A smart beta exchange traded fund, the First Trust Financials AlphaDEX ETF (FXO Quick QuoteFXO - Free Report) debuted on 05/08/2007, 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.

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

There are some investors, though, who think it's possible to beat the market with great stock selection; this group likely invests in another class of funds known as smart beta, which track 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

FXO is managed by First Trust Advisors, and this fund has amassed over $1.06 billion, which makes it one of the larger ETFs in the Financials ETFs. This particular fund seeks to match the performance of the StrataQuant Financials Index before fees and expenses.

The StrataQuant Financials 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

Expense ratios are an important factor in the return of an ETF and in the long-term, cheaper funds can significantly outperform their more expensive cousins, other things remaining the same.

With on par with most peer products in the space, this ETF has annual operating expenses of 0.60%.

The fund has a 12-month trailing dividend yield of 2.18%.

Sector Exposure and Top Holdings

Even though ETFs offer diversified exposure that minimizes single stock risk, investors should also look at the actual holdings inside the fund. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.

Representing 99.4% of the portfolio, the fund has heaviest allocation to the Financials sector.

Taking into account individual holdings, Factset Research Systems Inc. (FDS) accounts for about 1.64% of the fund's total assets, followed by Mgic Investment Corporation (MTG) and Bank Ozk (OZK).

Its top 10 holdings account for approximately 15.91% of FXO's total assets under management.

Performance and Risk

So far this year, FXO has lost about -0.99%, and is up roughly 14.48% in the last one year (as of 05/11/2026). During this past 52-week period, the fund has traded between $52.98 and $62.21.

FXO has a beta of 0.97 and standard deviation of 19.12% for the trailing three-year period, which makes the fund a medium risk choice in the space. With about 106 holdings, it effectively diversifies company-specific risk .

Alternatives

First Trust Financials AlphaDEX ETF is not a suitable option for investors seeking to outperform the Financials ETFs segment of the market. Instead, there are other ETFs in the space which investors should consider.

Vanguard Financials Index Fund ETF Shares (VFH) tracks MSCI US Investable Market Financials 25/50 Index and the State Street Financial Select Sector SPDR ETF (XLF) tracks Financial Select Sector Index. Vanguard Financials Index Fund ETF Shares has $12.32 billion in assets, State Street Financial Select Sector SPDR ETF has $50.95 billion. VFH has an expense ratio of 0.09% and XLF changes 0.08%.

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.