U.S. Markets open in 8 hrs 49 mins

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

Zacks Equity Research
The Zacks Analyst Blog Highlights: Eni, Equinor, Enterprise Products, Energen and Phillips 66

Looking for broad exposure to the Consumer Discretionary - Broad segment of the equity market? You should consider the First Trust Consumer Discretionary AlphaDEX Fund (FXD), a passively managed exchange traded fund launched on 05/08/2007.

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.

Sector ETFs are also funds of convenience, offering many ways 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 11, placing it in bottom 31%.

Index Details

The fund is sponsored by First Trust Advisors. It has amassed assets over $402.83 M, making it one of the larger 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

Investors should also pay attention to an ETF's expense ratio. Lower cost products will produce better results than those with a higher cost, assuming all other metrics remain the same.

Annual operating expenses for this ETF are 0.63%, making it on par with most peer products in the space.

It has a 12-month trailing dividend yield of 0.97%.

Sector Exposure and Top Holdings

Even though ETFs offer diversified exposure that minimizes single stock risk, investors should also look at the actual holdings inside the fund. Luckily, 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 76.20% of the portfolio. Telecom and Industrials round out the top three.

Looking at individual holdings, Graham Holdings Company (GHC) accounts for about 1.66% of total assets, followed by Lear Corporation (LEA) and Tribune Media Company (class A) (TRCO).

The top 10 holdings account for about 16.18% of total assets under management.

Performance and Risk

The ETF has lost about -2.71% so far this year and was up about 7.52% in the last one year (as of 10/16/2018). In that past 52-week period, it has traded between $38.16 and $45.22.

The ETF has a beta of 1 and standard deviation of 14.07% for the trailing three-year period, making it a medium risk choice in the space. With about 109 holdings, it effectively diversifies company-specific risk.

Alternatives

First Trust Consumer Discretionary AlphaDEX Fund holds a Zacks ETF Rank of 2 (Buy), which is based on expected asset class return, expense ratio, and momentum, among other factors. Because of this, FXD is an outstanding option for investors seeking exposure to the Consumer Discretionary ETFs segment of the market. There are other additional ETFs in the space that investors could consider as well.

Vanguard Consumer Discretionary ETF (VCR) tracks MSCI US Investable Market Consumer Discretionary 25/50 Index and the Consumer Discretionary Select Sector SPDR Fund (XLY) tracks Consumer Discretionary Select Sector Index. Vanguard Consumer Discretionary ETF has $2.97 B in assets, Consumer Discretionary Select Sector SPDR Fund has $14.35 B. 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.


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
FT-CONSUMR DIS (FXD): ETF Research Reports
 
Lear Corporation (LEA) : Free Stock Analysis Report
 
Tribune Media Company (TRCO) : Free Stock Analysis Report
 
SPDR-CONS DISCR (XLY): ETF Research Reports
 
VIPERS-CONS DIS (VCR): ETF Research Reports
 
To read this article on Zacks.com click here.
 
Zacks Investment Research