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Is First Trust Materials AlphaDEX ETF (FXZ) a Strong ETF Right Now?
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Making its debut on 05/08/2007, smart beta exchange traded fund First Trust Materials AlphaDEX ETF (FXZ - Free Report) provides investors 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.
Because market cap weighted indexes provide a low-cost, convenient, and transparent way of replicating market returns, they work well for investors who believe in market efficiency.
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.
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.
Even though this space provides many choices to investors--think one of the simplest methodologies like equal-weighting and more complicated ones like fundamental and volatility/momentum based weighting--not all have been able to deliver first-rate results.
Fund Sponsor & Index
The fund is sponsored by First Trust Advisors. It has amassed assets over $414.61 million, making it one of the average sized ETFs in the Materials ETFs. Before fees and expenses, FXZ 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
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.
With on par with most peer products in the space, this ETF has annual operating expenses of 0.62%.
FXZ's 12-month trailing dividend yield is 1.91%.
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.
FXZ's heaviest allocation is in the Materials sector, which is about 91.60% of the portfolio.
Looking at individual holdings, Steel Dynamics, Inc. (STLD - Free Report) accounts for about 5.60% of total assets, followed by Nucor Corporation (NUE - Free Report) and Cf Industries Holdings, Inc. (CF - Free Report) .
The top 10 holdings account for about 42.57% of total assets under management.
Performance and Risk
Year-to-date, the First Trust Materials AlphaDEX ETF has lost about -0.34% so far, and is up roughly 12.48% over the last 12 months (as of 05/07/2024). FXZ has traded between $57.64 and $72.04 in this past 52-week period.
The fund has a beta of 1.25 and standard deviation of 24.68% for the trailing three-year period, which makes FXZ a medium risk choice in this particular 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 $5.55 billion in assets, FlexShares Morningstar Global Upstream Natural Resources ETF has $6.64 billion. XLB has an expense ratio of 0.09% 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?
Making its debut on 05/08/2007, smart beta exchange traded fund First Trust Materials AlphaDEX ETF (FXZ - Free Report) provides investors 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.
Because market cap weighted indexes provide a low-cost, convenient, and transparent way of replicating market returns, they work well for investors who believe in market efficiency.
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.
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.
Even though this space provides many choices to investors--think one of the simplest methodologies like equal-weighting and more complicated ones like fundamental and volatility/momentum based weighting--not all have been able to deliver first-rate results.
Fund Sponsor & Index
The fund is sponsored by First Trust Advisors. It has amassed assets over $414.61 million, making it one of the average sized ETFs in the Materials ETFs. Before fees and expenses, FXZ 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
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.
With on par with most peer products in the space, this ETF has annual operating expenses of 0.62%.
FXZ's 12-month trailing dividend yield is 1.91%.
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.
FXZ's heaviest allocation is in the Materials sector, which is about 91.60% of the portfolio.
Looking at individual holdings, Steel Dynamics, Inc. (STLD - Free Report) accounts for about 5.60% of total assets, followed by Nucor Corporation (NUE - Free Report) and Cf Industries Holdings, Inc. (CF - Free Report) .
The top 10 holdings account for about 42.57% of total assets under management.
Performance and Risk
Year-to-date, the First Trust Materials AlphaDEX ETF has lost about -0.34% so far, and is up roughly 12.48% over the last 12 months (as of 05/07/2024). FXZ has traded between $57.64 and $72.04 in this past 52-week period.
The fund has a beta of 1.25 and standard deviation of 24.68% for the trailing three-year period, which makes FXZ a medium risk choice in this particular 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 $5.55 billion in assets, FlexShares Morningstar Global Upstream Natural Resources ETF has $6.64 billion. XLB has an expense ratio of 0.09% 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.