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Should You Invest in the First Trust Materials AlphaDEX ETF (FXZ)?

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Designed to provide broad exposure to the Materials - Broad segment of the equity market, the First Trust Materials AlphaDEX ETF (FXZ) is 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. Materials - Broad is one of the 16 broad Zacks sectors within the Zacks Industry classification. It is currently ranked 3, placing it in top 19%.

Index Details

The fund is sponsored by First Trust Advisors. It has amassed assets over $373.38 million, making it one of the average sized ETFs attempting to match the performance of the Materials - Broad segment of the equity market. FXZ seeks to match the performance of the StrataQuant Materials Index before fees and expenses.

The StrataQuant Materials 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

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 0.67%, making it one of the more expensive products in the space.

It has a 12-month trailing dividend yield of 1.22%.

Sector Exposure and Top Holdings

ETFs offer a 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.

This ETF has heaviest allocation in the Materials sector--about 88.30% of the portfolio, followed by Industrials.

Looking at individual holdings, Royal Gold, Inc. (RGLD) accounts for about 4.99% of total assets, followed by Newmont Corporation (NEM) and The Mosaic Company (MOS).

The top 10 holdings account for about 44.77% of total assets under management.

Performance and Risk

The ETF has added about 22.81% so far this year and is up roughly 86.93% in the last one year (as of 04/29/2021). In that past 52-week period, it has traded between $29.41 and $58.34.

The ETF has a beta of 1.30 and standard deviation of 30.53% for the trailing three-year period, making it a medium risk choice in the space. With about 38 holdings, it has more concentrated exposure than peers.

Alternatives

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

FlexShares Morningstar Global Upstream Natural Resources ETF (GUNR) tracks Morningstar Global Upstream Natural Resources Index and the Materials Select Sector SPDR ETF (XLB) tracks Materials Select Sector Index. FlexShares Morningstar Global Upstream Natural Resources ETF has $5.21 billion in assets, Materials Select Sector SPDR ETF has $8.15 billion. GUNR has an expense ratio of 0.46% and XLB 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.


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FT-MATERLS ALP (FXZ): ETF Research Reports
 
Newmont Corporation (NEM) : Free Stock Analysis Report
 
SPDR-MATLS SELS (XLB): ETF Research Reports
 
The Mosaic Company (MOS) : Free Stock Analysis Report
 
Royal Gold, Inc. (RGLD) : Free Stock Analysis Report
 
FLEXS-MRN GUNR (GUNR): ETF Research Reports
 
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