Designed to provide broad exposure to the Health Care ETFs category of the market, the First Trust Health Care AlphaDEX ETF (FXH) is a smart beta exchange traded fund launched on 05/08/2007.
What Are Smart Beta ETFs?
Market cap weighted indexes were created to reflect the market, or a specific segment of the market, and the ETF industry has traditionally been dominated by products based on this strategy.
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.
There are some investors, though, who think it's possible to beat the market with great stock selection; this group likely invests in another class of funds known as smart beta, which track non-cap weighted strategies.
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.
While this space offers a number of choices to investors, including simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies, not all these strategies have been able to deliver superior results.
Fund Sponsor & Index
The fund is managed by First Trust Advisors. FXH has been able to amass assets over $919.03 million, making it one of the larger ETFs in the Health Care ETFs. Before fees and expenses, FXH seeks to match the performance of the StrataQuant Health Care Index.
The StrataQuant Health Care Index employs the AlphaDEX stock selection methodology to select stocks from the Russell 1000 Index.
Cost & Other Expenses
Since cheaper funds tend to produce better results than more expensive funds, assuming all other factors remain equal, it is important for investors to pay attention to an ETF's expense ratio.
Operating expenses on an annual basis are 0.60% for FXH, making it on par with most peer products in the space.
The fund has a 12-month trailing dividend yield of 0.39%.
Sector Exposure and Top Holdings
Even though ETFs offer diversified exposure which minimizes single stock risk, it is still important to look into a fund's holdings before investing. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.
For FXH, it has heaviest allocation in the Healthcare sector --about 100% of the portfolio.
When you look at individual holdings, Royalty Pharma Plc (class A) (RPRX) accounts for about 2.88% of the fund's total assets, followed by Doximity, Inc. (class A) (DOCS) and Intra-Cellular Therapies, Inc. (ITCI).
The top 10 holdings account for about 24.32% of total assets under management.
Performance and Risk
So far this year, FXH has lost about -4.33%, and is down about -7.13% in the last one year (as of 04/10/2025). During this past 52-week period, the fund has traded between $93.64 and $113.83.
The fund has a beta of 0.81 and standard deviation of 16.53% for the trailing three-year period, which makes FXH a medium risk choice in this particular space. With about 77 holdings, it effectively diversifies company-specific risk.
Alternatives
First Trust Health Care AlphaDEX ETF is a reasonable option for investors seeking to outperform the Health Care ETFs segment of the market. However, there are other ETFs in the space which investors could consider.
Vanguard Health Care ETF (VHT) tracks MSCI US Investable Market Health Care 25/50 Index and the Health Care Select Sector SPDR ETF (XLV) tracks Health Care Select Sector Index. Vanguard Health Care ETF has $15.60 billion in assets, Health Care Select Sector SPDR ETF has $36.03 billion. VHT has an expense ratio of 0.09% and XLV charges 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 Health Care 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 Health Care AlphaDEX ETF (FXH): ETF Research Reports Royalty Pharma PLC (RPRX): Free Stock Analysis Report Health Care Select Sector SPDR ETF (XLV): ETF Research Reports Vanguard Health Care ETF (VHT): ETF Research Reports Doximity, Inc. (DOCS): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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