Is First Trust Financials AlphaDEX ETF (FXO) a Strong ETF Right Now?
The First Trust Financials AlphaDEX ETF (FXO) was launched on 05/08/2007, and is a smart beta exchange traded fund designed to offer broad exposure to the Financials 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.
Market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns, and are a good option 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.
Based on specific fundamental characteristics, or a combination of such, these indexes attempt to pick stocks that have a better chance of risk-return performance.
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
FXO is managed by First Trust Advisors, and this fund has amassed over $775.37 million, which makes it one of the average sized ETFs in the Financials ETFs. This particular fund, before fees and expenses, seeks to match the performance of the StrataQuant Financials Index.
The StrataQuant Financials 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
Since cheaper funds tend to produce better results than more expensive funds, assuming all other factors remain equal, it is important for investors to pay attention to an ETF's expense ratio.
Annual operating expenses for FXO are 0.62%, which makes it on par with most peer products in the space.
The fund has a 12-month trailing dividend yield of 3.17%.
Sector Exposure and Top Holdings
ETFs offer diversified exposure and thus minimize single stock risk, but it is still important to delve into a fund's holdings before investing. Most ETFs are very transparent products and many disclose their holdings on a daily basis.
For FXO, it has heaviest allocation in the Financials sector --about 99.60% of the portfolio.
Looking at individual holdings, First Citizens Bancshares, Inc. (class A) (FCNCA) accounts for about 2.17% of total assets, followed by Unum Group (UNM) and Bank Ozk (OZK).
FXO's top 10 holdings account for about 19.08% of its total assets under management.
Performance and Risk
The ETF has lost about -4.73% and is down about -0.56% so far this year and in the past one year (as of 09/22/2023), respectively. FXO has traded between $33.55 and $46.46 during this last 52-week period.
The ETF has a beta of 1.13 and standard deviation of 25.46% for the trailing three-year period, making it a medium risk choice in the space. With about 100 holdings, it effectively diversifies company-specific risk.
Alternatives
First Trust Financials AlphaDEX ETF is not a suitable option for investors seeking to outperform the Financials ETFs segment of the market. Instead, there are other ETFs in the space which investors should consider.
Vanguard Financials ETF (VFH) tracks MSCI US Investable Market Financials 25/50 Index and the Financial Select Sector SPDR ETF (XLF) tracks Financial Select Sector Index. Vanguard Financials ETF has $8.59 billion in assets, Financial Select Sector SPDR ETF has $32.44 billion. VFH has an expense ratio of 0.10% and XLF charges 0.10%.
Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Financials 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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First Trust Financials AlphaDEX ETF (FXO): ETF Research Reports
Unum Group (UNM) : Free Stock Analysis Report
First Citizens BancShares, Inc. (FCNCA) : Free Stock Analysis Report
Financial Select Sector SPDR ETF (XLF): ETF Research Reports
Vanguard Financials ETF (VFH): ETF Research Reports
Bank OZK (OZK) : Free Stock Analysis Report
