Designed to provide broad exposure to the Consumer Staples ETFs category of the market, the First Trust Consumer Staples AlphaDEX ETF (FXG) is a smart beta exchange traded fund launched on 05/08/2007.
What Are Smart Beta ETFs?
The ETF industry has traditionally been dominated by products based on market capitalization weighted indexes that are designed to represent the market or a particular segment of the market.
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.
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.
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.
The smart beta space gives investors many different choices, from equal-weighting, one of the simplest strategies, to more complicated ones like fundamental and volatility/momentum based weighting. However, not all of these methodologies have been able to deliver remarkable returns.
Fund Sponsor & Index
Managed by First Trust Advisors, FXG has amassed assets over $417.40 million, making it one of the average sized ETFs in the Consumer Staples ETFs. This particular fund, before fees and expenses, seeks to match the performance of the StrataQuant Consumer Staples Index.
The StrataQuant Consumer Staples 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
Investors should also pay attention to an ETF's expense ratio. Lower cost products will produce better results than those with a higher cost, assuming all other metrics remain the same.
Annual operating expenses for this ETF are 0.63%, making it the most expensive product in the space.
The fund has a 12-month trailing dividend yield of 1.40%.
Sector Exposure and Top Holdings
While ETFs offer diversified exposure, which minimizes single stock risk, a deep look into a fund's holdings is a valuable exercise. And, most ETFs are very transparent products that disclose their holdings on a daily basis.
This ETF has heaviest allocation in the Consumer Staples sector - about 89.70% of the portfolio. Healthcare and Materials round out the top three.
When you look at individual holdings, Pilgrim's Pride Corporation (PPC) accounts for about 4.69% of the fund's total assets, followed by Molson Coors Beverage Company (TAP) and Freshpet, Inc. (FRPT).
Its top 10 holdings account for approximately 39.71% of FXG's total assets under management.
Performance and Risk
So far this year, FXG has gained about 8.37%, and was up about 9.96% in the last one year (as of 08/26/2024). During this past 52-week period, the fund has traded between $57.04 and $68.49.
The ETF has a beta of 0.65 and standard deviation of 13.57% for the trailing three-year period, making it a medium risk choice in the space. With about 41 holdings, it has more concentrated exposure than peers.
Alternatives
First Trust Consumer Staples AlphaDEX ETF is not a suitable option for investors seeking to outperform the Consumer Staples ETFs segment of the market. Instead, there are other ETFs in the space which investors should consider.
Vanguard Consumer Staples ETF (VDC) tracks MSCI US Investable Market Consumer Staples 25/50 Index and the Consumer Staples Select Sector SPDR ETF (XLP) tracks Consumer Staples Select Sector Index. Vanguard Consumer Staples ETF has $7.03 billion in assets, Consumer Staples Select Sector SPDR ETF has $17.39 billion. VDC has an expense ratio of 0.10% and XLP 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 Consumer Staples ETFs.
Bottom Line
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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Get it free >>First Trust Consumer Staples AlphaDEX ETF (FXG): ETF Research Reports
Molson Coors Beverage Company (TAP) : Free Stock Analysis Report
Freshpet, Inc. (FRPT) : Free Stock Analysis Report
Pilgrim's Pride Corporation (PPC) : Free Stock Analysis Report
Consumer Staples Select Sector SPDR ETF (XLP): ETF Research Reports
Vanguard Consumer Staples ETF (VDC): ETF Research Reports
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
