News

Launched on 05/08/2007, the First Trust Large Cap Core AlphaDEX ETF (FEX) is a smart beta exchange traded fund offering broad exposure to the Style Box - Large Cap Blend 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.

A good option for investors who believe in market efficiency, market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns.

However, some investors believe in the possibility of beating the market through exceptional stock selection, and choose a different type of fund that tracks non-cap weighted strategies: smart beta.

Based on specific fundamental characteristics, or a combination of such, these indexes attempt to pick stocks that have a better chance of risk-return performance.

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

FEX is managed by First Trust Advisors, and this fund has amassed over $1.45 billion, which makes it one of the larger ETFs in the Style Box - Large Cap Blend. Before fees and expenses, this particular fund seeks to match the performance of the Nasdaq AlphaDEX Large Cap Core Index.

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

Since cheaper funds tend to produce better results than more expensive funds, assuming all other factors remain equal, it is important for investors to pay attention to an ETF's expense ratio.

With on par with most peer products in the space, this ETF has annual operating expenses of 0.60%.

It's 12-month trailing dividend yield comes in at 1.18%.

Sector Exposure and Top Holdings

Most ETFs are very transparent products, and disclose their holdings on a daily basis. ETFs also offer diversified exposure, which minimizes single stock risk, though it's still important for investors to research a fund's holdings.

FEX's heaviest allocation is in the Financials sector, which is about 18% of the portfolio. Its Industrials and Information Technology round out the top three.

Looking at individual holdings, Deckers Outdoor Corporation (DECK) accounts for about 0.56% of total assets, followed by Uber Technologies, Inc. (UBER) and Royal Caribbean Cruises Ltd. (RCL).

FEX's top 10 holdings account for about 5.31% of its total assets under management.

Performance and Risk

The ETF has gained about 8.91% so far this year and is up roughly 24.54% in the last one year (as of 04/10/2024). In the past 52-week period, it has traded between $76.85 and $99.24.

The fund has a beta of 1.06 and standard deviation of 16.88% for the trailing three-year period, which makes FEX a medium risk choice in this particular space. With about 376 holdings, it effectively diversifies company-specific risk.

Alternatives

First Trust Large Cap Core AlphaDEX ETF is a reasonable option for investors seeking to outperform the Style Box - Large Cap Blend segment of the market. However, there are other ETFs in the space which investors could consider.

IShares Core S&P 500 ETF (IVV) tracks S&P 500 Index and the SPDR S&P 500 ETF (SPY) tracks S&P 500 Index. IShares Core S&P 500 ETF has $451.39 billion in assets, SPDR S&P 500 ETF has $529.27 billion. IVV 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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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.