A Structural Analysis of Smart Beta Fund FEX
FEX’s top holdings
The First Trust Large Cap Core AlphaDEX ETF (FEX) seeks to track the performance results of the Defined Large Cap Core Index. The index provider selects only those stocks in its portfolio that have a high alpha. The alpha of each stock is determined by its value and growth factor.
Some of FEX’s top holdings are Murphy Oil (MUR), NVIDIA Corp (NVDA), Tegna (TGNA), General Motors (GM), and Activision Blizzard (ATVI). The fund was launched on August 5, 2007, and has an expense ratio of 0.64%. The graph below compares the market performance of FEX with respect to broader indexes such as the S&P 500 (SPY) and NASDAQ.
The above chart compares the market performance of FEX, SPY, and NASDAQ by tracking the price movement of $100 invested in them since January 1, 2015. The graph indicates that FEX has a year-to-date (or YTD) return of -1.8% to its investors.
On the other hand, the S&P 500 (SPY), which recovered from its slump last week, and NASDAQ both have positive YTD returns of 2.3% and 7.3%, respectively. The primary reason for FEX’s poor performance this year is its alpha holdings, which are highly risky and vulnerable to declines during critical market conditions.
FEX’s portfolio consists of high alpha stocks that have performed negatively in the market. Murphy Oil (MUR), one of the top holdings of FEX, has fallen considerably in 2015 by almost 40%, adversely affecting FEX’s performance. Another top holding, Noble Energy (NBL), has also performed negatively in the market with an annual return of -31.71%.
Amazon (AMZN), Tegna (TGNA), and GM are some of the FEX’s top holdings that have given positive returns in the market. Among the 378 holdings of FEX, 157 have performed negatively in the market while the remaining 221 have given positive returns.
The next part of this series gives a fund flow analysis of FEX in comparison with QDF.
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