Making its debut on 04/19/2011, smart beta exchange traded fund First Trust Mid Cap Value AlphaDEX ETF (FNK) provides investors broad exposure to the Style Box - Mid Cap Value category of the market.
What Are Smart Beta ETFs?
The ETF industry has long been dominated by products based on market cap weighted indexes, a strategy created to reflect the market or a particular market segment.
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.
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.
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
The fund is sponsored by First Trust Advisors. It has amassed assets over $217.64 million, making it one of the smaller ETFs in the Style Box - Mid Cap Value. FNK, before fees and expenses, seeks to match the performance of the Nasdaq AlphaDEX Mid Cap Value Index.
The NASDAQ AlphaDEX Mid Cap Value Index is an enhanced index which employs the AlphaDEX stock selection methodology to select stocks from the NASDAQ US 600 Mid Cap Value Index.
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.
Annual operating expenses for FNK are 0.70%, which makes it one of the most expensive products in the space.
FNK's 12-month trailing dividend yield is 1.66%.
Sector Exposure and Top Holdings
ETFs offer diversified exposure and thus minimize single stock risk, but it is still important to delve into a fund's holdings before investing. Most ETFs are very transparent products and many disclose their holdings on a daily basis.
FNK's heaviest allocation is in the Financials sector, which is about 23.80% of the portfolio. Its Consumer Discretionary and Energy round out the top three.
When you look at individual holdings, Pbf Energy Inc. (PBF) accounts for about 0.91% of the fund's total assets, followed by Sanmina Corporation (SANM) and Sm Energy Company (SM).
Its top 10 holdings account for approximately 8.52% of FNK's total assets under management.
Performance and Risk
The ETF has added about 1.89% and is up roughly 23.32% so far this year and in the past one year (as of 06/06/2024), respectively. FNK has traded between $41.67 and $54.15 during this last 52-week period.
The ETF has a beta of 1.28 and standard deviation of 21.71% for the trailing three-year period, making it a medium risk choice in the space. With about 226 holdings, it effectively diversifies company-specific risk.
Alternatives
First Trust Mid Cap Value AlphaDEX ETF is a reasonable option for investors seeking to outperform the Style Box - Mid Cap Value segment of the market. However, there are other ETFs in the space which investors could consider.
IShares Russell Mid-Cap Value ETF (IWS) tracks Russell MidCap Value Index and the Vanguard Mid-Cap Value ETF (VOE) tracks CRSP U.S. Mid Cap Value Index. IShares Russell Mid-Cap Value ETF has $12.67 billion in assets, Vanguard Mid-Cap Value ETF has $16.25 billion. IWS has an expense ratio of 0.23% and VOE charges 0.07%.
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 - Mid Cap Value.
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 Mid Cap Value AlphaDEX ETF (FNK): ETF Research Reports
SM Energy Company (SM) : Free Stock Analysis Report
Sanmina Corporation (SANM) : Free Stock Analysis Report
PBF Energy Inc. (PBF) : Free Stock Analysis Report
Vanguard Mid-Cap Value ETF (VOE): ETF Research Reports
iShares Russell Mid-Cap Value ETF (IWS): 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.
