The First Trust Financials AlphaDEX ETF (
FXO Quick Quote FXO - Free Report) was launched on 05/08/2007, and is a passively managed exchange traded fund designed to offer broad exposure to the Financials - Broad segment of the equity market.
An increasingly popular option among retail and institutional investors, passively managed ETFs offer low costs, transparency, flexibility, and tax efficiency; they are also excellent vehicles for long term investors.
Sector ETFs are also funds of convenience, offering many ways to gain low risk and diversified exposure to a broad group of companies in particular sectors. Financials - Broad is one of the 16 broad Zacks sectors within the Zacks Industry classification. It is currently ranked 4, placing it in top 25%.
The fund is sponsored by First Trust Advisors. It has amassed assets over $1.16 billion, making it one of the larger ETFs attempting to match the performance of the Financials - Broad segment of the equity market. 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.
Since cheaper funds tend to produce better results than more expensive funds, assuming all other factors remain equal, it is important for investors to pay attention to an ETF's expense ratio.
Annual operating expenses for this ETF are 0.61%, making it one of the more expensive products in the space.
It has a 12-month trailing dividend yield of 2.13%.
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.
This ETF has heaviest allocation in the Financials sector--about 100% of the portfolio.
Looking at individual holdings, Lpl Financial Holdings Inc. (
LPLA Quick Quote LPLA - Free Report) accounts for about 1.98% of total assets, followed by Alleghany Corporation and Mgic Investment Corporation ( MTG Quick Quote MTG - Free Report) .
The top 10 holdings account for about 17.62% of total assets under management.
Performance and Risk
So far this year, FXO has lost about -11.51%, and is down about -8.76% in the last one year (as of 09/01/2022). During this past 52-week period, the fund has traded between $37.52 and $48.61.
The ETF has a beta of 1.11 and standard deviation of 34.02% for the trailing three-year period, making it a medium risk choice in the space. With about 101 holdings, it effectively diversifies company-specific risk.
First Trust Financials AlphaDEX ETF holds a Zacks ETF Rank of 2 (Buy), which is based on expected asset class return, expense ratio, and momentum, among other factors. Because of this, FXO is an excellent option for investors seeking exposure to the Financials ETFs segment of the market. There are other additional ETFs in the space that investors could consider as well.
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 $8.74 billion in assets, Financial Select Sector SPDR ETF has $33.26 billion. VFH has an expense ratio of 0.10% and XLF charges 0.10%. Bottom Line
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