The First Trust Materials AlphaDEX ETF (FXZ) was launched on 05/08/2007, and is a smart beta exchange traded fund designed to offer broad exposure to the Materials ETFs category of the market.
What Are Smart Beta ETFs?
The ETF industry has long been dominated by products based on market cap weighted indexes, a strategy created to reflect the market or a particular market segment.
Market cap weighted indexes work great for investors who believe in market efficiency. They provide a low-cost, convenient and transparent way of replicating market returns.
But, there are some investors who would rather invest in smart beta funds; these funds track non-cap weighted strategies, and are a strong option for those who prefer choosing great stocks in order to beat the market.
Based on specific fundamental characteristics, or a combination of such, these indexes attempt to pick stocks that have a better chance of risk-return performance.
While this space offers a number of choices to investors, including simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies, not all these strategies have been able to deliver superior results.
Fund Sponsor & Index
The fund is sponsored by First Trust Advisors. It has amassed assets over $515.97 million, making it one of the average sized ETFs in the Materials ETFs. Before fees and expenses, this particular fund seeks to match the performance of the StrataQuant Materials Index.
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.
Cost & Other Expenses
Cost is an important factor in selecting the right ETF, and cheaper funds can significantly outperform their more expensive cousins if all other fundamentals are the same.
Annual operating expenses for FXZ are 0.67%, which makes it one of the more expensive products in the space.
It has a 12-month trailing dividend yield of 1.23%.
Sector Exposure and Top Holdings
ETFs offer 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.
FXZ's heaviest allocation is in the Materials sector, which is about 88.30% of the portfolio. Its Industrials and Energy round out the top three.
When you look at individual holdings, Steel Dynamics, Inc. (NASDAQ:STLD) accounts for about 5.31% of the fund's total assets, followed by Newmont Corporation (NEM) and Royal Gold, Inc. (NASDAQ:RGLD).
Its top 10 holdings account for approximately 43.43% of FXZ's total assets under management.
Performance and Risk
The ETF has added roughly 21.67% and is up about 72.38% so far this year and in the past one year (as of 06/28/2021), respectively. FXZ has traded between $33.69 and $63.15 during this last 52-week period.
The fund has a beta of 1.29 and standard deviation of 30.78% for the trailing three-year period, which makes FXZ a medium risk choice in this particular space. With about 38 holdings, it has more concentrated exposure than peers.
Alternatives
First Trust Materials AlphaDEX ETF is an excellent option for investors seeking to outperform the Materials ETFs segment of the market. There are other ETFs in the space which investors could consider as well.
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 $5.53 billion in assets, Materials Select Sector SPDR ETF has $9.61 billion. GUNR has an expense ratio of 0.46% and XLB charges 0.12%.
Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Materials ETFs.
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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First Trust Materials AlphaDEX ETF (FXZ): ETF Research Reports
Steel Dynamics, Inc. (STLD): Free Stock Analysis Report
Newmont Corporation (NEM): Free Stock Analysis Report
Materials Select Sector SPDR ETF (XLB): ETF Research Reports
Royal Gold, Inc. (RGLD): Free Stock Analysis Report
FlexShares Morningstar Global Upstream Natural Resources ETF (GUNR): ETF Research Reports
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