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Is First Trust Industrials/Producer Durables AlphaDEX ETF (FXR) a Strong ETF Right Now?

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A smart beta exchange traded fund, the First Trust Industrials/Producer Durables AlphaDEX ETF (FXR - Free Report) debuted on 05/08/2007, and offers broad exposure to the Industrials 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.

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

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.

Non-cap weighted indexes try to choose stocks that have a better chance of risk-return performance, which is based on specific fundamental characteristics, or a mix of other such characteristics.

The smart beta space gives investors many different choices, from equal-weighting, one of the simplest strategies, to more complicated ones like fundamental and volatility/momentum based weighting. However, not all of these methodologies have been able to deliver remarkable returns.

Fund Sponsor & Index

The fund is managed by First Trust Advisors. FXR has been able to amass assets over $1.88 billion, making it one of the larger ETFs in the Industrials ETFs. FXR, before fees and expenses, seeks to match the performance of the StrataQuant Industrials Index.

The StrataQuant Industrials 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

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.

With one of the more expensive products in the space, this ETF has annual operating expenses of 0.61%.

The fund has a 12-month trailing dividend yield of 0.76%.

Sector Exposure and Top Holdings

It is important to delve into an ETF's holdings before investing despite the many upsides to these kinds of funds like diversified exposure, which minimizes single stock risk. And, most ETFs are very transparent products that disclose their holdings on a daily basis.

This ETF has heaviest allocation in the Industrials sector - about 70.70% of the portfolio. Materials and Financials round out the top three.

Looking at individual holdings, Howmet Aerospace Inc. (HWM - Free Report) accounts for about 1.46% of total assets, followed by Genpact Limited (G - Free Report) and Builders Firstsource, Inc. (BLDR - Free Report) .

Its top 10 holdings account for approximately 13.36% of FXR's total assets under management.

Performance and Risk

So far this year, FXR has gained about 10.07%, and was up about 21.84% in the last one year (as of 08/21/2024). During this past 52-week period, the fund has traded between $53.31 and $73.18.

The fund has a beta of 1.19 and standard deviation of 20.30% for the trailing three-year period, which makes FXR a medium risk choice in this particular space. With about 138 holdings, it effectively diversifies company-specific risk.

Alternatives

First Trust Industrials/Producer Durables AlphaDEX ETF is a reasonable option for investors seeking to outperform the Industrials ETFs segment of the market. However, there are other ETFs in the space which investors could consider.

Vanguard Industrials ETF (VIS - Free Report) tracks MSCI US Investable Market Industrials 25/50 Index and the Industrial Select Sector SPDR ETF (XLI - Free Report) tracks Industrial Select Sector Index. Vanguard Industrials ETF has $5.36 billion in assets, Industrial Select Sector SPDR ETF has $19.19 billion. VIS has an expense ratio of 0.10% and XLI 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 Industrials 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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