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Should You Invest in the First Trust Consumer Discretionary AlphaDEX ETF (FXD)?

If you're interested in broad exposure to the Consumer Discretionary - Broad segment of the equity market, look no further than the First Trust Consumer Discretionary AlphaDEX ETF (FXD), a passively managed exchange traded fund launched on 05/08/2007.

While an excellent vehicle for long term investors, passively managed ETFs are a popular choice among institutional and retail investors due to their low costs, transparency, flexibility, and tax efficiency.

Sector ETFs are also funds of convenience, offering many ways to gain low risk and diversified exposure to a broad group of companies in particular sectors. Consumer Discretionary - Broad is one of the 16 broad Zacks sectors within the Zacks Industry classification. It is currently ranked 10, placing it in bottom 38%.

Index Details

The fund is sponsored by First Trust Advisors. It has amassed assets over $1.07 billion, making it one of the largest ETFs attempting to match the performance of the Consumer Discretionary - Broad segment of the equity market. FXD seeks to match the performance of the StrataQuant Consumer Discretionary Index before fees and expenses.

The StrataQuant Consumer Discretionary Index employs the AlphaDEX stock selection methodology to select stocks from the Russell 1000 Index.

Costs

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 counterparts, other things remaining 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 1.07%.

Sector Exposure and Top Holdings

ETFs offer a diversified exposure and thus minimize single stock risk but it is still important to delve into a fund's holdings before investing. Most ETFs are very transparent products and many disclose their holdings on a daily basis.

This ETF has heaviest allocation in the Consumer Discretionary sector--about 71.40% of the portfolio. Industrials and Telecom round out the top three.

Looking at individual holdings, Tesla, Inc. (TSLA) accounts for about 2.70% of total assets, followed by Carvana Co. (CVNA) and Wayfair Inc. (class A) (W).

The top 10 holdings account for about 18.07% of total assets under management.

Performance and Risk

The ETF has lost about -5.90% and is down about -1.46% so far this year and in the past one year (as of 09/14/2020), respectively. FXD has traded between $23.18 and $45.94 during this last 52-week period.

The ETF has a beta of 1.42 and standard deviation of 29.23% for the trailing three-year period, making it a medium risk choice in the space. With about 119 holdings, it effectively diversifies company-specific risk.

Alternatives

First Trust Consumer Discretionary AlphaDEX ETF carries a Zacks ETF Rank of 3 (Hold), which is based on expected asset class return, expense ratio, and momentum, among other factors. Thus, FXD is a reasonable option for those seeking exposure to the Consumer Discretionary ETFs area of the market. Investors might also want to consider some other ETF options in the space.

Vanguard Consumer Discretionary ETF (VCR) tracks MSCI US Investable Market Consumer Discretionary 25/50 Index and the Consumer Discretionary Select Sector SPDR ETF (XLY) tracks Consumer Discretionary Select Sector Index. Vanguard Consumer Discretionary ETF has $3.69 billion in assets, Consumer Discretionary Select Sector SPDR ETF has $15.58 billion. VCR has an expense ratio of 0.10% and XLY charges 0.13%.

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 Consumer Discretionary AlphaDEX ETF (FXD): ETF Research Reports
 
Tesla, Inc. (TSLA): Free Stock Analysis Report
 
Wayfair Inc. (W): Free Stock Analysis Report
 
Vanguard Consumer Discretionary ETF (VCR): ETF Research Reports
 
Consumer Discretionary Select Sector SPDR ETF (XLY): ETF Research Reports
 
Carvana Co. (CVNA): Free Stock Analysis Report
 
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