Making its debut on 05/08/2007, smart beta exchange traded fund First Trust Health Care AlphaDEX ETF (FXH) provides investors broad exposure to the Health Care 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.
Investors who believe in market efficiency should consider market cap indexes, as they replicate market returns in a low-cost, convenient, and transparent way.
But, there are some investors who would rather invest in smart beta funds; these funds track non-cap weighted strategies, and are a strong option for those who prefer choosing great stocks in order to beat the market.
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.
This area offers many different investment choices, such as simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies; however, not all of these strategies can deliver superior results.
Fund Sponsor & Index
Managed by First Trust Advisors, FXH has amassed assets over $1.18 billion, making it one of the larger ETFs in the Health Care ETFs. FXH, before fees and expenses, seeks to match the performance of the StrataQuant Health Care Index.
The StrataQuant Health Care Index employs the AlphaDEX stock selection methodology to select stocks from the Russell 1000 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.
Annual operating expenses for this ETF are 0.62%, making it on par with most peer products in the space.
It's 12-month trailing dividend yield comes in at 0.43%.
Sector Exposure and Top Holdings
While ETFs offer diversified exposure, which minimizes single stock risk, a deep look into a fund's holdings is a valuable exercise. And, most ETFs are very transparent products that disclose their holdings on a daily basis.
This ETF has heaviest allocation in the Healthcare sector - about 100% of the portfolio.
Looking at individual holdings, United Therapeutics Corporation (UTHR) accounts for about 2.39% of total assets, followed by Premier, Inc. (class A) (PINC) and Insulet Corporation (PODD).
FXH's top 10 holdings account for about 22.92% of its total assets under management.
Performance and Risk
The ETF has gained about 7.44% so far this year and was up about 14.26% in the last one year (as of 12/03/2024). In the past 52-week period, it has traded between $97.16 and $113.83.
The ETF has a beta of 0.76 and standard deviation of 16.58% for the trailing three-year period, making it a medium risk choice in the space. With about 79 holdings, it effectively diversifies company-specific risk.
Alternatives
First Trust Health Care AlphaDEX ETF is an excellent option for investors seeking to outperform the Health Care ETFs segment of the market. There are other ETFs in the space which investors could consider as well.
Vanguard Health Care ETF (VHT) tracks MSCI US Investable Market Health Care 25/50 Index and the Health Care Select Sector SPDR ETF (XLV) tracks Health Care Select Sector Index. Vanguard Health Care ETF has $17.82 billion in assets, Health Care Select Sector SPDR ETF has $39.41 billion. VHT has an expense ratio of 0.10% and XLV 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 Health Care 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 Health Care AlphaDEX ETF (FXH): ETF Research Reports
United Therapeutics Corporation (UTHR) : Free Stock Analysis Report
Insulet Corporation (PODD) : Free Stock Analysis Report
Health Care Select Sector SPDR ETF (XLV): ETF Research Reports
Vanguard Health Care ETF (VHT): ETF Research Reports
Premier, Inc. (PINC) : Free Stock Analysis Report
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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.
