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Should You Invest in the First Trust Financials AlphaDEX ETF (FXO)?

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Looking for broad exposure to the Financials - Broad segment of the equity market? You should consider 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.

Sector ETFs also provide investors access to a broad group of companies in particular sectors that offer low risk and diversified exposure. Financials - Broad is one of the 16 broad Zacks sectors within the Zacks Industry classification. It is currently ranked 2, placing it in top 13%.

Index Details

The fund is sponsored by First Trust Advisors. It has amassed assets over $1.61 billion, 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 0.61%, making it one of the more expensive products in the space.

It has a 12-month trailing dividend yield of 1.80%.

Sector Exposure and Top Holdings

Even though ETFs offer diversified exposure which minimizes single stock risk, it is still important to look into a fund's holdings before investing. 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, Lpl Financial Holdings Inc. (LPLA) accounts for about 1.65% of total assets, followed by The Carlyle Group Inc. (CG) and Fidelity National Financial, Inc. (FNF).

The top 10 holdings account for about 16.21% of total assets under management.

Performance and Risk

The ETF has added roughly 32.21% so far this year and is up about 33.99% in the last one year (as of 12/21/2021). In that past 52-week period, it has traded between $33.50 and $48.60.

The ETF has a beta of 1.19 and standard deviation of 32.54% for the trailing three-year period, making it a medium risk choice in the space. With about 106 holdings, it effectively diversifies company-specific risk.

Alternatives

First Trust Financials 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, FXO is a reasonable option for those seeking exposure to the Financials ETFs area of the market. Investors might also want to consider some other ETF options in the space.

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 $11.13 billion in assets, Financial Select Sector SPDR ETF has $42.25 billion. VFH has an expense ratio of 0.10% and XLF charges 0.12%.

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
 
First Trust Financials AlphaDEX ETF (FXO): ETF Research Reports
 
Fidelity National Financial, Inc. (FNF) : Free Stock Analysis Report
 
Carlyle Group Inc. (CG) : Free Stock Analysis Report
 
LPL Financial Holdings Inc. (LPLA) : Free Stock Analysis Report
 
Financial Select Sector SPDR ETF (XLF): ETF Research Reports
 
Vanguard Financials ETF (VFH): ETF Research Reports
 
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Zacks Investment Research