Launched on 05/08/2007, the First Trust Technology AlphaDEX ETF (FXL) is a smart beta exchange traded fund offering 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.
Because market cap weighted indexes provide a low-cost, convenient, and transparent way of replicating market returns, they work well 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.
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
Because the fund has amassed over $1.26 billion, this makes it one of the larger ETFs in the Technology ETFs. FXL is managed by First Trust Advisors. Before fees and expenses, FXL 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
Cost is an important factor in selecting the right ETF, and cheaper funds can significantly outperform their more expensive cousins if all other fundamentals are the same.
Annual operating expenses for this ETF are 0.60%, making it on par with most peer products in the space.
The fund has a 12-month trailing dividend yield of 0.12%.
Sector Exposure and Top Holdings
Most ETFs are very transparent products, and disclose their holdings on a daily basis. ETFs also offer diversified exposure, which minimizes single stock risk, though it's still important for investors to research a fund's holdings.
This ETF has heaviest allocation in the Information Technology sector - about 78.60% of the portfolio. Industrials and Telecom round out the top three.
Taking into account individual holdings, Palantir Technologies Inc. (class A) (PLTR) accounts for about 2.04% of the fund's total assets, followed by Doordash, Inc. (class A) (DASH) and Micron Technology, Inc. (MU).
The top 10 holdings account for about 18.41% of total assets under management.
Performance and Risk
Year-to-date, the First Trust Technology AlphaDEX ETF has lost about -6.54% so far, and was up about 5.24% over the last 12 months (as of 03/20/2025). FXL has traded between $122.48 and $160.72 in this past 52-week period.
FXL has a beta of 1.17 and standard deviation of 24.20% for the trailing three-year period, which makes the fund a medium risk choice in the space. With about 101 holdings, it effectively diversifies company-specific risk.
Alternatives
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 $67.12 billion in assets, Vanguard Information Technology ETF has $79.14 billion. XLK has an expense ratio of 0.08% and VGT 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 Technology 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 Technology AlphaDEX ETF (FXL): ETF Research Reports
Micron Technology, Inc. (MU) : Free Stock Analysis Report
Technology Select Sector SPDR ETF (XLK): ETF Research Reports
Vanguard Information Technology ETF (VGT): ETF Research Reports
Palantir Technologies Inc. (PLTR) : Free Stock Analysis Report
DoorDash, Inc. (DASH) : Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
