Should You Invest in the First Trust Financials AlphaDEX ETF (FXO)?
If you're interested in broad exposure to the Financials - Broad segment of the equity market, look no further than the First Trust Financials AlphaDEX ETF (FXO), 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.
Investor-friendly, sector ETFs provide many options to gain low risk and diversified exposure to a broad group of companies in particular sectors. Financials - Broad is one of the 16 broad Zacks sectors within the Zacks Industry classification. It is currently ranked 16, placing it in bottom 0%.
Index Details
The fund is sponsored by First Trust Advisors. It has amassed assets over $862.29 million, making it one of the average sized ETFs attempting to match the performance of the Financials - Broad segment of the equity market. FXO seeks to match the performance of the StrataQuant Financials Index before fees and expenses.
The StrataQuant Financials 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.
Costs
Cost is an important factor in selecting the right ETF, and cheaper funds can significantly outperform their more expensive counterparts if all other fundamentals are the same.
Annual operating expenses for this ETF are 0.62%, making it one of the more expensive products in the space.
It has a 12-month trailing dividend yield of 3.20%.
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 Financials sector--about 100% of the portfolio.
Looking at individual holdings, Janus Henderson Group Plc (JHG) accounts for about 2.09% of total assets, followed by Arch Capital Group Ltd. (ACGL) and Everest Re Group, Ltd. (RE).
The top 10 holdings account for about 19.75% of total assets under management.
Performance and Risk
Year-to-date, the First Trust Financials AlphaDEX ETF has lost about -5.74% so far, and is down about -0.41% over the last 12 months (as of 07/11/2023). FXO has traded between $33.55 and $46.46 in this past 52-week period.
The ETF has a beta of 1.11 and standard deviation of 25.92% for the trailing three-year period, making it a medium risk choice in the space. With about 101 holdings, it effectively diversifies company-specific risk.
Alternatives
First Trust Financials AlphaDEX ETF sports a Zacks ETF Rank of 4 (Sell), which is based on expected asset class return, expense ratio, and momentum, among other factors. FXO, then, is not the best option for investors seeking exposure to the Financials ETFs segment of the market. Instead, there are better ETFs in the space to consider.
Vanguard Financials ETF (VFH) tracks MSCI US Investable Market Financials 25/50 Index and the Financial Select Sector SPDR ETF (XLF) tracks Financial Select Sector Index. Vanguard Financials ETF has $7.93 billion in assets, Financial Select Sector SPDR ETF has $32.75 billion. VFH has an expense ratio of 0.10% and XLF charges 0.10%.
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 Financials AlphaDEX ETF (FXO): ETF Research Reports
Arch Capital Group Ltd. (ACGL) : Free Stock Analysis Report
Financial Select Sector SPDR ETF (XLF): ETF Research Reports
Vanguard Financials ETF (VFH): ETF Research Reports
Janus Henderson Group plc (JHG) : Free Stock Analysis Report
