Is First Trust Technology AlphaDEX ETF (FXL) a Strong ETF Right Now?
Smart Beta ETF report for FXL
A smart beta exchange traded fund, the First Trust Technology AlphaDEX ETF (FXL) debuted on 05/08/2007, and offers broad exposure to the Technology 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.
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.
However, some investors believe in the possibility of beating the market through exceptional stock selection, and choose a different type of fund that tracks non-cap weighted strategies: smart beta.
Non-cap weighted indexes try to choose stocks that have a better chance of risk-return performance, which is based on specific fundamental characteristics, or a mix of other such characteristics.
Even though this space provides many choices to investors--think one of the simplest methodologies like equal-weighting and more complicated ones like fundamental and volatility/momentum based weighting--not all have been able to deliver first-rate results.
Fund Sponsor & Index
Managed by First Trust Advisors, FXL has amassed assets over $1.73 billion, making it one of the larger ETFs in the Technology ETFs. FXL, before fees and expenses, seeks to match the performance of the StrataQuant Technology Index.
The StrataQuant Technology 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
When considering an ETF's total return, expense ratios are an important factor. And, cheaper funds can significantly outperform their more expensive cousins in the long term if all other factors remain equal.
Operating expenses on an annual basis are 0.61% for this ETF, which makes it on par with most peer products in the space.
FXL's 12-month trailing dividend yield is 0.12%.
Sector Exposure and Top Holdings
Even though ETFs offer diversified exposure that minimizes single stock risk, investors should also look at the actual holdings inside the fund. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.
For FXL, it has heaviest allocation in the Information Technology sector --about 91.70% of the portfolio.
Taking into account individual holdings, Cloudflare, Inc. (class A) (NET) accounts for about 2.40% of the fund's total assets, followed by Hubspot, Inc. (HUBS) and Zscaler, Inc. (ZS).
The top 10 holdings account for about 17.39% of total assets under management.
Performance and Risk
Year-to-date, the First Trust Technology AlphaDEX ETF has lost about -6.49% so far, and is up roughly 7.32% over the last 12 months (as of 01/14/2022). FXL has traded between $105.48 and $138.38 in this past 52-week period.
The ETF has a beta of 1.16 and standard deviation of 28.52% for the trailing three-year period, making it a medium risk choice in the space. With about 110 holdings, it effectively diversifies company-specific risk.
First Trust Technology AlphaDEX ETF is an excellent option for investors seeking to outperform the Technology ETFs segment of the market. There are other ETFs in the space which investors could consider as well.
Technology Select Sector SPDR ETF (XLK) tracks Technology Select Sector Index and the Vanguard Information Technology ETF (VGT) tracks MSCI US Investable Market Information Technology 25/50 Index. Technology Select Sector SPDR ETF has $49.53 billion in assets, Vanguard Information Technology ETF has $52.86 billion. XLK has an expense ratio of 0.12% and VGT charges 0.10%.
Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Technology ETFs.
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.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week.Get it free >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
First Trust Technology AlphaDEX ETF (FXL): ETF Research Reports
Technology Select Sector SPDR ETF (XLK): ETF Research Reports
HubSpot, Inc. (HUBS): Free Stock Analysis Report
Vanguard Information Technology ETF (VGT): ETF Research Reports
Zscaler, Inc. (ZS): Free Stock Analysis Report
Cloudflare, Inc. (NET): Free Stock Analysis Report
To read this article on Zacks.com click here.