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Is First Trust Consumer Discretionary AlphaDEX ETF (FXD) a Strong ETF Right Now?

Launched on 05/08/2007, the First Trust Consumer Discretionary AlphaDEX ETF (FXD) is a smart beta exchange traded fund offering broad exposure to the Consumer Discretionary ETFs category of the market.

What Are Smart Beta ETFs?

For a long time now, the ETF industry has been flooded with products based on market capitalization weighted indexes, which are designed to represent the broader market or a particular market segment.

Because market cap weighted indexes provide a low-cost, convenient, and transparent way of replicating market returns, they work well for investors who believe in market efficiency.

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.

Even though this space provides many choices to investors--think one of the simplest methodologies like equal-weighting and more complicated ones like fundamental and volatility/momentum based weighting--not all have been able to deliver first-rate results.

Fund Sponsor & Index

Managed by First Trust Advisors, FXD has amassed assets over $324.80 million, making it one of the larger ETFs in the Consumer Discretionary ETFs. 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.

Cost & Other Expenses

Cost is an important factor in selecting the right ETF, and cheaper funds can significantly outperform their more expensive cousins if all other fundamentals are the same.

Operating expenses on an annual basis are 0.61% for this ETF, which makes it on par with most peer products in the space.

It's 12-month trailing dividend yield comes in at 0%.

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 73.60% of the portfolio, the fund has heaviest allocation to the Consumer Discretionary sector; Telecom and Industrials round out the top three.

When you look at individual holdings, Dick's Sporting Goods, Inc. (DKS) accounts for about 1.75% of the fund's total assets, followed by Ford Motor Company (F) and Capri Holdings Limited (CPRI).

The top 10 holdings account for about 15.18% of total assets under management.

Performance and Risk

So far this year, FXD has lost about -30.24%, and is down about -26.37% in the last one year (as of 10/03/2022). During this past 52-week period, the fund has traded between $43.02 and $65.57.

The fund has a beta of 1.30 and standard deviation of 32.82% for the trailing three-year period, which makes FXD a medium risk choice in this particular space. With about 123 holdings, it effectively diversifies company-specific risk.

Alternatives

First Trust Consumer Discretionary AlphaDEX ETF is a reasonable option for investors seeking to outperform the Consumer Discretionary ETFs segment of the market. However, there are other ETFs in the space which investors could consider.

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 $4.25 billion in assets, Consumer Discretionary Select Sector SPDR ETF has $14.30 billion. VCR has an expense ratio of 0.10% and XLY charges 0.10%.

Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Consumer Discretionary ETFs.

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
 
Ford Motor Company (F): Free Stock Analysis Report
 
DICK'S Sporting Goods, Inc. (DKS): Free Stock Analysis Report
 
Consumer Discretionary Select Sector SPDR ETF (XLY): ETF Research Reports
 
Vanguard Consumer Discretionary ETF (VCR): ETF Research Reports
 
Capri Holdings Limited (CPRI): Free Stock Analysis Report
 
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