Is First Trust Large Cap Core AlphaDEX ETF 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?

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.

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.

By attempting to pick stocks that have a better chance of risk-return performance, non-cap weighted indexes are based on certain fundamental characteristics, or a combination of such.

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

Because the fund has amassed over $1.22 billion, this makes it one of the larger ETFs in the Style Box - Large Cap Blend. FEX is managed by First Trust Advisors. FEX, before fees and expenses, 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.

With on par with most peer products in the space, this ETF has annual operating expenses of 0.60%.

The fund has a 12-month trailing dividend yield of 1.19%.

Sector Exposure and Top Holdings

It is important to delve into an ETF's holdings before investing despite the many upsides to these kinds of funds like diversified exposure, which minimizes single stock risk. And, most ETFs are very transparent products that disclose their holdings on a daily basis.

For FEX, it has heaviest allocation in the Industrials sector --about 16.70% of the portfolio --while Financials and Information Technology round out the top three.

Taking into account individual holdings, Nvidia Corporation accounts for about 0.62% of the fund's total assets, followed by Vistra Corp. and Crowdstrike Holdings, Inc.

Its top 10 holdings account for approximately 5.26% of FEX's total assets under management.

Performance and Risk

So far this year, FEX has added about 9.35%, and is up about 16.57% in the last one year (as of 08/15/2024). During this past 52-week period, the fund has traded between $76.85 and $100.86.

FEX has a beta of 1.05 and standard deviation of 16.93% for the trailing three-year period, which makes the fund 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 tracks S&P 500 Index. IShares Core S&P 500 ETF has $499.77 billion in assets, SPDR S&P 500 ETF has $550.61 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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