A smart beta exchange traded fund, the First Trust NASDAQ Bank ETF (FTXO Quick QuoteFTXO - Free Report) debuted on 09/20/2016, and offers 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.

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.

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.

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

Because the fund has amassed over $225.97 million, this makes it one of the average sized ETFs in the Financials ETFs. FTXO is managed by First Trust Advisors. This particular fund seeks to match the performance of the Nasdaq US Smart Banks Index before fees and expenses.

The Nasdaq US Smart Banks Index is a modified factor weighted index, designed to provide exposure to US companies within the banking industry.

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 0.60% for FTXO, making it on par with most peer products in the space.

FTXO's 12-month trailing dividend yield is 2.31%.

Sector Exposure and Top Holdings

While ETFs offer diversified exposure, which minimizes single stock risk, a deep look into a fund's holdings is a valuable exercise. And, most ETFs are very transparent products that disclose their holdings on a daily basis.

For FTXO, it has heaviest allocation in the Financials sector --about 100% of the portfolio.

Taking into account individual holdings, Wells Fargo & Company (WFC Quick QuoteWFC - Free Report) accounts for about 9.55% of the fund's total assets, followed by Citigroup Inc. (C Quick QuoteC - Free Report) and Jpmorgan Chase & Co. (JPM Quick QuoteJPM - Free Report) .

Its top 10 holdings account for approximately 60.07% of FTXO's total assets under management.

Performance and Risk

The ETF has lost about -5.56% so far this year and is up about 19.88% in the last one year (as of 03/18/2025). In the past 52-week period, it has traded between $24.85 and $35.28.

The ETF has a beta of 1.09 and standard deviation of 27.15% for the trailing three-year period. With about 51 holdings, it effectively diversifies company-specific risk.

Alternatives

First Trust NASDAQ Bank ETF is a reasonable option for investors seeking to outperform the Financials ETFs segment of the market. However, there are other ETFs in the space which investors could consider.

SPDR S&P Bank ETF (KBE Quick QuoteKBE - Free Report) tracks S&P Banks Select Industry Index and the Invesco KBW Bank ETF (KBWB Quick QuoteKBWB - Free Report) tracks KBW Nasdaq Bank index. SPDR S&P Bank ETF has $2.18 billion in assets, Invesco KBW Bank ETF has $3.26 billion. KBE has an expense ratio of 0.35% and KBWB charges 0.35%.

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.