Designed to provide broad exposure to the Consumer Discretionary ETFs category of the U.S. equity market, the First Trust Consumer Discretionary AlphaDEX Fund (FXD) is a smart beta exchange traded fund launched on 05/08/2007.
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.
Investors who believe in market efficiency should consider market cap indexes, as they replicate market returns in a low-cost, convenient, and transparent way.
But, there are some investors who would rather invest in smart beta funds; these funds track non-cap weighted strategies, and are a strong option for those who prefer choosing great stocks in order to beat the market.
These indexes attempt to select stocks that have better chances of risk-return performance, based on certain fundamental characteristics or a combination of such characteristics.
Methodologies like equal-weighting, one of the simplest options out there, fundamental weighting, and volatility/momentum based weighting are all choices offered to investors in this space, but not all of them can deliver superior returns.
Fund Sponsor & Index
FXD is managed by First Trust Advisors, and this fund has amassed over $503.76 M, which makes it one of the larger ETFs in the Consumer Discretionary ETFs. FXD 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
Expense ratios are an important factor in the return of an ETF and in the long-term, cheaper funds can significantly outperform their more expensive cousins, other things remaining the same.
Annual operating expenses for FXD are 0.63%, which makes it the most expensive product in the space.
It has a 12-month trailing dividend yield of 0.92%.
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.
For FXD, it has heaviest allocation in the Consumer Discretionary sector --about 93.50% of the portfolio.
When you look at individual holdings, Lululemon Athletica Inc. (LULU) accounts for about 1.81% of the fund's total assets, followed by Netflix, Inc. (NFLX) and Amazon.com, Inc. (AMZN).
The top 10 holdings account for about 16.59% of total assets under management.
Performance and Risk
The ETF has lost about -2.95% so far this year and was up about 12.47% in the last one year (as of 06/01/2018). In the past 52-week period, it has traded between $36.01 and $45.22.
FXD has a beta of 1.03 and standard deviation of 14.91% for the trailing three-year period, which makes the fund a medium choice in the space. With about 114 holdings, it effectively diversifies company-specific risk.
First Trust Consumer Discretionary AlphaDEX Fund is an excellent option for investors seeking to outperform the Consumer Discretionary ETFs segment of the market. There are other ETFs in the space which investors could consider as well.
Vanguard Consumer Discretionary ETF (VCR) tracks MSCI US Investable Market Consumer Discretionary 25/50 Index and the Consumer Discretionary Select Sector SPDR Fund (XLY) tracks Consumer Discretionary Select Sector Index. Vanguard Consumer Discretionary ETF has $2.65 B in assets, Consumer Discretionary Select Sector SPDR Fund has $13.17 B. VCR has an expense ratio of 0.10% and XLY charges 0.13%.
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.
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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FT-CONSUMR DIS (FXD): ETF Research Reports
Amazon.com, Inc. (AMZN) : Free Stock Analysis Report
Netflix, Inc. (NFLX) : Free Stock Analysis Report
SPDR-CONS DISCR (XLY): ETF Research Reports
VIPERS-CONS DIS (VCR): ETF Research Reports
lululemon athletica inc. (LULU) : Free Stock Analysis Report
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