Back to top

Image: Bigstock

Is First Trust Consumer Discretionary AlphaDEX ETF (FXD) a Strong ETF Right Now?

Read MoreHide Full Article

The First Trust Consumer Discretionary AlphaDEX ETF (FXD - Free Report) was launched on 05/08/2007, and is a smart beta exchange traded fund designed to offer broad exposure to the Consumer Discretionary 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.

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.

This kind of index follows this same mindset, as it attempts to pick stocks that have better chances of risk-return performance; non-cap weighted strategies base selection on certain fundamental characteristics, or a mix of 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. FXD has been able to amass assets over $1.45 billion, making it one of the largest ETFs in the Consumer Discretionary ETFs. This particular fund seeks to match the performance of the StrataQuant Consumer Discretionary Index before fees and expenses.

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

Cost & Other Expenses

When considering an ETF's total return, expense ratios are an important factor. And, cheaper funds can significantly outperform their more expensive cousins in the long term if all other factors remain equal.

Annual operating expenses for FXD are 0.61%, which makes it on par with most peer products in the space.

It has a 12-month trailing dividend yield of 0.66%.

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.

Representing 78.10% of the portfolio, the fund has heaviest allocation to the Consumer Discretionary sector; Telecom and Industrials round out the top three.

When you look at individual holdings, D.r. Horton, Inc. (DHI - Free Report) accounts for about 1.75% of the fund's total assets, followed by Fox Corporation (class A) (FOXA - Free Report) and Lennar Corporation (LEN - Free Report) .

FXD's top 10 holdings account for about 15.88% of its total assets under management.

Performance and Risk

Year-to-date, the First Trust Consumer Discretionary AlphaDEX ETF has gained about 3.36% so far, and is up about 11.81% over the last 12 months (as of 09/05/2024). FXD has traded between $46.79 and $64.54 in this past 52-week period.

The fund has a beta of 1.38 and standard deviation of 23.42% for the trailing three-year period, which makes FXD a medium risk choice in this particular space. With about 121 holdings, it effectively diversifies company-specific risk.

Alternatives

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

Vanguard Consumer Discretionary ETF (VCR - Free Report) tracks MSCI US Investable Market Consumer Discretionary 25/50 Index and the Consumer Discretionary Select Sector SPDR ETF (XLY - Free Report) tracks Consumer Discretionary Select Sector Index. Vanguard Consumer Discretionary ETF has $5.55 billion in assets, Consumer Discretionary Select Sector SPDR ETF has $18.65 billion. VCR has an expense ratio of 0.10% and XLY 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 Consumer Discretionary 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.

Published in