Is First Trust Health Care AlphaDEX ETF (FXH) a Strong ETF Right Now?
Launched on 05/08/2007, the First Trust Health Care AlphaDEX ETF (FXH) is a smart beta exchange traded fund offering broad exposure to the Health Care 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 work great for investors who believe in market efficiency. They provide a low-cost, convenient and transparent way of replicating market returns.
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.
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
FXH is managed by First Trust Advisors, and this fund has amassed over $1.38 billion, which makes it one of the larger ETFs in the Health Care ETFs. Before fees and expenses, FXH seeks to match the performance of the StrataQuant Health Care Index.
The StrataQuant Health Care Index employs the AlphaDEX stock selection methodology to select stocks from the Russell 1000 Index.
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.
Operating expenses on an annual basis are 0.61% for this ETF, which makes it on par with most peer products in the space.
It's 12-month trailing dividend yield comes in at 0.30%.
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.
FXH's heaviest allocation is in the Healthcare sector, which is about 100% of the portfolio.
When you look at individual holdings, Exact Sciences Corporation (EXAS) accounts for about 2.91% of the fund's total assets, followed by Penumbra, Inc. (PEN) and Universal Health Services, Inc. (class B) (UHS).
Its top 10 holdings account for approximately 23.49% of FXH's total assets under management.
Performance and Risk
The ETF has lost about -7.58% and is down about -2.55% so far this year and in the past one year (as of 09/19/2023), respectively. FXH has traded between $96.46 and $114.21 during this last 52-week period.
The ETF has a beta of 0.79 and standard deviation of 17.34% for the trailing three-year period, making it a medium risk choice in the space. With about 84 holdings, it effectively diversifies company-specific risk.
Alternatives
First Trust Health Care AlphaDEX ETF is a reasonable option for investors seeking to outperform the Health Care ETFs segment of the market. However, there are other ETFs in the space which investors could consider.
Vanguard Health Care ETF (VHT) tracks MSCI US Investable Market Health Care 25/50 Index and the Health Care Select Sector SPDR ETF (XLV) tracks Health Care Select Sector Index. Vanguard Health Care ETF has $16.75 billion in assets, Health Care Select Sector SPDR ETF has $39.32 billion. VHT has an expense ratio of 0.10% and XLV 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 Health Care 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 Health Care AlphaDEX ETF (FXH): ETF Research Reports
Universal Health Services, Inc. (UHS) : Free Stock Analysis Report
Health Care Select Sector SPDR ETF (XLV): ETF Research Reports
Vanguard Health Care ETF (VHT): ETF Research Reports
Exact Sciences Corporation (EXAS) : Free Stock Analysis Report
Penumbra, Inc. (PEN) : Free Stock Analysis Report
