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Should You Invest in the First Trust Nasdaq Bank ETF (FTXO)?

Zacks Equity Research
Best Buy (BBY) has an impressive earnings surprise history and currently possesses the right combination of the two key ingredients for a likely beat in its next quarterly report.

Designed to provide broad exposure to the Financials - Banking segment of the U.S. equity market, the First Trust Nasdaq Bank ETF (FTXO) is a passively managed exchange traded fund launched on 09/20/2016.

While an excellent vehicle for long term investors, passively managed ETFs are a popular choice among institutional and retail investors due to their low costs, transparency, flexibility, and tax efficiency.

Sector ETFs also provide investors access to a broad group of companies in particular sectors that offer low risk and diversified exposure. Financials - Banking is one of the 16 broad Zacks sectors within the Zacks Industry classification. It is currently ranked 15, placing it in bottom 6%.

Index Details

The fund is sponsored by First Trust Advisors. It has amassed assets over $1.30 B, making it one of the average sized ETFs attempting to match the performance of the Financials - Banking segment of the U.S. equity market. FTXO seeks to match the performance of the Nasdaq US Smart Banks Index before fees and expenses.

The Nasdaq US Smart Banks Index is a modified factor weighted index, designed to provide exposure to US companies within the banking industry.

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 0.60%, making it the most expensive product in the space.

It has a 12-month trailing dividend yield of 1.37%.

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, Fifth Third Bancorp (FITB) accounts for about 8.07% of total assets, followed by Regions Financial Corporation (RF) and Jpmorgan Chase & Co. (JPM).

The top 10 holdings account for about 59.99% of total assets under management.

Performance and Risk

So far this year, FTXO has added about 0.37%, and is up about 19.46% in the last one year (as of 04/20/2018). During this past 52-week period, the fund has traded between $24.70 and $32.18.

The ETF has a beta of 1.64 and standard deviation of 19.88% for the trailing three-year period. With about 30 holdings, it has more concentrated exposure than peers.

Alternatives

First Trust Nasdaq Bank 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, FTXO is a good 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.

PowerShares KBW Bank Portfolio (KBWB) tracks KBW Nasdaq Bank index and the SPDR S&P Bank ETF (KBE) tracks S&P Banks Select Industry Index. PowerShares KBW Bank Portfolio has $1.16 B in assets, SPDR S&P Bank ETF has $4.09 B. KBWB has an expense ratio of 0.35% and KBE charges 0.35%.

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
 
JPMorgan Chase & Co. (JPM) : Free Stock Analysis Report
 
Fifth Third Bancorp (FITB) : Free Stock Analysis Report
 
Regions Financial Corporation (RF) : Free Stock Analysis Report
 
SPDR-KBW BANK (KBE): ETF Research Reports
 
FT-NDQ BANK (FTXO): ETF Research Reports
 
PWRSH-KBW BP (KBWB): ETF Research Reports
 
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