Should You Invest in the First Trust Materials AlphaDEX ETF (FXZ)?
Sector ETF report for FXZ
Launched on 05/08/2007, the First Trust Materials AlphaDEX ETF (FXZ) is a passively managed exchange traded fund designed to provide a broad exposure to the Materials - Broad segment of the equity market.
An increasingly popular option among retail and institutional investors, passively managed ETFs offer low costs, transparency, flexibility, and tax efficiency; they are also excellent vehicles for long term investors.
Sector ETFs are also funds of convenience, offering many ways to gain low risk and diversified exposure to a broad group of companies in particular sectors. Materials - Broad is one of the 16 broad Zacks sectors within the Zacks Industry classification. It is currently ranked 12, placing it in bottom 25%.
The fund is sponsored by First Trust Advisors. It has amassed assets over $453.53 million, making it one of the average sized ETFs attempting to match the performance of the Materials - Broad segment of the equity market. 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 is an important factor in selecting the right ETF, and cheaper funds can significantly outperform their more expensive counterparts if all other fundamentals are the same.
Annual operating expenses for this ETF are 0.67%, making it one of the more expensive products in the space.
It has a 12-month trailing dividend yield of 1.10%.
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.
This ETF has heaviest allocation in the Materials sector--about 93% of the portfolio.
Looking at individual holdings, Olin Corporation (OLN) accounts for about 5.26% of total assets, followed by Steel Dynamics, Inc. (STLD) and Celanese Corporation (CE).
The top 10 holdings account for about 46.35% of total assets under management.
Performance and Risk
The ETF has added roughly 23.86% so far this year and was up about 46.16% in the last one year (as of 10/13/2021). In that past 52-week period, it has traded between $37.81 and $63.15.
The ETF has a beta of 1.26 and standard deviation of 31.35% for the trailing three-year period, making it a medium risk choice in the space. With about 38 holdings, it has more concentrated exposure than peers.
First Trust Materials 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, FXZ is a reasonable option for those seeking exposure to the Materials ETFs area of the market. Investors might also want to consider some other ETF options in the space.
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 $5.89 billion in assets, Materials Select Sector SPDR ETF has $7.36 billion. GUNR has an expense ratio of 0.46% and XLB charges 0.12%.
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
Celanese Corporation (CE): 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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