The First Trust Materials AlphaDEX ETF (FXZ) was launched on 05/08/2007, and is a smart beta exchange traded fund designed to offer broad exposure to the Materials ETFs category of the market.
What Are Smart Beta ETFs?
Products that are based on market cap weighted indexes, which are strategies designed to reflect a specific market segment or the market as a whole, have traditionally dominated the ETF industry.
Market cap weighted indexes work great for investors who believe in market efficiency. They provide a low-cost, convenient and transparent way of replicating market returns.
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.
These indexes attempt to select stocks that have better chances of risk-return performance, based on certain fundamental characteristics or a combination of such characteristics.
This area offers many different investment choices, such as simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies; however, not all of these strategies can deliver superior results.
Fund Sponsor & Index
The fund is managed by First Trust Advisors. FXZ has been able to amass assets over $215.12 million, making it one of the average sized ETFs in the Materials ETFs. This particular fund, before fees and expenses, seeks to match the performance of the StrataQuant Materials Index.
The StrataQuant Materials Index is a modified equal-dollar weighted index designed by the AMEX to objectively identify and select stocks from the Russell 1000 Index that may generate positive alpha relative to traditional passive style indices through the use of the AlphaDEX screening methodology.
Cost & Other Expenses
Investors should also pay attention to an ETF's expense ratio. Lower cost products will produce better results than those with a higher cost, assuming all other metrics remain the same.
Operating expenses on an annual basis are 0.61% for FXZ, making it on par with most peer products in the space.
It has a 12-month trailing dividend yield of 1.83%.
Sector Exposure and Top Holdings
While ETFs offer diversified exposure, which minimizes single stock risk, a deep look into a fund's holdings is a valuable exercise. And, most ETFs are very transparent products that disclose their holdings on a daily basis.
Representing 83.9% of the portfolio, the fund has heaviest allocation to the Materials sector; Industrials and Energy round out the top three.
Taking into account individual holdings, Eastman Chemical Company (EMN) accounts for about 4.84% of the fund's total assets, followed by Alcoa Corporation (AA) and Mueller Industries, Inc. (MLI).
Its top 10 holdings account for approximately 44.65% of FXZ's total assets under management.
Performance and Risk
So far this year, FXZ has gained about 3.53%, and is down about -10.41% in the last one year (as of 07/31/2025). During this past 52-week period, the fund has traded between $46.76 and $67.64.
The ETF has a beta of 1.12 and standard deviation of 23.42% for the trailing three-year period, making it a medium risk choice in the space. With about 38 holdings, it has more concentrated exposure than peers .
Alternatives
First Trust Materials AlphaDEX ETF is a reasonable option for investors seeking to outperform the Materials ETFs segment of the market. However, there are other ETFs in the space which investors could consider.
FlexShares Morningstar Global Upstream Natural Resources ETF (GUNR) tracks Morningstar Global Upstream Natural Resources Index and the Materials Select Sector SPDR ETF (XLB) tracks Materials Select Sector Index. FlexShares Morningstar Global Upstream Natural Resources ETF has $4.77 billion in assets, Materials Select Sector SPDR ETF has $5.29 billion. GUNR has an expense ratio of 0.46% and XLB changes 0.08%.
Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Materials 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 Materials AlphaDEX ETF (FXZ): ETF Research ReportsThis article originally published on Zacks Investment Research (zacks.com).
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