Is First Trust Consumer Staples AlphaDEX ETF (FXG) a Strong ETF Right Now?

The First Trust Consumer Staples AlphaDEX ETF (FXG) was launched on 05/08/2007, and is a smart beta exchange traded fund designed to offer broad exposure to the Consumer Staples ETFs 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 work great for investors who believe in market efficiency. They provide a low-cost, convenient and transparent way of replicating market returns.

If you're the kind of investor who would rather try and beat the market through good stock selection, then smart beta funds are your best choice; this fund class is known for tracking non-cap weighted strategies.

These indexes attempt to select stocks that have better chances of risk-return performance, based on certain fundamental characteristics or a combination 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

The fund is sponsored by First Trust Advisors. It has amassed assets over $630.63 million, making it one of the average sized ETFs in the Consumer Staples ETFs. This particular fund seeks to match the performance of the StrataQuant Consumer Staples Index before fees and expenses.

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

Expense ratios are an important factor in the return of an ETF and in the long-term, cheaper funds can significantly outperform their more expensive cousins, other things remaining the same.

With one of the most expensive products in the space, this ETF has annual operating expenses of 0.64%.

The fund has a 12-month trailing dividend yield of 1.30%.

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.

FXG's heaviest allocation is in the Consumer Staples sector, which is about 87.90% of the portfolio. Its Healthcare and Materials round out the top three.

Looking at individual holdings, Performance Food Group Company (PFGC) accounts for about 4.50% of total assets, followed by Mckesson Corporation (MCK) and Walgreens Boots Alliance, Inc. (WBA).

FXG's top 10 holdings account for about 40.03% of its total assets under management.

Performance and Risk

Year-to-date, the First Trust Consumer Staples AlphaDEX ETF has lost about -2.86% so far, and is up about 8.01% over the last 12 months (as of 09/23/2022). FXG has traded between $56.29 and $67.92 in this past 52-week period.

The ETF has a beta of 0.63 and standard deviation of 19.19% 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 a reasonable option for investors seeking to outperform the Consumer Staples ETFs segment of the market. However, there are other ETFs in the space which investors could 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 $6.56 billion in assets, Consumer Staples Select Sector SPDR ETF has $15.52 billion. VDC has an expense ratio of 0.10% and XLP 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 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.

Zacks Names "Single Best Pick to Double"

From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.

It’s a little-known chemical company that’s up 65% over last year, yet still dirt cheap. With unrelenting demand, soaring 2022 earnings estimates, and $1.5 billion for repurchasing shares, retail investors could jump in at any time.

This company could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in little more than 9 months and NVIDIA which boomed +175.9% in one year.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.