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Is First Trust Materials AlphaDEX ETF (FXZ) a Strong ETF Right Now?
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The First Trust Materials AlphaDEX ETF (FXZ - Free Report) made its debut on 05/08/2007, and is a smart beta exchange traded fund that provides broad exposure to the Materials ETFs category of the market.
What Are Smart Beta ETFs?
Market cap weighted indexes were created to reflect the market, or a specific segment of the market, and the ETF industry has traditionally been dominated by products based on this strategy.
Market cap weighted indexes work great for investors who believe in market efficiency. They provide a low-cost, convenient and transparent way of replicating market returns.
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.
By attempting to pick stocks that have a better chance of risk-return performance, non-cap weighted indexes are based on certain fundamental characteristics, or a combination of such.
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 managed by First Trust Advisors, and has been able to amass over $530.81 million, which makes 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
Since cheaper funds tend to produce better results than more expensive funds, assuming all other factors remain equal, it is important for investors to pay attention to an ETF's expense ratio.
Operating expenses on an annual basis are 0.61% for FXZ, making it on par with most peer products in the space.
It's 12-month trailing dividend yield comes in at 2.07%.
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.
For FXZ, it has heaviest allocation in the Materials sector --about 94.50% of the portfolio.
When you look at individual holdings, Reliance Steel & Aluminum Co. (RS - Free Report) accounts for about 5.15% of the fund's total assets, followed by Nucor Corporation (NUE - Free Report) and Westlake Corporation (WLK - Free Report) .
FXZ's top 10 holdings account for about 43.04% of its total assets under management.
Performance and Risk
So far this year, FXZ return is roughly 7.39%, and it's up approximately 3.70% in the last one year (as of 08/25/2023). During this past 52-week period, the fund has traded between $50.77 and $71.94.
The fund has a beta of 1.28 and standard deviation of 26.26% for the trailing three-year period, which makes FXZ a medium risk choice in this particular space. With about 39 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 $5.53 billion in assets, FlexShares Morningstar Global Upstream Natural Resources ETF has $7.15 billion. XLB has an expense ratio of 0.10% 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?
The First Trust Materials AlphaDEX ETF (FXZ - Free Report) made its debut on 05/08/2007, and is a smart beta exchange traded fund that provides broad exposure to the Materials ETFs category of the market.
What Are Smart Beta ETFs?
Market cap weighted indexes were created to reflect the market, or a specific segment of the market, and the ETF industry has traditionally been dominated by products based on this strategy.
Market cap weighted indexes work great for investors who believe in market efficiency. They provide a low-cost, convenient and transparent way of replicating market returns.
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.
By attempting to pick stocks that have a better chance of risk-return performance, non-cap weighted indexes are based on certain fundamental characteristics, or a combination of such.
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 managed by First Trust Advisors, and has been able to amass over $530.81 million, which makes 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
Since cheaper funds tend to produce better results than more expensive funds, assuming all other factors remain equal, it is important for investors to pay attention to an ETF's expense ratio.
Operating expenses on an annual basis are 0.61% for FXZ, making it on par with most peer products in the space.
It's 12-month trailing dividend yield comes in at 2.07%.
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.
For FXZ, it has heaviest allocation in the Materials sector --about 94.50% of the portfolio.
When you look at individual holdings, Reliance Steel & Aluminum Co. (RS - Free Report) accounts for about 5.15% of the fund's total assets, followed by Nucor Corporation (NUE - Free Report) and Westlake Corporation (WLK - Free Report) .
FXZ's top 10 holdings account for about 43.04% of its total assets under management.
Performance and Risk
So far this year, FXZ return is roughly 7.39%, and it's up approximately 3.70% in the last one year (as of 08/25/2023). During this past 52-week period, the fund has traded between $50.77 and $71.94.
The fund has a beta of 1.28 and standard deviation of 26.26% for the trailing three-year period, which makes FXZ a medium risk choice in this particular space. With about 39 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 $5.53 billion in assets, FlexShares Morningstar Global Upstream Natural Resources ETF has $7.15 billion. XLB has an expense ratio of 0.10% 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.