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Should You Invest in the First Trust Consumer Discretionary AlphaDEX ETF (FXD)?

·4 min read

Launched on 05/08/2007, the First Trust Consumer Discretionary AlphaDEX ETF (FXD) is a passively managed exchange traded fund designed to provide a broad exposure to the Consumer Discretionary - Broad segment of the equity market.

Passively managed ETFs are becoming increasingly popular with institutional as well as retail investors due to their low cost, transparency, flexibility and tax efficiency. They are excellent vehicles for long term investors.

Investor-friendly, sector ETFs provide many options to gain low risk and diversified exposure to a broad group of companies in particular sectors. Consumer Discretionary - Broad is one of the 16 broad Zacks sectors within the Zacks Industry classification. It is currently ranked 13, placing it in bottom 19%.

Index Details

The fund is sponsored by First Trust Advisors. It has amassed assets over $872.09 million, making it one of the largest ETFs attempting to match the performance of the Consumer Discretionary - Broad segment of the equity market. 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.

Costs

When considering an ETF's total return, expense ratios are an important factor, and cheaper funds can significantly outperform their more expensive counterparts in the long term if all other factors remain equal.

Annual operating expenses for this ETF are 0.64%, making it one of the more expensive products in the space.

It has a 12-month trailing dividend yield of 1.21%.

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.

This ETF has heaviest allocation in the Consumer Discretionary sector--about 71.30% of the portfolio. Telecom and Industrials round out the top three.

Looking at individual holdings, Royal Caribbean Cruises Ltd. (RCL) accounts for about 1.77% of total assets, followed by Toll Brothers, Inc. (TOL) and Tesla, Inc. (TSLA).

The top 10 holdings account for about 15.99% of total assets under management.

Performance and Risk

The ETF has lost about -16.76% and is down about -12.20% so far this year and in the past one year (as of 07/08/2020), respectively. FXD has traded between $23.18 and $45.94 during this last 52-week period.

The ETF has a beta of 1.40 and standard deviation of 28.91% for the trailing three-year period, making it a medium risk choice in the space. With about 123 holdings, it effectively diversifies company-specific risk.

Alternatives

First Trust Consumer Discretionary AlphaDEX ETF carries a Zacks ETF Rank of 3 (Hold), which is based on expected asset class return, expense ratio, and momentum, among other factors. Thus, FXD is a good option for those seeking exposure to the Consumer Discretionary ETFs area of the market. Investors might also want to consider some other ETF options in the space.

Vanguard Consumer Discretionary ETF (VCR) tracks MSCI US Investable Market Consumer Discretionary 25/50 Index and the Consumer Discretionary Select Sector SPDR ETF (XLY) tracks Consumer Discretionary Select Sector Index. Vanguard Consumer Discretionary ETF has $3.30 billion in assets, Consumer Discretionary Select Sector SPDR ETF has $13.34 billion. VCR has an expense ratio of 0.10% and XLY charges 0.13%.

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 Consumer Discretionary AlphaDEX ETF (FXD): ETF Research Reports
 
Toll Brothers Inc. (TOL) : Free Stock Analysis Report
 
Royal Caribbean Cruises Ltd. (RCL) : Free Stock Analysis Report
 
Tesla, Inc. (TSLA) : Free Stock Analysis Report
 
Vanguard Consumer Discretionary ETF (VCR): ETF Research Reports
 
Consumer Discretionary Select Sector SPDR ETF (XLY): ETF Research Reports
 
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