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?
Market cap weighted indexes were created to reflect the market, or a specific segment of the market, and the ETF industry has traditionally been dominated by products based on this strategy.
Market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns, and are a good option 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.
Methodologies like equal-weighting, one of the simplest options out there, fundamental weighting, and volatility/momentum based weighting are all choices offered to investors in this space, but not all of them can deliver superior returns.
Fund Sponsor & Index
FEX is managed by First Trust Advisors, and this fund has amassed over $1.27 billion, which makes it one of the larger ETFs in the Style Box - Large Cap Blend. FEX seeks to match the performance of the Nasdaq AlphaDEX Large Cap Core Index before fees and expenses.
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
For ETF investors, expense ratios are an important factor when considering a fund's return; in the long-term, cheaper funds actually have the ability to outperform their more expensive cousins if all other things remain the same.
Operating expenses on an annual basis are 0.60% for FEX, making it on par with most peer products in the space.
The fund has a 12-month trailing dividend yield of 1.58%.
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 18.90% of the portfolio. Its Industrials and Information Technology round out the top three.
Taking into account individual holdings, Applovin Corp. (class A) (APP) accounts for about 1.18% of the fund's total assets, followed by Palantir Technologies Inc. (class A) (PLTR) and United Airlines Holdings, Inc. (UAL).
FEX's top 10 holdings account for about 6.67% of its total assets under management.
Performance and Risk
Year-to-date, the First Trust Large Cap Core AlphaDEX ETF has added about 16.17% so far, and is up about 16.08% over the last 12 months (as of 12/20/2024). FEX has traded between $88.44 and $112.88 in this past 52-week period.
FEX has a beta of 1.05 and standard deviation of 16.85% 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.
Alternatives
First Trust Large Cap Core AlphaDEX ETF is an excellent option for investors seeking to outperform the Style Box - Large Cap Blend segment of the market. There are other ETFs in the space which investors could consider as well.
Vanguard S&P 500 ETF (VOO) tracks S&P 500 Index and the SPDR S&P 500 ETF (SPY) tracks S&P 500 Index. Vanguard S&P 500 ETF has $574.68 billion in assets, SPDR S&P 500 ETF has $638.67 billion. VOO 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.
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 Large Cap Core AlphaDEX ETF (FEX): ETF Research Reports
United Airlines Holdings Inc (UAL) : Free Stock Analysis Report
SPDR S&P 500 ETF (SPY): ETF Research Reports
AppLovin Corporation (APP) : Free Stock Analysis Report
Vanguard S&P 500 ETF (VOO): ETF Research Reports
Palantir Technologies Inc. (PLTR) : 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.
