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An Overview of FEX’s Alpha Holdings

Ivan Kading

A Structural Analysis of Smart Beta Fund FEX

(Continued from Prior Part)

Blend of growth and value

Alpha is the extra return generated over a specified benchmark. Alpha stocks are generally fundamentally strong, with a blend of value and growth characteristics. The Defined Large Cap Core Index consists of such alpha stocks. This index employs the AlphaDEX stock selection methodology to select stocks from the S&P 500 Index.

This model uses the combination of growth factors including three-month, six-month, and 12-month price appreciation; sales to price; and one-year sales growth. It also includes value factors such as book value to price, cash flow to price, and return on assets. The First Trust Large Cap Core AlphaDEX ETF (FEX) seeks to replicate the investment results of the Defined Large Cap Core Index.

Portfolio structure breakdown

FEX currently manages a total portfolio of $1.76 billion distributed primarily over the financial, consumer discretionary, and industrials sectors. The current top holdings of FEX include Amazon (AMZN), First Solar (FSLR), Murphy Oil Corp. (MUR), and Applied Materials (AMAT). This ETF currently manages a total portfolio of 378 holdings, with market capitalizations ranging from $1.70 billion–$653.53 billion.

Moving averages and earnings

The financial sector, which is the highest weighted sector of FEX, is trading above its 20-day moving average by 1.07%, its 50-day moving average by 4.19%, and its 100-day moving average by 2.59%, helping the fund’s performance in the market. However, the financial sector also observed weak earnings in 3Q15, missing analyst estimates by 1.06%. The consumer discretionary sector is trading below its 20-day moving average by 2.29%, affecting the fund’s performance.

In the final part of this series, we will analyze the returns from FEX in comparison with SPY.

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