Is First Trust Large Cap Core AlphaDEX ETF (FEX) a Strong ETF Right Now?

Making its debut on 05/08/2007, smart beta exchange traded fund First Trust Large Cap Core AlphaDEX ETF FEX provides investors broad exposure to the Style Box - Large Cap Blend category of the market.

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.

Market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns, and are a good option for investors who believe in market efficiency.

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.

This area offers many different investment choices, such as simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies; however, not all of these strategies can deliver superior results.

Fund Sponsor & Index

FEX is managed by First Trust Advisors, and this fund has amassed over $1.09 billion, which makes it one of the larger ETFs in the Style Box - Large Cap Blend. Before fees and expenses, this particular fund seeks to match the performance of the Nasdaq AlphaDEX Large Cap Core Index.

The NASDAQ AlphaDEX Large Cap Core Index is an enhanced index which employs the AlphaDEX stock selection methodology to select stocks from the NASDAQ US 500 Large Cap Index.

Cost & Other Expenses

Expense ratios are an important factor in the return of an ETF and in the long-term, cheaper funds can significantly outperform their more expensive cousins, other things remaining the same.

Operating expenses on an annual basis are 0.59% for FEX, making it on par with most peer products in the space.

The fund has a 12-month trailing dividend yield of 1.18%.

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.

FEX's heaviest allocation is in the Financials sector, which is about 17.50% of the portfolio. Its Information Technology and Healthcare round out the top three.

When you look at individual holdings, At&t Inc. T accounts for about 0.58% of the fund's total assets, followed by Lkq Corporation LKQ and Gilead Sciences, Inc. GILD.

The top 10 holdings account for about 5.26% of total assets under management.

Performance and Risk

The ETF has lost about -11.93% and is down about -8.95% so far this year and in the past one year (as of 09/08/2022), respectively. FEX has traded between $74.38 and $92.98 during this last 52-week period.

The ETF has a beta of 1.06 and standard deviation of 25.39% for the trailing three-year period, making it a medium risk choice in the space. With about 376 holdings, it effectively diversifies company-specific risk.

Alternatives

First Trust Large Cap Core AlphaDEX ETF is a reasonable option for investors seeking to outperform the Style Box - Large Cap Blend segment of the market. However, there are other ETFs in the space which investors could consider.

IShares Core S&P 500 ETF IVV tracks S&P 500 Index and the SPDR S&P 500 ETF SPY tracks S&P 500 Index. IShares Core S&P 500 ETF has $297.83 billion in assets, SPDR S&P 500 ETF has $360.82 billion. IVV has an expense ratio of 0.03% and SPY charges 0.09%.

Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Style Box - Large Cap Blend.

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