Is First Trust Materials AlphaDEX ETF (FXZ) a Strong ETF Right Now?
Launched on 05/08/2007, the First Trust Materials AlphaDEX ETF (FXZ) is a smart beta exchange traded fund offering broad exposure to the Materials ETFs category of the market.
What Are Smart Beta ETFs?
The ETF industry has traditionally been dominated by products based on market capitalization weighted indexes that are designed to represent the market or a particular segment of the market.
Investors who believe in market efficiency should consider market cap indexes, as they replicate market returns in a low-cost, convenient, and transparent way.
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.
Non-cap weighted indexes try to choose stocks that have a better chance of risk-return performance, which is based on specific fundamental characteristics, or a mix of other 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
Managed by First Trust Advisors, FXZ has amassed assets over $680.09 million, making it one of the average sized ETFs in the Materials ETFs. FXZ, before fees and expenses, seeks to match the performance of the StrataQuant Materials Index.
The StrataQuant Materials 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.
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 has a 12-month trailing dividend yield of 1.73%.
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.
FXZ's heaviest allocation is in the Materials sector, which is about 91.50% of the portfolio.
Looking at individual holdings, Nucor Corporation (NUE) accounts for about 5.22% of total assets, followed by Steel Dynamics, Inc. (STLD) and Cleveland-Cliffs Inc. (CLF).
The top 10 holdings account for about 44.62% of total assets under management.
Performance and Risk
So far this year, FXZ has added about 5.33%, and was up about 3.80% in the last one year (as of 06/16/2023). During this past 52-week period, the fund has traded between $50.77 and $71.94.
The fund has a beta of 1.26 and standard deviation of 26.70% for the trailing three-year period, which makes FXZ a medium risk choice in this particular space. With about 40 holdings, it has more concentrated exposure than peers.
Alternatives
First Trust Materials AlphaDEX ETF is a reasonable option for investors seeking to outperform the Materials ETFs segment of the market. However, there are other ETFs in the space which investors could consider.
Materials Select Sector SPDR ETF (XLB) tracks Materials Select Sector Index and the FlexShares Morningstar Global Upstream Natural Resources ETF (GUNR) tracks Morningstar Global Upstream Natural Resources Index. Materials Select Sector SPDR ETF has $5.82 billion in assets, FlexShares Morningstar Global Upstream Natural Resources ETF has $7.35 billion. XLB has an expense ratio of 0.10% and GUNR charges 0.46%.
Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Materials 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 Materials AlphaDEX ETF (FXZ): ETF Research Reports
Steel Dynamics, Inc. (STLD) : Free Stock Analysis Report
Nucor Corporation (NUE) : Free Stock Analysis Report
Cleveland-Cliffs Inc. (CLF) : Free Stock Analysis Report
Materials Select Sector SPDR ETF (XLB): ETF Research Reports
FlexShares Morningstar Global Upstream Natural Resources ETF (GUNR): ETF Research Reports
