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Is First Trust Technology AlphaDEX ETF (FXL) a Strong ETF Right Now?

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Making its debut on 05/08/2007, smart beta exchange traded fund First Trust Technology AlphaDEX ETF (FXL - Free Report) provides investors broad exposure to the Technology 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.

Investors who believe in market efficiency should consider market cap indexes, as they replicate market returns in a low-cost, convenient, and transparent way.

On the other hand, some investors who believe that it is possible to beat the market by superior stock selection opt to invest in another class of funds that track non-cap weighted strategies--popularly known as smart beta.

This kind of index follows this same mindset, as it attempts to pick stocks that have better chances of risk-return performance; non-cap weighted strategies base selection on certain fundamental characteristics, or a mix of such characteristics.

While this space offers a number of choices to investors, including simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies, not all these strategies have been able to deliver superior results.

Fund Sponsor & Index

The fund is managed by First Trust Advisors. FXL has been able to amass assets over $1.08 billion, making it one of the larger ETFs in the Technology ETFs. Before fees and expenses, FXL seeks to match the performance of the StrataQuant Technology Index.

The StrataQuant Technology 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

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 this ETF are 0.61%, making it on par with most peer products in the space.

The fund has a 12-month trailing dividend yield of 0.21%.

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.

For FXL, it has heaviest allocation in the Information Technology sector --about 84.50% of the portfolio --while Industrials and Telecom round out the top three.

When you look at individual holdings, Vertiv Holdings Co (class A) (VRT - Free Report) accounts for about 2.58% of the fund's total assets, followed by Doordash, Inc. (class A) (DASH - Free Report) and Cognizant Technology Solutions Corporation (CTSH - Free Report) .

The top 10 holdings account for about 17.93% of total assets under management.

Performance and Risk

So far this year, FXL has added about 15.66%, and is up about 14.96% in the last one year (as of 11/01/2023). During this past 52-week period, the fund has traded between $87.86 and $121.01.

The fund has a beta of 1.17 and standard deviation of 25.99% for the trailing three-year period, which makes FXL a medium risk choice in this particular space. With about 101 holdings, it effectively diversifies company-specific risk.

Alternatives

First Trust Technology AlphaDEX ETF is an excellent option for investors seeking to outperform the Technology ETFs segment of the market. There are other ETFs in the space which investors could consider as well.

Technology Select Sector SPDR ETF (XLK - Free Report) tracks Technology Select Sector Index and the Vanguard Information Technology ETF (VGT - Free Report) tracks MSCI US Investable Market Information Technology 25/50 Index. Technology Select Sector SPDR ETF has $47.57 billion in assets, Vanguard Information Technology ETF has $49 billion. XLK has an expense ratio of 0.10% and VGT 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 Technology 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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