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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?

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 work great for investors who believe in market efficiency. They provide 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.

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

The fund is sponsored by First Trust Advisors. It has amassed assets over $1.19 billion, making it one of the larger ETFs in the Style Box - Large Cap Blend. FEX, before fees and expenses, 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

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 0.60%, making it on par with most peer products in the space.

The fund has a 12-month trailing dividend yield of 1.20%.

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.

Representing 17% of the portfolio, the fund has heaviest allocation to the Industrials sector; Financials and Information Technology round out the top three.

Taking into account individual holdings, Super Micro Computer, Inc. (SMCI) accounts for about 1.33% of the fund's total assets, followed by Nvidia Corporation (NVDA) and Deckers Outdoor Corporation (DECK).

FEX's top 10 holdings account for about 6.18% of its total assets under management.

Performance and Risk

The ETF has added about 7.10% and was up about 20.21% so far this year and in the past one year (as of 06/12/2024), respectively. FEX has traded between $76.85 and $99.24 during this last 52-week period.

The fund has a beta of 1.06 and standard deviation of 16.83% 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.

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 $464.32 billion in assets, SPDR S&P 500 ETF has $536.56 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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NVIDIA Corporation (NVDA) : Free Stock Analysis Report

Deckers Outdoor Corporation (DECK) : Free Stock Analysis Report

SPDR S&P 500 ETF (SPY): ETF Research Reports

Super Micro Computer, Inc. (SMCI) : Free Stock Analysis Report

Vanguard S&P 500 ETF (VOO): ETF Research Reports

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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.