Designed to provide broad exposure to the Financials - Broad segment of the equity market, the First Trust Financials AlphaDEX ETF (FXO) is a passively managed exchange traded fund launched on 05/08/2007.
Retail and institutional investors increasingly turn to passively managed ETFs because they offer low costs, transparency, flexibility, and tax efficiency; these kind of funds are also excellent vehicles for long term investors.
Sector ETFs also provide investors access to a broad group of companies in particular sectors that offer low risk and diversified exposure. Financials - Broad is one of the 16 broad Zacks sectors within the Zacks Industry classification. It is currently ranked 1, placing it in top 6%.
Index Details
The fund is sponsored by First Trust Advisors. It has amassed assets over $1.07 billion, making it one of the average sized ETFs attempting to match the performance of the Financials - Broad segment of the equity market. FXO seeks to match the performance of the StrataQuant Financials Index before fees and expenses.
The StrataQuant Financials 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.
Costs
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 this ETF are 0.62%, making it on par with most peer products in the space.
It has a 12-month trailing dividend yield of 1.85%.
Sector Exposure and Top Holdings
ETFs offer a 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.
This ETF has heaviest allocation in the Financials sector--about 99.10% of the portfolio.
Looking at individual holdings, Tpg Inc. (class A) (TPG) accounts for about 1.86% of total assets, followed by Janus Henderson Group Plc (JHG) and Affiliated Managers Group, Inc. (AMG).
The top 10 holdings account for about 17.33% of total assets under management.
Performance and Risk
Year-to-date, the First Trust Financials AlphaDEX ETF has added about 37.94% so far, and was up about 52.66% over the last 12 months (as of 11/26/2024). FXO has traded between $39.20 and $59 in this past 52-week period.
The ETF has a beta of 1.12 and standard deviation of 23.34% for the trailing three-year period, making it a medium risk choice in the space. With about 104 holdings, it effectively diversifies company-specific risk.
Alternatives
First Trust Financials AlphaDEX 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, FXO 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.
Vanguard Financials ETF (VFH) tracks MSCI US Investable Market Financials 25/50 Index and the Financial Select Sector SPDR ETF (XLF) tracks Financial Select Sector Index. Vanguard Financials ETF has $11.60 billion in assets, Financial Select Sector SPDR ETF has $51.58 billion. VFH has an expense ratio of 0.10% and XLF charges 0.09%.
Bottom Line
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