

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.

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.

Methodologies like equal-weighting, one of the simplest options out there, fundamental weighting, and volatility/momentum based weighting are all choices offered to investors in this space, but not all of them can deliver superior returns.

Fund Sponsor & Index

FAB is managed by First Trust Advisors, and this fund has amassed over $203.32 million, which makes it one of the average sized ETFs in the Style Box - All Cap Value. Before fees and expenses, FAB seeks to match the performance of the Nasdaq AlphaDEX Multi Cap Value Index.

The NASDAQ AlphaDEX Multi Cap Value Index is an enhanced index which employs the AlphaDEX stock selection methodology to select stocks from the NASDAQ US 500 Large Cap Index, NASDAQ US 600 Mid Cap Index and NASDAQ US 700 Small Cap Index.

Cost & Other Expenses

For ETF investors, expense ratios are an important factor when considering a fund's return; in the long-term, cheaper funds actually have the ability to outperform their more expensive cousins if all other things remain the same.

Annual operating expenses for FAB are 0.69%, which makes it one of the more expensive products in the space.

It has a 12-month trailing dividend yield of 1.56%.

Sector Exposure and Top Holdings

ETFs offer diversified exposure and thus minimize single stock risk, but it is still important to delve into a fund's holdings before investing. Most ETFs are very transparent products and many disclose their holdings on a daily basis.

FAB's heaviest allocation is in the Financials sector, which is about 26.50% of the portfolio. Its Industrials and Consumer Discretionary round out the top three.

When you look at individual holdings, At&t Inc. (T - Free Report) accounts for about 0.59% of the fund's total assets, followed by Lkq Corporation (LKQ - Free Report) and Exxon Mobil Corporation (XOM - Free Report) .

FAB's top 10 holdings account for about 5.06% of its total assets under management.

Performance and Risk

So far this year, FAB has lost about -3.14%, and is up roughly 4.27% in the last one year (as of 08/22/2022). During this past 52-week period, the fund has traded between $63.92 and $77.49.

The ETF has a beta of 1.21 and standard deviation of 31.14% for the trailing three-year period, making it a medium risk choice in the space. With about 674 holdings, it effectively diversifies company-specific risk.


First Trust Multi Cap Value AlphaDEX ETF is a reasonable option for investors seeking to outperform the Style Box - All Cap Value segment of the market. However, there are other ETFs in the space which investors could consider.

Dimensional U.S. Targeted Value ETF (DFAT - Free Report) tracks ---------------------------------------- and the iShares Core S&P U.S. Value ETF (IUSV - Free Report) tracks S&P 900 Value Index. Dimensional U.S. Targeted Value ETF has $7.27 billion in assets, iShares Core S&P U.S. Value ETF has $12.32 billion. DFAT has an expense ratio of 0.29% and IUSV charges 0.04%.

Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Style Box - All Cap Value.

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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