Should You Invest in the First Trust Financials AlphaDEX ETF (FXO)?

The First Trust Financials AlphaDEX ETF (FXO) was launched on 05/08/2007, and is a passively managed exchange traded fund designed to offer broad exposure to the Financials - Broad segment of the equity market.

Retail and institutional investors increasingly turn to passively managed ETFs because they offer low costs, transparency, flexibility, and tax efficiency; these kind of funds are also excellent vehicles for long term investors.

Additionally, sector ETFs offer convenient ways to gain low risk and diversified exposure to a broad group of companies in particular sectors. Financials - Broad is one of the 16 broad Zacks sectors within the Zacks Industry classification. It is currently ranked 2, placing it in top 13%.

Index Details

The fund is sponsored by First Trust Advisors. It has amassed assets over $2.13 billion, making it one of the larger ETFs attempting to match the performance of the Financials - Broad segment of the equity market. FXO seeks to match the performance of the StrataQuant Financials Index before fees and expenses.

The StrataQuant Financials 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.

Costs

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.

Annual operating expenses for this ETF are 0.61%, making it on par with most peer products in the space.

It has a 12-month trailing dividend yield of 2.18%.

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.

This ETF has heaviest allocation in the Financials sector--about 99.70% of the portfolio.

Looking at individual holdings, Markel Group Inc (MKL) accounts for about 1.86% of total assets, followed by Berkshire Hathaway Inc. (class B) (BRK/B) and Lpl Financial Holdings Inc. (LPLA).

The top 10 holdings account for about 17.20% of total assets under management.

Performance and Risk

Year-to-date, the First Trust Financials AlphaDEX ETF has lost about -1.44% so far, and is up about 15.42% over the last 12 months (as of 04/02/2025). FXO has traded between $43.95 and $59 in this past 52-week period.

The ETF has a beta of 1 and standard deviation of 22.59% for the trailing three-year period, making it a medium risk choice in the space. With about 103 holdings, it effectively diversifies company-specific risk.

Alternatives

First Trust Financials AlphaDEX ETF holds a Zacks ETF Rank of 2 (Buy), which is based on expected asset class return, expense ratio, and momentum, among other factors. Because of this, FXO is an excellent option for investors seeking exposure to the Financials ETFs segment of the market. There are other additional ETFs in the space that investors could consider as well.

Vanguard Financials ETF (VFH) tracks MSCI US Investable Market Financials 25/50 Index and the Financial Select Sector SPDR ETF (XLF) tracks Financial Select Sector Index. Vanguard Financials ETF has $11.95 billion in assets, Financial Select Sector SPDR ETF has $51.79 billion. VFH has an expense ratio of 0.09% and XLF charges 0.08%.

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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This article originally published on Zacks Investment Research (zacks.com).

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