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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) made its debut on 05/08/2007, and is a smart beta exchange traded fund that provides broad exposure to the Materials ETFs category of the market.
What Are Smart Beta ETFs?
Products that are based on market cap weighted indexes, which are strategies designed to reflect a specific market segment or the market as a whole, have traditionally dominated the ETF industry.
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.
If you're the kind of investor who would rather try and beat the market through good stock selection, then smart beta funds are your best choice; this fund class is known for tracking non-cap weighted strategies.
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
Because the fund has amassed over $1.73 billion, this makes it one of the larger ETFs in the Materials ETFs. FXZ is managed by First Trust Advisors. FXZ, before fees and expenses, 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
Cost is an important factor in selecting the right ETF, and cheaper funds can significantly outperform their more expensive cousins if all other fundamentals are the same.
Operating expenses on an annual basis are 0.61% for this ETF, which makes it on par with most peer products in the space.
FXZ's 12-month trailing dividend yield is 1.35%.
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.
For FXZ, it has heaviest allocation in the Materials sector --about 93.50% of the portfolio.
Looking at individual holdings, Cleveland-Cliffs Inc. (CLF - Free Report) accounts for about 5.50% of total assets, followed by Nucor Corporation (NUE - Free Report) and Steel Dynamics, Inc. (STLD - Free Report) .
Its top 10 holdings account for approximately 44.46% of FXZ's total assets under management.
Performance and Risk
The ETF return is roughly 15.04% and is up about 14.48% so far this year and in the past one year (as of 02/09/2023), respectively. FXZ has traded between $50.77 and $74.60 during this last 52-week period.
The ETF has a beta of 1.28 and standard deviation of 34.10% for the trailing three-year period, making it a medium risk choice in the space. With about 40 holdings, it has more concentrated exposure than peers.
Alternatives
First Trust Materials AlphaDEX ETF is a reasonable option for investors seeking to outperform the Materials ETFs segment of the market. However, there are other ETFs in the space which investors could consider.
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 $6.28 billion in assets, FlexShares Morningstar Global Upstream Natural Resources ETF has $7.72 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) made its debut on 05/08/2007, and is a smart beta exchange traded fund that provides broad exposure to the Materials ETFs category of the market.
What Are Smart Beta ETFs?
Products that are based on market cap weighted indexes, which are strategies designed to reflect a specific market segment or the market as a whole, have traditionally dominated the ETF industry.
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.
If you're the kind of investor who would rather try and beat the market through good stock selection, then smart beta funds are your best choice; this fund class is known for tracking non-cap weighted strategies.
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
Because the fund has amassed over $1.73 billion, this makes it one of the larger ETFs in the Materials ETFs. FXZ is managed by First Trust Advisors. FXZ, before fees and expenses, 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
Cost is an important factor in selecting the right ETF, and cheaper funds can significantly outperform their more expensive cousins if all other fundamentals are the same.
Operating expenses on an annual basis are 0.61% for this ETF, which makes it on par with most peer products in the space.
FXZ's 12-month trailing dividend yield is 1.35%.
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.
For FXZ, it has heaviest allocation in the Materials sector --about 93.50% of the portfolio.
Looking at individual holdings, Cleveland-Cliffs Inc. (CLF - Free Report) accounts for about 5.50% of total assets, followed by Nucor Corporation (NUE - Free Report) and Steel Dynamics, Inc. (STLD - Free Report) .
Its top 10 holdings account for approximately 44.46% of FXZ's total assets under management.
Performance and Risk
The ETF return is roughly 15.04% and is up about 14.48% so far this year and in the past one year (as of 02/09/2023), respectively. FXZ has traded between $50.77 and $74.60 during this last 52-week period.
The ETF has a beta of 1.28 and standard deviation of 34.10% for the trailing three-year period, making it a medium risk choice in the space. With about 40 holdings, it has more concentrated exposure than peers.
Alternatives
First Trust Materials AlphaDEX ETF is a reasonable option for investors seeking to outperform the Materials ETFs segment of the market. However, there are other ETFs in the space which investors could consider.
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 $6.28 billion in assets, FlexShares Morningstar Global Upstream Natural Resources ETF has $7.72 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.