The First Trust Large Cap Core AlphaDEX ETF (FEX) made its debut on 05/08/2007, and is a smart beta exchange traded fund that provides broad exposure to the Style Box - Large Cap Blend category of the market.
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.
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.
There are some investors, though, who think it's possible to beat the market with great stock selection; this group likely invests in another class of funds known as smart beta, which track non-cap weighted strategies.
By attempting to pick stocks that have a better chance of risk-return performance, non-cap weighted indexes are based on certain fundamental characteristics, or a combination of such.
While this space offers a number of choices to investors, including simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies, not all these strategies have been able to deliver superior results.
Fund Sponsor & Index
Because the fund has amassed over $1.14 billion, this makes it one of the larger ETFs in the Style Box - Large Cap Blend. FEX is managed by First Trust Advisors. Before fees and expenses, FEX seeks to match the performance of the Nasdaq AlphaDEX Large Cap Core Index.
The NASDAQ AlphaDEX Large Cap Core Index is an enhanced index which employs the AlphaDEX stock selection methodology to select stocks from the NASDAQ US 500 Large Cap Index.
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.
Operating expenses on an annual basis are 0.60% for this ETF, which makes it on par with most peer products in the space.
The fund has a 12-month trailing dividend yield of 1.35%.
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.
FEX's heaviest allocation is in the Financials sector, which is about 18.30% of the portfolio. Its Industrials and Information Technology round out the top three.
Looking at individual holdings, Deckers Outdoor Corporation (DECK) accounts for about 0.56% of total assets, followed by Uber Technologies, Inc. (UBER) and Royal Caribbean Cruises Ltd. (RCL).
The top 10 holdings account for about 5.31% of total assets under management.
Performance and Risk
The ETF has gained about 1.71% so far this year and is up roughly 9.50% in the last one year (as of 02/07/2024). In the past 52-week period, it has traded between $76.64 and $92.08.
FEX has a beta of 1.06 and standard deviation of 17.14% for the trailing three-year period, which makes the fund a medium risk choice in the space. With about 376 holdings, it effectively diversifies company-specific risk.
First Trust Large Cap Core AlphaDEX ETF is a reasonable option for investors seeking to outperform the Style Box - Large Cap Blend segment of the market. However, there are other ETFs in the space which investors could consider.
IShares Core S&P 500 ETF (IVV) tracks S&P 500 Index and the SPDR S&P 500 ETF (SPY) tracks S&P 500 Index. IShares Core S&P 500 ETF has $428.36 billion in assets, SPDR S&P 500 ETF has $491.26 billion. IVV has an expense ratio of 0.03% and SPY 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 Style Box - Large Cap Blend.
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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