LLaunched on 05/08/2007, the First Trust Technology AlphaDEX ETF (FXL) is a smart beta exchange-traded fund offering broad exposure to the technology ETF category of the market.
What are Smart Beta ETFs?
The ETF industry has traditionally been dominated by products based on market-cap-weighted indices that are designed to represent the market or a particular segment of the market.
Investors who believe in market efficiency should consider market capitalization indices because they replicate market returns in an inexpensive, convenient, and transparent way.
On the other hand, some investors who believe it is possible to beat the market through superior stock selection choose to invest in another class of funds that follow non-cap-weighted strategies – commonly known as smart beta. .
Based on specific fundamental characteristics, or a combination thereof, these indices attempt to select stocks that have the best chance of risk-return performance.
Even though this space offers many choices for investors – think of one of the simplest methodologies like equal weighting and the most complicated ones like fundamental weighting and volatility/momentum – not all of them have been able to provide top notch results.
Fund Sponsor and Index
The fund is managed by First Trust Advisors. FXL was able to amass assets of over $1.13 billion, making it one of the largest ETFs among technology ETFs. This particular fund 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 AMEX to objectively identify and select stocks from the Russell 1000 Index that have the potential to generate positive alpha over traditional passive style indices through the use of of the AlphaDEX selection methodology.
Cost and other expenses
For ETF investors, expense ratios are an important factor when considering a fund’s performance; in the long run, cheaper funds actually have the ability to outperform their more expensive cousins if all other things stay the same.
On par with most peer products in the space, this ETF has an annual operating expense of 0.61%.
Its 12-month dividend yield is 0.27%.
Sector exposure and main holdings
Most ETFs are very transparent products and disclose their holdings on a daily basis. ETFs also provide diversified exposure, which minimizes single-stock risk, although it is still important for investors to research a fund’s holdings.
FXL’s heaviest allocation is in the information technology sector, which makes up around 90.80% of the portfolio.
When you look at individual holdings, Advanced Micro Devices, Inc. (AMD) makes up about 2.76% of the fund’s total assets, followed by Amdocs Limited (DOX) and Hewlett Packard Enterprise Company (HPE).
FXL’s top 10 holdings represent approximately 19.03% of its total assets under management.
Performance and risks
The ETF has lost around -24.89% so far this year and is down around -12.69% over the past year (as of 05/19/2022). In the last 52-week period, it traded between $96.81 and $138.38.
FXL has a beta of 1.18 and a standard deviation of 30.26% for the three-year period, making the fund a medium-risk pick in the space. With approximately 108 holdings, it effectively diversifies company-specific risks.
The First Trust Technology AlphaDEX ETF is a great option for investors looking to outperform the technology ETF segment of the market. There are other ETFs in the space that investors might also consider.
Technology Select Sector SPDR ETF (XLK) tracks the Technology Select Sector Index and the Vanguard Information Technology ETF (VGT) tracks the MSCI US Investable Market Information Technology 25/50 Index. Technology Select Sector SPDR ETF has $39.30 billion in assets, Vanguard Information Technology ETF has $41.64 billion. XLK has an expense ratio of 0.10% and VGT charges 0.10%.
Investors looking for cheaper, lower-risk options should consider traditional market-cap-weighted ETFs that aim to match the returns of technology ETFs.
To learn more about this product and other ETFs, find products that fit your investment goals, and read articles about the latest developments in the ETF investment universe, please visit Zacks ETF Center.
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First Trust Technology AlphaDEX ETF (FXL): ETF Research Reports
Advanced Micro Devices, Inc. (AMD): Free Inventory Analysis Report
Amdocs Limited (DOX): Free Stock Analysis Report
Technology Select Sector SPDR ETF (XLK): ETF Research Reports
Hewlett Packard Enterprise Company (HPE): Free Inventory Analysis Report
Vanguard Information Technology ETF (VGT): 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.