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

Zacks Equity Research
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The First Trust Materials AlphaDEX Fund (FXZ) was launched on 05/08/2007, and is a passively managed exchange traded fund designed to offer broad exposure to the Materials - Broad segment of the equity market.

An increasingly popular option among retail and institutional investors, passively managed ETFs offer low costs, transparency, flexibility, and tax efficiency; they are also 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 16, placing it in bottom 0%.

Index Details

The fund is sponsored by First Trust Advisors. It has amassed assets over $274.91 M, 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

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 0.65%, making it on par with most peer products in the space.

It has a 12-month trailing dividend yield of 1.02%.

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 Materials sector--about 82.10% of the portfolio. Industrials and Information Technology round out the top three.

Looking at individual holdings, Olin Corporation (OLN) accounts for about 3.92% of total assets, followed by Nucor Corporation (NUE) and Steel Dynamics, Inc. (STLD).

The top 10 holdings account for about 35.45% of total assets under management.

Performance and Risk

So far this year, FXZ has lost about -2.88%, and is up about 6.92% in the last one year (as of 09/25/2018). During this past 52-week period, the fund has traded between $39.83 and $46.42.

The ETF has a beta of 1.23 and standard deviation of 16.25% for the trailing three-year period, making it a medium risk choice in the space. With about 50 holdings, it has more concentrated exposure than peers.

Alternatives

First Trust Materials 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, FXZ is an outstanding option for investors seeking exposure to the Materials ETFs segment of the market. There are other additional ETFs in the space that investors could consider as well.

Materials Select Sector SPDR Fund (XLB) tracks Materials Select Sector Index and the FlexShares Morningstar Global Upstream Natural Resources Index Fund (GUNR) tracks Morningstar Global Upstream Natural Resources Index. Materials Select Sector SPDR Fund has $4.59 B in assets, FlexShares Morningstar Global Upstream Natural Resources Index Fund has $5.78 B. XLB has an expense ratio of 0.13% and GUNR charges 0.46%.

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
 
Olin Corporation (OLN) : Free Stock Analysis Report
 
SPDR-MATLS SELS (XLB): ETF Research Reports
 
Steel Dynamics, Inc. (STLD) : Free Stock Analysis Report
 
Nucor Corporation (NUE) : Free Stock Analysis Report
 
FLEXS-MRN GUNR (GUNR): ETF Research Reports
 
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