The First Trust Technology AlphaDEX ETF (FXL) was launched on 05/08/2007, and is a smart beta exchange traded fund designed to offer broad exposure to the Technology 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.
Non-cap weighted indexes try to choose stocks that have a better chance of risk-return performance, which is based on specific fundamental characteristics, or a mix of other such characteristics.
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
FXL is managed by First Trust Advisors, and this fund has amassed over $1.44 billion, which makes it one of the larger ETFs in the Technology ETFs. FXL seeks to match the performance of the StrataQuant Technology Index before fees and expenses.
The StrataQuant Technology 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
When considering an ETF's total return, expense ratios are an important factor. And, cheaper funds can significantly outperform their more expensive cousins in the long term if all other factors remain equal.
Operating expenses on an annual basis are 0.60% for this ETF, which makes it on par with most peer products in the space.
It's 12-month trailing dividend yield comes in at 0.11%.
Sector Exposure and Top Holdings
It is important to delve into an ETF's holdings before investing despite the many upsides to these kinds of funds like diversified exposure, which minimizes single stock risk. And, most ETFs are very transparent products that disclose their holdings on a daily basis.
This ETF has heaviest allocation in the Information Technology sector - about 82.40% of the portfolio. Industrials and Telecom round out the top three.
Taking into account individual holdings, Applovin Corp. (class A) (APP) accounts for about 3.86% of the fund's total assets, followed by Palantir Technologies Inc. (class A) (PLTR) and Toast, Inc. (class A) (TOST).
Its top 10 holdings account for approximately 21.2% of FXL's total assets under management.
Performance and Risk
Year-to-date, the First Trust Technology AlphaDEX ETF return is roughly 2.54% so far, and is up about 19.60% over the last 12 months (as of 01/17/2025). FXL has traded between $122.48 and $158.26 in this past 52-week period.
The fund has a beta of 1.14 and standard deviation of 24.93% for the trailing three-year period, which makes FXL a medium risk choice in this particular space. With about 104 holdings, it effectively diversifies company-specific risk.
Alternatives
First Trust Technology AlphaDEX ETF is an excellent option for investors seeking to outperform the Technology ETFs segment of the market. There are other ETFs in the space which investors could consider as well.
Technology Select Sector SPDR ETF (XLK) tracks Technology Select Sector Index and the Vanguard Information Technology ETF (VGT) tracks MSCI US Investable Market Information Technology 25/50 Index. Technology Select Sector SPDR ETF has $72.41 billion in assets, Vanguard Information Technology ETF has $84.78 billion. XLK has an expense ratio of 0.09% and VGT 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 Technology 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 Technology AlphaDEX ETF (FXL): ETF Research Reports
Technology Select Sector SPDR ETF (XLK): ETF Research Reports
AppLovin Corporation (APP) : Free Stock Analysis Report
Vanguard Information Technology ETF (VGT): ETF Research Reports
Palantir Technologies Inc. (PLTR) : Free Stock Analysis Report
Toast, Inc. (TOST) : 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.
