Is First Trust Industrials/Producer Durables AlphaDEX ETF a Strong ETF Right Now?

Launched on 05/08/2007, the First Trust Industrials/Producer Durables AlphaDEX ETF FXR is a smart beta exchange traded fund offering broad exposure to the Industrials ETFs category of the market.

What Are Smart Beta ETFs?

Products that are based on market cap weighted indexes, which are strategies designed to reflect a specific market segment or the market as a whole, have traditionally dominated the ETF industry.

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

On the other hand, some investors who believe that it is possible to beat the market by superior stock selection opt to invest in another class of funds that track non-cap weighted strategies--popularly known as smart beta.

This kind of index follows this same mindset, as it attempts to pick stocks that have better chances of risk-return performance; non-cap weighted strategies base selection on certain fundamental characteristics, or a mix of such characteristics.

Methodologies like equal-weighting, one of the simplest options out there, fundamental weighting, and volatility/momentum based weighting are all choices offered to investors in this space, but not all of them can deliver superior returns.

Fund Sponsor & Index

Managed by First Trust Advisors, FXR has amassed assets over $1.86 billion, making it one of the larger ETFs in the Industrials ETFs. Before fees and expenses, FXR seeks to match the performance of the StrataQuant Industrials Index.

The StrataQuant Industrials 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

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.

With one of the more expensive products in the space, this ETF has annual operating expenses of 0.61%.

The fund has a 12-month trailing dividend yield of 0.69%.

Sector Exposure and Top Holdings

Most ETFs are very transparent products, and disclose their holdings on a daily basis. ETFs also offer diversified exposure, which minimizes single stock risk, though it's still important for investors to research a fund's holdings.

Representing 70.60% of the portfolio, the fund has heaviest allocation to the Industrials sector; Materials and Financials round out the top three.

When you look at individual holdings, Allison Transmission Holdings, Inc. ALSN accounts for about 1.54% of the fund's total assets, followed by Gates Industrial Corporation Plc GTES and Armstrong World Industries, Inc. AWI.

Its top 10 holdings account for approximately 14.36% of FXR's total assets under management.

Performance and Risk

Year-to-date, the First Trust Industrials/Producer Durables AlphaDEX ETF has gained about 5.75% so far, and is up about 18.43% over the last 12 months (as of 06/18/2024). FXR has traded between $53.31 and $72.96 in this past 52-week period.

The ETF has a beta of 1.20 and standard deviation of 20.04% for the trailing three-year period, making it a medium risk choice in the space. With about 134 holdings, it effectively diversifies company-specific risk.

Alternatives

First Trust Industrials/Producer Durables AlphaDEX ETF is a reasonable option for investors seeking to outperform the Industrials ETFs segment of the market. However, there are other ETFs in the space which investors could consider.

Vanguard Industrials ETF VIS tracks MSCI US Investable Market Industrials 25/50 Index and the Industrial Select Sector SPDR ETF XLI tracks Industrial Select Sector Index. Vanguard Industrials ETF has $5.20 billion in assets, Industrial Select Sector SPDR ETF has $18.35 billion. VIS has an expense ratio of 0.10% and XLI 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 Industrials ETFs.

To read this article on Zacks.com click here.