Should You Invest in the First Trust Materials AlphaDEX ETF (FXZ)?

The First Trust Materials AlphaDEX ETF (FXZ) was launched on 05/08/2007, and is a passively managed exchange traded fund designed to offer broad exposure to the Materials - Broad segment of the equity market.

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. Materials - Broad is one of the 16 broad Zacks sectors within the Zacks Industry classification. It is currently ranked 2, placing it in top 13%.

Index Details

The fund is sponsored by First Trust Advisors. It has amassed assets over $1.95 billion, making it one of the larger ETFs attempting to match the performance of the Materials - Broad segment of the equity market. FXZ seeks to match the performance of the StrataQuant Materials Index before fees and expenses.

The StrataQuant Materials 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.

Costs

Investors should also pay attention to an ETF's expense ratio. Lower cost products will produce better results than those with a higher cost, assuming all other metrics remain the same.

Annual operating expenses for this ETF are 0.64%, making it one of the more expensive products in the space.

It has a 12-month trailing dividend yield of 0.88%.

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 Materials sector--about 93.60% of the portfolio.

Looking at individual holdings, United States Steel Corporation (X) accounts for about 6.15% of total assets, followed by Steel Dynamics, Inc. (STLD) and Nucor Corporation (NUE).

The top 10 holdings account for about 48.38% of total assets under management.

Performance and Risk

The ETF has added roughly 20.24% and was up about 31.27% so far this year and in the past one year (as of 04/20/2022), respectively. FXZ has traded between $53.74 and $74.42 during this last 52-week period.

The ETF has a beta of 1.22 and standard deviation of 31.48% for the trailing three-year period, making it a medium risk choice in the space. With about 38 holdings, it has more concentrated exposure than peers.

Alternatives

First Trust Materials AlphaDEX ETF holds a Zacks ETF Rank of 1 (Strong Buy), which is based on expected asset class return, expense ratio, and momentum, among other factors. Because of this, FXZ is a great option for investors seeking exposure to the Materials ETFs segment of the market. There are other additional ETFs in the space that investors could consider as well.

Materials Select Sector SPDR ETF (XLB) tracks Materials Select Sector Index and the FlexShares Morningstar Global Upstream Natural Resources ETF (GUNR) tracks Morningstar Global Upstream Natural Resources Index. Materials Select Sector SPDR ETF has $8.03 billion in assets, FlexShares Morningstar Global Upstream Natural Resources ETF has $8.73 billion. XLB has an expense ratio of 0.10% and GUNR charges 0.46%.

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