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Is First Trust Health Care AlphaDEX ETF (FXH) a Strong ETF Right Now?

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Making its debut on 05/08/2007, smart beta exchange traded fund First Trust Health Care AlphaDEX ETF (FXH - Free Report) provides investors broad exposure to the Health Care 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.

If you're the kind of investor who would rather try and beat the market through good stock selection, then smart beta funds are your best choice; this fund class is known for tracking non-cap weighted strategies.

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.

This area offers many different investment choices, such as simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies; however, not all of these strategies can deliver superior results.

Fund Sponsor & Index

The fund is managed by First Trust Advisors. FXH has been able to amass assets over $1.24 billion, making it one of the larger ETFs in the Health Care ETFs. Before fees and expenses, this particular fund seeks to match the performance of the StrataQuant Health Care Index.

The StrataQuant Health Care Index employs the AlphaDEX stock selection methodology to select stocks from the Russell 1000 Index.

Cost & Other Expenses

Investors should also pay attention to an ETF's expense ratio. Lower cost products will produce better results than those with a higher cost, assuming all other metrics remain the same.

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

FXH's 12-month trailing dividend yield is 0.30%.

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.

FXH's heaviest allocation is in the Healthcare sector, which is about 100% of the portfolio.

Looking at individual holdings, Natera, Inc. (NTRA - Free Report) accounts for about 2.71% of total assets, followed by Medpace Holdings, Inc. (MEDP - Free Report) and The Cigna Group (CI - Free Report) .

The top 10 holdings account for about 21.89% of total assets under management.

Performance and Risk

So far this year, FXH has added about 0.67%, and is up roughly 2.44% in the last one year (as of 05/31/2024). During this past 52-week period, the fund has traded between $90.04 and $109.59.

FXH has a beta of 0.77 and standard deviation of 16.53% for the trailing three-year period, which makes the fund a medium risk choice in the space. With about 86 holdings, it effectively diversifies company-specific risk.

Alternatives

First Trust Health Care AlphaDEX ETF is an excellent option for investors seeking to outperform the Health Care ETFs segment of the market. There are other ETFs in the space which investors could consider as well.

Vanguard Health Care ETF (VHT - Free Report) tracks MSCI US Investable Market Health Care 25/50 Index and the Health Care Select Sector SPDR ETF (XLV - Free Report) tracks Health Care Select Sector Index. Vanguard Health Care ETF has $17.34 billion in assets, Health Care Select Sector SPDR ETF has $38.12 billion. VHT has an expense ratio of 0.10% and XLV charges 0.09%.

Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Health Care 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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