Is First Trust NASDAQ Bank ETF (FTXO) a Strong ETF Right Now?

Launched on 09/20/2016, the First Trust NASDAQ Bank ETF (FTXO) is a smart beta exchange traded fund offering broad exposure to the Financials ETFs category of the market.

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.

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.

This kind of index follows this same mindset, as it attempts to pick stocks that have better chances of risk-return performance; non-cap weighted strategies base selection on certain fundamental characteristics, or a mix of such characteristics.

While this space offers a number of choices to investors, including simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies, not all these strategies have been able to deliver superior results.

Fund Sponsor & Index

Managed by First Trust Advisors, FTXO has amassed assets over $235.47 million, making it one of the average sized ETFs in the Financials ETFs. This particular fund seeks to match the performance of the Nasdaq US Smart Banks Index before fees and expenses.

The Nasdaq US Smart Banks Index is a modified factor weighted index, designed to provide exposure to US companies within the banking industry.

Cost & Other Expenses

Cost is an important factor in selecting the right ETF, and cheaper funds can significantly outperform their more expensive cousins if all other fundamentals are the same.

Operating expenses on an annual basis are 0.60% for FTXO, making it on par with most peer products in the space.

The fund has a 12-month trailing dividend yield of 2.38%.

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.

Representing 100% of the portfolio, the fund has heaviest allocation to the Financials sector.

Taking into account individual holdings, Popular, Inc. (BPOP) accounts for about 8.50% of the fund's total assets, followed by M&t Bank Corporation (MTB) and Wells Fargo & Company (WFC).

FTXO's top 10 holdings account for about 60.03% of its total assets under management.

Performance and Risk

The ETF has lost about -17.31% and is down about -6.23% so far this year and in the past one year (as of 07/27/2022), respectively. FTXO has traded between $25.42 and $37 during this last 52-week period.

The fund has a beta of 1.21 and standard deviation of 40.46% for the trailing three-year period. With about 31 holdings, it has more concentrated exposure than peers.

Alternatives

First Trust NASDAQ Bank ETF is an excellent option for investors seeking to outperform the Financials ETFs segment of the market. There are other ETFs in the space which investors could consider as well.

Invesco KBW Bank ETF (KBWB) tracks KBW Nasdaq Bank index and the SPDR S&P Bank ETF (KBE) tracks S&P Banks Select Industry Index. Invesco KBW Bank ETF has $1.73 billion in assets, SPDR S&P Bank ETF has $2.09 billion. KBWB has an expense ratio of 0.35% and KBE charges 0.35%.

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 NASDAQ Bank ETF (FTXO): ETF Research Reports
 
Wells Fargo & Company (WFC) : Free Stock Analysis Report
 
M&T Bank Corporation (MTB) : Free Stock Analysis Report
 
Popular, Inc. (BPOP) : Free Stock Analysis Report
 
SPDR S&P Bank ETF (KBE): ETF Research Reports
 
Invesco KBW Bank ETF (KBWB): ETF Research Reports
 
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