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

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The First Trust Technology AlphaDEX ETF (FXL - Free Report) made its debut on 05/08/2007, and is a smart beta exchange traded fund that provides broad exposure to the Technology ETFs 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.

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

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

Because the fund has amassed over $1.39 billion, this makes it one of the larger ETFs in the Technology ETFs. FXL is managed by First Trust Advisors. FXL seeks to match the performance of the StrataQuant Technology Index before fees and expenses.

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

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.

Annual operating expenses for this ETF are 0.62%, making it on par with most peer products in the space.

The fund has a 12-month trailing dividend yield of 0.38%.

Sector Exposure and Top Holdings

Most ETFs are very transparent products, and disclose their holdings on a daily basis. ETFs also offer diversified exposure, which minimizes single stock risk, though it's still important for investors to research a fund's holdings.

Representing 81.90% of the portfolio, the fund has heaviest allocation to the Information Technology sector; Industrials and Telecom round out the top three.

When you look at individual holdings, Elastic N.v. (ESTC - Free Report) accounts for about 2.23% of the fund's total assets, followed by Vertiv Group Corp (VRT - Free Report) and Nutanix, Inc. (class A) (NTNX - Free Report) .

Its top 10 holdings account for approximately 19.23% of FXL's total assets under management.

Performance and Risk

Year-to-date, the First Trust Technology AlphaDEX ETF has gained about 7.26% so far, and was up about 35.93% over the last 12 months (as of 03/04/2024). FXL has traded between $96.27 and $138.57 in this past 52-week period.

The ETF has a beta of 1.16 and standard deviation of 25.51% for the trailing three-year period, making it a medium risk choice in the space. With about 98 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 $64.94 billion in assets, Vanguard Information Technology ETF has $65.51 billion. XLK has an expense ratio of 0.09% 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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