Should You Invest in the First Trust Consumer Discretionary AlphaDEX ETF (FXD)?

Looking for broad exposure to the Consumer Discretionary - Broad segment of the equity market? You should consider the First Trust Consumer Discretionary AlphaDEX ETF (FXD), a passively managed exchange traded fund launched on 05/08/2007.

Passively managed ETFs are becoming increasingly popular with institutional as well as retail investors due to their low cost, transparency, flexibility and tax efficiency. They are excellent vehicles for long term investors.

Sector ETFs also provide investors access to a broad group of companies in particular sectors that offer low risk and diversified exposure. Consumer Discretionary - Broad is one of the 16 broad Zacks sectors within the Zacks Industry classification. It is currently ranked 11, placing it in bottom 31%.

Index Details

The fund is sponsored by First Trust Advisors. It has amassed assets over $1.53 billion, making it one of the largest ETFs attempting to match the performance of the Consumer Discretionary - Broad segment of the equity market. FXD seeks to match the performance of the StrataQuant Consumer Discretionary Index before fees and expenses.

The StrataQuant Consumer Discretionary Index employs the AlphaDEX stock selection methodology to select stocks from the Russell 1000 Index.

Costs

Cost is an important factor in selecting the right ETF, and cheaper funds can significantly outperform their more expensive counterparts if all other fundamentals are the same.

Annual operating expenses for this ETF are 0.61%, making it on par with most peer products in the space.

It has a 12-month trailing dividend yield of 0.67%.

Sector Exposure and Top Holdings

Even though ETFs offer diversified exposure which minimizes single stock risk, it is still important to look into a fund's holdings before investing. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.

This ETF has heaviest allocation in the Consumer Discretionary sector--about 77.40% of the portfolio. Industrials and Telecom round out the top three.

Looking at individual holdings, Macy's, Inc. (M) accounts for about 2.08% of total assets, followed by Uber Technologies, Inc. (UBER) and D.r. Horton, Inc. (DHI).

The top 10 holdings account for about 16.49% of total assets under management.

Performance and Risk

The ETF has gained about 4.66% and was up about 25.97% so far this year and in the past one year (as of 03/18/2024), respectively. FXD has traded between $46.79 and $62.64 during this last 52-week period.

The ETF has a beta of 1.37 and standard deviation of 23.33% for the trailing three-year period, making it a medium risk choice in the space. With about 122 holdings, it effectively diversifies company-specific risk.

Alternatives

First Trust Consumer Discretionary AlphaDEX ETF carries a Zacks ETF Rank of 3 (Hold), which is based on expected asset class return, expense ratio, and momentum, among other factors. Thus, FXD is a reasonable option for those seeking exposure to the Consumer Discretionary ETFs area of the market. Investors might also want to consider some other ETF options in the space.

Vanguard Consumer Discretionary ETF (VCR) tracks MSCI US Investable Market Consumer Discretionary 25/50 Index and the Consumer Discretionary Select Sector SPDR ETF (XLY) tracks Consumer Discretionary Select Sector Index. Vanguard Consumer Discretionary ETF has $5.46 billion in assets, Consumer Discretionary Select Sector SPDR ETF has $19.62 billion. VCR has an expense ratio of 0.10% and XLY charges 0.09%.

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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First Trust Consumer Discretionary AlphaDEX ETF (FXD): ETF Research Reports

Macy's, Inc. (M) : Free Stock Analysis Report

D.R. Horton, Inc. (DHI) : Free Stock Analysis Report

Consumer Discretionary Select Sector SPDR ETF (XLY): ETF Research Reports

Vanguard Consumer Discretionary ETF (VCR): ETF Research Reports

Uber Technologies, Inc. (UBER) : Free Stock Analysis Report

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Zacks Investment Research

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

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