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Is First Trust Financials AlphaDEX ETF (FXO) a Strong ETF Right Now?
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The First Trust Financials AlphaDEX ETF (FXO - Free Report) made its debut on 05/08/2007, and is a smart beta exchange traded fund that provides broad exposure to the Financials 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 work great for investors who believe in market efficiency. They provide 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.
Based on specific fundamental characteristics, or a combination of such, these indexes attempt to pick stocks that have a better chance of risk-return performance.
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
Managed by First Trust Advisors, FXO has amassed assets over $1.15 billion, making it one of the average sized ETFs in the Financials ETFs. This particular fund 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.
Cost & Other Expenses
When considering an ETF's total return, expense ratios are an important factor. And, cheaper funds can significantly outperform their more expensive cousins in the long term if all other factors remain equal.
Operating expenses on an annual basis are 0.62% for this ETF, which makes it one of the more expensive products in the space.
It's 12-month trailing dividend yield comes in at 2.41%.
Sector Exposure and Top Holdings
Even though ETFs offer diversified exposure which minimizes single stock risk, it is still important to look into a fund's holdings before investing. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.
This ETF has heaviest allocation in the Financials sector - about 99.70% of the portfolio.
When you look at individual holdings, Coinbase Global, Inc. (class A) (COIN - Free Report) accounts for about 2.80% of the fund's total assets, followed by Jefferies Financial Group Inc. (JEF - Free Report) and Lpl Financial Holdings Inc. (LPLA - Free Report) .
The top 10 holdings account for about 18.41% of total assets under management.
Performance and Risk
So far this year, FXO has added about 3.59%, and is down about -9.59% in the last one year (as of 01/10/2023). During this past 52-week period, the fund has traded between $36.81 and $48.61.
The ETF has a beta of 1.11 and standard deviation of 35.06% 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.
Alternatives
First Trust Financials AlphaDEX ETF is an excellent option for investors seeking to outperform the Financials ETFs segment of the market. There are other ETFs in the space which investors could consider as well.
Vanguard Financials ETF (VFH - Free Report) tracks MSCI US Investable Market Financials 25/50 Index and the Financial Select Sector SPDR ETF (XLF - Free Report) tracks Financial Select Sector Index. Vanguard Financials ETF has $9.01 billion in assets, Financial Select Sector SPDR ETF has $32.64 billion. VFH has an expense ratio of 0.10% and XLF 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 Financials 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 Financials AlphaDEX ETF (FXO) a Strong ETF Right Now?
The First Trust Financials AlphaDEX ETF (FXO - Free Report) made its debut on 05/08/2007, and is a smart beta exchange traded fund that provides broad exposure to the Financials 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 work great for investors who believe in market efficiency. They provide 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.
Based on specific fundamental characteristics, or a combination of such, these indexes attempt to pick stocks that have a better chance of risk-return performance.
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
Managed by First Trust Advisors, FXO has amassed assets over $1.15 billion, making it one of the average sized ETFs in the Financials ETFs. This particular fund 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.
Cost & Other Expenses
When considering an ETF's total return, expense ratios are an important factor. And, cheaper funds can significantly outperform their more expensive cousins in the long term if all other factors remain equal.
Operating expenses on an annual basis are 0.62% for this ETF, which makes it one of the more expensive products in the space.
It's 12-month trailing dividend yield comes in at 2.41%.
Sector Exposure and Top Holdings
Even though ETFs offer diversified exposure which minimizes single stock risk, it is still important to look into a fund's holdings before investing. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.
This ETF has heaviest allocation in the Financials sector - about 99.70% of the portfolio.
When you look at individual holdings, Coinbase Global, Inc. (class A) (COIN - Free Report) accounts for about 2.80% of the fund's total assets, followed by Jefferies Financial Group Inc. (JEF - Free Report) and Lpl Financial Holdings Inc. (LPLA - Free Report) .
The top 10 holdings account for about 18.41% of total assets under management.
Performance and Risk
So far this year, FXO has added about 3.59%, and is down about -9.59% in the last one year (as of 01/10/2023). During this past 52-week period, the fund has traded between $36.81 and $48.61.
The ETF has a beta of 1.11 and standard deviation of 35.06% 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.
Alternatives
First Trust Financials AlphaDEX ETF is an excellent option for investors seeking to outperform the Financials ETFs segment of the market. There are other ETFs in the space which investors could consider as well.
Vanguard Financials ETF (VFH - Free Report) tracks MSCI US Investable Market Financials 25/50 Index and the Financial Select Sector SPDR ETF (XLF - Free Report) tracks Financial Select Sector Index. Vanguard Financials ETF has $9.01 billion in assets, Financial Select Sector SPDR ETF has $32.64 billion. VFH has an expense ratio of 0.10% and XLF 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 Financials 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.