A smart beta exchange traded fund, the First Trust Large Cap Core AlphaDEX ETF (FEX) debuted on 05/08/2007, and offers broad exposure to the Style Box - Large Cap Blend category of the market.

What Are Smart Beta ETFs?

The ETF industry has traditionally been dominated by products based on market capitalization weighted indexes that are designed to represent the market or a particular segment of the market.

Investors who believe in market efficiency should consider market cap indexes, as they replicate market returns in a low-cost, convenient, and transparent way.

There are some investors, though, who think it's possible to beat the market with great stock selection; this group likely invests in another class of funds known as smart beta, which track 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

The fund is managed by First Trust Advisors. FEX has been able to amass assets over $1.30 billion, making it one of the larger ETFs in the Style Box - Large Cap Blend. Before fees and expenses, FEX 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.

It's 12-month trailing dividend yield comes in at 1.14%.

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.

This ETF has heaviest allocation in the Financials sector - about 17.70% of the portfolio. Industrials and Information Technology round out the top three.

Looking at individual holdings, Vistra Corp. (VST) accounts for about 0.59% of total assets, followed by D.r. Horton, Inc. (DHI) and Iron Mountain Incorporated (IRM).

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

Performance and Risk

So far this year, FEX return is roughly 19.07%, and is up about 31.22% in the last one year (as of 10/18/2024). During this past 52-week period, the fund has traded between $76.85 and $106.54.

The ETF has a beta of 1.05 and standard deviation of 16.87% for the trailing three-year period, making it a medium risk choice in the space. With about 377 holdings, it effectively diversifies company-specific risk.

Alternatives

First Trust Large Cap Core AlphaDEX ETF is an excellent option for investors seeking to outperform the Style Box - Large Cap Blend segment of the market. There are other ETFs in the space which investors could consider as well.

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 $546.48 billion in assets, SPDR S&P 500 ETF has $591.39 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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First Trust Large Cap Core AlphaDEX ETF (FEX): ETF Research Reports

Iron Mountain Incorporated (IRM) : Free Stock Analysis Report

D.R. Horton, Inc. (DHI) : Free Stock Analysis Report

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

iShares Core S&P 500 ETF (IVV): ETF Research Reports

Vistra Corp. (VST) : Free Stock Analysis Report

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