Exploring the Strength of First Trust Technology AlphaDEX ETF
Understanding the First Trust Technology AlphaDEX ETF
Launched in 2007, the First Trust Technology AlphaDEX ETF FXL emerges as a compelling option within the Technology ETFs spectrum. This smart beta ETF aims to provide investors with broad exposure to this dynamic sector.
What Sets Smart Beta ETFs Apart?
The ETF landscape has largely consisted of products focusing on market capitalization weights. These traditional ETFs mirror broader market returns in a straightforward manner, appealing to investors seeking low-cost and transparent options. However, those convinced that market inefficiencies exist might gravitate toward smart beta ETFs, which strive to outperform by utilizing unique stock selection methodologies.
Smart beta ETFs, like FXL, diversify beyond capitalization weighting, emphasizing stocks with strong risk-return characteristics based on various fundamental metrics. Metrics such as equal weighting, fundamental weighting, and volatility momentum underpin many strategies aimed at securing better performance.
Management and Index Strategy
First Trust Advisors manages FXL, which has amassed over $1.24 billion in assets. This places it among the significant players within the Technology ETF landscape. The ETF targets performance aligned with the StrataQuant Technology Index, a modified equal-dollar weighted index crafted to optimize stock selection from the Russell 1000 Index using the AlphaDEX screening technique.
Evaluating Cost Structures
Expense ratios significantly impact an ETF's performance potential. With annual expenses at 0.62%, FXL stands competitively against its peers. Additionally, it boasts a 12-month trailing dividend yield of 0.41%, adding another layer of potential return for investors.
Exploring Sector Allocation and Holdings
Examining an ETF's holdings is critical for investment decision-making. FXL's portfolio is heavily concentrated in the Information Technology sector, accounting for approximately 80.90%. Other sectors, such as Industrials and Telecom, complement its aggressive tech exposure.
Noteworthy individual holdings include Palantir Technologies Inc. (class A) PLTR, contributing about 2.06% of total assets, alongside significant positions in Godaddy Inc. (class A) and Cognizant Technology Solutions Corporation CTSH. Collectively, the top 10 holdings make up 18.47% of FXL's total assets, indicating a concentrated investment strategy.
Performance Metrics and Risk Assessment
In terms of performance, the First Trust Technology AlphaDEX ETF has experienced a year-to-date decline of approximately -0.82%. However, it has shown resilience over the past 12 months, achieving a growth rate of 9.32%. Throughout the previous year, FXL's trading range fluctuated between $104.07 and $142.51.
Risk factors are also essential to consider. With a beta of 1.14 and a standard deviation of 25.32% over a three-year trailing period, FXL is categorized as a medium risk investment. The ETF's structure, with around 103 holdings, effectively mitigates company-specific risks.
Considering Alternative Options
The First Trust Technology AlphaDEX ETF stands out for those aiming to outperform the technology sector. However, investors have other options worth exploring as well.
For instance, the Technology Select Sector SPDR ETF XLK tracks the Technology Select Sector Index, while the Vanguard Information Technology ETF VGT follows the MSCI US Investable Market Information Technology 25/50 Index. XLK manages about $64.13 billion in assets, contrasted with VGT's $70.17 billion, showcasing substantial financial backing. XLK boasts an expense ratio of 0.09%, while VGT has a 0.10% charge.
For investors leaning towards lower-risk and cost-effective alternatives, traditional market cap-weighted ETFs designed to track tech sector performance present themselves as viable options.
Frequently Asked Questions
What is the First Trust Technology AlphaDEX ETF?
The First Trust Technology AlphaDEX ETF is a smart beta ETF seeking to provide broad exposure to the technology sector with a unique stock selection strategy.
What is the expense ratio of FXL?
FXL has an annual operating expense ratio of 0.62%, which is competitive within its category.
How has FXL performed recently?
The ETF is down approximately -0.82% year-to-date but has gained about 9.32% over the last 12 months.
Who manages the First Trust Technology AlphaDEX ETF?
First Trust Advisors is responsible for managing the FXL ETF.
What are some alternatives to FXL?
Alternatives include the Technology Select Sector SPDR ETF (XLK) and the Vanguard Information Technology ETF (VGT), both of which have significant assets and lower expense ratios.
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Disclaimer: The content of this article is solely for general informational purposes only; it does not represent legal, financial, or investment advice. Investors Hangout does not offer financial advice; the author is not a licensed financial advisor. Consult a qualified advisor before making any financial or investment decisions based on this article. The author's interpretation of publicly available data shapes the opinions presented here; as a result, they should not be taken as advice to purchase, sell, or hold any securities mentioned or any other investments. The author does not guarantee the accuracy, completeness, or timeliness of any material, providing it "as is." Information and market conditions may change; past performance is not indicative of future outcomes. If any of the material offered here is inaccurate, please contact us for corrections.
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