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Designed to provide broad exposure to the Materials ETFs category of the market, the First Trust Materials AlphaDEX ETF (FXZ) is a smart beta exchange traded fund launched on 05/08/2007.
What Are Smart Beta ETFs?
The ETF industry has traditionally been dominated by products based on market capitalization weighted indexes that are designed to represent the market or a particular segment of the market.
Because market cap weighted indexes provide a low-cost, convenient, and transparent way of replicating market returns, they work well for investors who believe in market efficiency.
If you’re the kind of investor who would rather try and beat the market through good stock selection, then smart beta funds are your best choice; this fund class is known for tracking non-cap weighted strategies.
These indexes attempt to select stocks that have better chances of risk-return performance, based on certain fundamental characteristics or a combination of such characteristics.
The smart beta space gives investors many different choices, from equal-weighting, one of the simplest strategies, to more complicated ones like fundamental and volatility/momentum based weighting. However, not all of these methodologies have been able to deliver remarkable returns.
Fund Sponsor & Index
The fund is managed by First Trust Advisors. FXZ has been able to amass assets over $526.92 million, making it one of the average sized ETFs in the Materials ETFs. 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.
Cost & Other Expenses
Since cheaper funds tend to produce better results than more expensive funds, assuming all other factors remain equal, it is important for investors to pay attention to an ETF’s expense ratio.
Annual operating expenses for FXZ are 0.67%, which makes it one of the most expensive products in the space.
It’s 12-month trailing dividend yield comes in at 1.03%.
Sector Exposure and Top Holdings
While ETFs offer diversified exposure, which minimizes single stock risk, a deep look into a fund’s holdings is a valuable exercise. And, most ETFs are very transparent products that disclose their holdings on a daily basis.
FXZ’s heaviest allocation is in the Materials sector, which is about 91.40% of the portfolio.
Taking into account individual holdings, The Mosaic Company (MOS) accounts for about 5.20% of the fund’s total assets, followed by Steel Dynamics, Inc. (STLD) and Olin Corporation (OLN).
The top 10 holdings account for about 44.61% of total assets under management.
Performance and Risk
So far this year, FXZ has added roughly 31.15%, and is up about 41.63% in the last one year (as of 11/23/2021). During this past 52-week period, the fund has traded between $45.42 and $63.53.
FXZ has a beta of 1.26 and standard deviation of 31.14% for the trailing three-year period, which makes the fund a medium risk choice in the space. With about 37 holdings, it has more concentrated exposure than peers.
First Trust Materials AlphaDEX ETF is a reasonable option for investors seeking to outperform the Materials ETFs segment of the market. However, there are other ETFs in the space which investors could consider.
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 $6.11 billion in assets, Materials Select Sector SPDR ETF has $8.55 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.
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
The Mosaic Company (MOS): Free Stock Analysis Report
Materials Select Sector SPDR ETF (XLB): ETF Research Reports
Olin Corporation (OLN): Free Stock Analysis Report
FlexShares Morningstar Global Upstream Natural Resources ETF (GUNR): ETF Research Reports
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Zacks Investment Research